In December 2013, the Company adopted the 2013 Equity Incentive Plan (as subsequently amended and restated, the “Plan”), which provides for the issuance of options, stock appreciation rights, stock awards and stock units.

On June 11, 2021, the Company’s stockholders, upon recommendation of the board of directors of the Company, approved a one-time stock option exchange program (the “Exchange Program”) for certain employee option holders (including its named executive officers) (the “Eligible Participants”) who remained employed by the Company through the completion of the Exchange Program. The Exchange Program permitted Eligible Participants to surrender stock options issued and outstanding under the Plan granted before July 1, 2020, with a per-share exercise price of $35.76 or greater (the “Eligible Options”), in exchange for a grant of performance-based restricted stock units (“PRSUs”) that will settle in shares of the Company’s common stock upon vesting. 50% of the new PRSUs will vest upon the U.S. Food and Drug Administration’s (“FDA”) acceptance of a new drug application for roluperidone, provided that such acceptance is not “over protest” and occurs within three years after the grant date. The remaining new PRSUs will vest upon roluperidone receiving FDA marketing approval provided that such approval occurs within five years after the grant date.

On July 6, 2021, the Company filed with the SEC a Tender Offer Statement on Schedule TO disclosing the terms and conditions of the Exchange Program. The Exchange Program closed on August 3, 2021. On August 6, 2021, options to purchase 953,980 shares of the Company’s common stock were exchanged for 476,640 PRSUs. Options surrendered in the Exchange Program were cancelled and shares subject to the cancelled options again became available for issuance under the Plan.

The non-cash incremental stock-based compensation cost associated with the Exchange Program was $0.5 million. This incremental cost was measured as the excess of the fair value of each new PRSU, measured as of the date the new PRSUs were granted, over the fair value of the stock options surrendered in exchange for the new PRSU, measured immediately prior to the cancellation. This incremental compensation cost will be recognized when it is deemed probable that the two vesting conditions of the PRSUs will be achieved.

Stock option activity for employees and non-employees for the six months ended June 30, 2022 is as follows:


	Shares Issuable Pursuant to Stock Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Terms (years)		Total Intrinsic Value (in thousands)
Outstanding January 1, 2022		264,929	$	34.10		7.9	$	—

Granted		202,500	$	6.11
Exercised		—	$	—
Forfeited		—	$	—
Outstanding June 30, 2022		467,429	$	21.97		8.4	$	—
Exercisable June 30, 2022		160,249	$	41.98		6.6	$	—
Available for future grant		352,166

The weighted average grant-date fair value of stock options outstanding on June 30, 2022 was $14.94 per share. Total unrecognized compensation costs related to non-vested stock options at June 30, 2022 were approximately $1.8 million and are expected to be recognized within future operating results over a weighted-average period of 2.1 years. The total intrinsic value of the options exercised during the six months ended June 30, 2022 and 2021 was zero.

The expected term of the employee-related options was estimated using the “simplified” method as defined by the SEC’s Staff Accounting Bulletin No. 107, Share-Based Payment. The volatility assumption was determined by examining the historical volatilities for industry peer companies, as the Company did not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments, the term of which was consistent with the expected term of the options. The dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the options.

The Company uses the Black-Scholes model to estimate the fair value of stock options granted. For stock options granted during the six months ended June 30, 2022 and 2021, the Company utilized the following assumptions:


	Six Months Ended
	June 30, 2022	June 30, 2021
Expected term (years)	5.50-6.25	5.50
Risk free interest rate	1.96%-3.25%	0.86%
Volatility	76%-97%	75%
Dividend yield	0%	0%
Weighted average grant date fair value per share of common stock	$4.78	$14.64

On August 6, 2021, the Company granted 476,640 PRSUs through the Exchange Program. The Exchange Program was treated as a Type II modification (Probable-to improbable) under ASC 718. The total PRSUs outstanding at June 30, 2022 was 456,422. The Company will recognize the unrecognized grant-date fair value of the pre-modification stock options as well as any incremental non-cash compensation cost of the PRSUs granted in the Exchange Program, if the vesting conditions of the PRSUs are achieved or if they become probable. The Company is using the pre-modification stock options for determining the compensation cost related to the PRSUs as the vesting conditions remain uncertain for the new PRSUs. The total unrecognized compensation costs related to non-vested stock options at June 30, 2022 were approximately $2.2 million and are expected to be recognized within future operating results over a weighted-average period of 1.1 years. As of June 30, 2022, no PRSUs have vested and 20,218 have been cancelled.

The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	514,806	$	641,373	$	1,015,979	$	1,285,549
General and administrative		556,799		742,687		1,108,282		1,614,575
Total	$	1,071,605	$	1,384,060	$	2,124,261	$	2,900,124