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Stockholders' Equity
 9 Months Ended
Sep. 30, 2021
Share-based Payment Arrangement [Abstract]  
Stockholders' Equity Stockholder’s Equity
2021 Equity Incentive Award Plan
In September 2021, the Company adopted the 2021 Equity Incentive Award Plan (the “2021 Plan”), which allows for the granting of stock options and stock purchase rights to the employees, members of the board of directors, and consultants of the Company. A total of 3,303,910 shares of common stock were initially reserved for issuance under the 2021 Plan. Options granted under the 2021 Plan may be either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs may be granted only to the Company’s employees, including officers and directors who are also employees. NSOs may be granted to employees and consultants.
Options under the 2021 Plan may be granted for periods of up to 10 years and at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an ISO and NSO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant.
Granted options for newly hired employees usually vest over four years monthly with a one-year cliff vesting, and follow-on options vest monthly over four years with no cliff vesting. Options granted to consultants have various vesting schedules depending on the underlying consulting arrangement and anticipated period of service. As of September 30, 2021, 3.2 million shares are available for grant under the 2021 Plan.
2008 Stock Plan
The Company ceased making awards under the 2008 Stock Plan upon the effective date of the Company’s IPO. In 2008, the Company adopted the 2008 Stock Plan (the “2008 Plan”), which allows for the granting of stock options and stock purchase rights to the employees, members of the board of directors, and consultants of the
Company. Options granted under the 2008 Plan may be either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs may be granted only to the Company’s employees, including officers and directors who are also employees. NSOs may be granted to employees and consultants. Options granted under the 2008 Plan will start expiring in August 2021. Options outstanding under the 2008 Plan will expire upon forfeiture. As of September 30, 2021, 6.5 million options were outstanding under the 2008 Plan.
A summary of the Company’s stock option activity and related information are as follows (options in thousands):
Nine Months Ended September 30,
2021
OptionsPrice
Outstanding, beginning of period6,507 $3.94 
Granted1,511 8.03 
Exercised(1,307)2.70 
Forfeited(104)6.01 
Outstanding, end of period6,607 5.08 
Vested and expected to vest6,607 5.08 
Exercisable2,885 3.95 
As of September 30, 2021 and December 31, 2020, the aggregate pre-tax intrinsic value of options outstanding and exercisable was $98.7 million and $6.9 million, respectively, and options outstanding were $218.5 million and $9.9 million, respectively. The aggregate pre-tax intrinsic value of options exercised was $5.1 million and $1.8 million during the nine months ended September 30, 2021 and 2020, respectively. The aggregate pre-tax intrinsic value was calculated as the difference between the exercise prices of the underlying options and the estimated fair value of the common stock on the date of exercise. The total fair value of options vested was $2.4 million and $1.2 million during the nine months ended September 30, 2021 and 2020, respectively.
The Company estimates the fair value of stock-based compensation on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model determines the fair value of stock-based payment awards based on the fair market value of the Company’s common stock on the date of grant and is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the fair market value of the Company’s common stock, volatility over the expected term of the awards and actual and projected employee stock option exercise behaviors. The Company has opted to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies on which it has based its expected stock price volatility, the Company generally selected companies with comparable characteristics to it, including enterprise value, stages of clinical development, risk profiles, position within the industry and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the share-based payments. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available. The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history of not paying dividends and its expectation that it will not declare dividends for the foreseeable future.
Total stock-based compensation recognized, before taxes, is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Cost of sales$62 $18 $135 $68 
Research and development174 134 482 397 
Sales, general and administrative689 411 1,683 1,104 
Total stock-based compensation$925 $563 $2,300 $1,569 
The amount of unearned stock-based compensation related to unvested employee stock-based payment awards as of September 30, 2021 and December 31, 2020 is $9.7 million and $6.5 million, respectively. The weighted-average period over which the unearned stock-based compensation is expected to be recognized as of September 30, 2021 and December 31, 2020 is 2.9 years for both periods.
The fair value of the options granted to employees or directors was estimated as of the grant date using the Black-Scholes model assuming the weighted-average assumptions listed in the following table:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020202019
Expected life (years)5.96.06.06.0
Expected volatility 53 %50 %50 %40 %
Risk-free interest rate 0.9 %0.3 %1.0 %1.1 %
Expected dividend rate — %— %— %— %
Weighted-average fair value$7.00 $2.41 $3.88 $1.85 
2021 Employee Stock Purchase Plan
In September 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”). The 2021 ESPP became effective on the effective date of the IPO. A total of 412,988 shares were initially reserved for issuance under the 2021 ESPP. Additionally, the number of shares of common stock reserved for issuance under the 2021 ESPP will increase automatically each year, beginning on January 1, 2022, and continuing through and including January 1, 2031, by the lesser of (1) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year; or (2) such lesser number as determined by the Company’s board of directors. The number of shares that may be issued under the 2021 ESPP shall not exceed a total of 10,526,315 shares. As of September 30, 2021, the Company has not implemented the 2021 ESPP.
Common Stock Warrants
In May 2015, the Company issued warrants to purchase 12,308 shares of the Company’s common stock in exchange for recruiting services. These warrants are exercisable immediately and expire on April 30, 2025. These common stock warrants of $15,000 were recorded as general and administrative expense and additional paid-in capital, as this warrant met the equity classification requirements. In November 2020, these warrants were fully exercised.