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. Pursuant to Nasdaq listing rules, the Company issued inducement awards in December 2017 to the Company’s President outside of the Plan in the form of an option to purchase 775,000 shares of the Company’s common stock and a RSU award to purchase 40,000 shares of the Company’s common stock. As of September 30, 2020, all remaining inducement awards have been canceled or expired. In June 2020, the Company increased the aggregate number of shares of common stock authorized for issuance under the Plan by 2,000,000 shares.

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 $4.47 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 7,631,844 shares of the Company’s common stock were exchanged for 3,813,150 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 nine months ended September 30, 2021 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, 2021		10,050,523		$	6.60		7.0	$	—

Granted		140,000		$	2.90
Exercised		—		$	—
Cancelled/Forfeited⁽¹⁾		(8,396,056	)	$	6.94
Outstanding September 30, 2021		1,794,467		$	4.75		7.8	$	—
Exercisable September 30, 2021		913,530		$	5.99		6.6	$	—
Available for future grant		4,762,269

The weighted average grant-date fair value of stock options outstanding on September 30, 2021 was $3.13 per share. Total unrecognized compensation costs related to non-vested stock options at September 30, 2021 were approximately $1.5 million and are expected to be recognized within future operating results over a weighted-average period of 1.2 years. The total intrinsic value of the options exercised during the nine months ended September 30, 2021, and 2020 was zero and approximately $0.9 million, respectively.

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 nine months ended September 30, 2021 and 2020, the Company utilized the following assumptions:

	Nine Months Ended September 30,
	2021		2020
Expected term (years)		5.50	5.50-6.25
Risk free interest rate	0.86%		0.37%-0.42%
Volatility	75%		68%-71%
Dividend yield	0%		0%
Weighted average grant date fair value per share of common stock	$	1.83	$	1.62

RSUs awarded to employees generally vest one-fourth per year over four years from the anniversary of the date of grant, provided the employee remains continuously employed with the Company. Shares of the Company’s stock are delivered to the employee upon vesting, subject to payment of applicable withholding taxes. The fair value of RSUs is equal to the closing price of the Company’s common stock on the date of grant. The total unrecognized compensation costs related to non-vested RSUs at September 30, 2021 was zero. There were no unvested RSUs as of September 30, 2021 and December 31, 2020, respectively.

On August 6, 2021, the Company granted 3,813,150 PRSUs through the Exchange Program. The Exchange Program was treated as a Type II modification (Probable-to improbable) under ASC 718. 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 September 30, 2021 were approximately $4.5 million and are expected to be recognized within future operating results over a weighted-average period of 1.6 years. As of September 30, 2021, no PRSUs have vested.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Research and development	$	541,332	$	813,443	$	1,826,881	$	2,189,595
General and administrative		573,194		1,242,592		2,187,769		5,550,109
Total	$	1,114,526	$	2,056,035	$	4,014,650	$	7,739,704