Stock-based compensation

12 Months Ended

Dec. 31, 2020

Stock-based compensation

Stock-based compensation

12. Stock-based compensation

2014 Stock Option and Grant Plan

In January 2014, the Company adopted the 2014 Stock Option and Grant Plan (the “2014 Plan”), under which it could grant incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards, or restricted stock units to purchase up to 823,529 shares of common stock to employees, officers, directors and consultants of the Company.

The terms of stock option agreements, including vesting requirements, were determined by the Board of Directors and were subject to the provisions of the 2014 Plan. Restricted stock awards granted by the Company generally vest based on each grantee’s continued service with the Company during a specified period following grant. Stock

options granted to employees generally vest over four years, with 25% vesting on the one year anniversary and 75% vesting ratably, on a monthly basis, over the remaining three years. Stock options granted to non-employee consultants generally vest monthly over a period of one to four years.

Founder Awards

In January 2014, the Company issued 1,188,233 shares of restricted stock to its founders (each, a “Founder”) at an original issuance price of $0.0425 per share. Of the total restricted shares awarded to the Founders, 835,292 shares generally vest over one to four years, based on each Founder’s continued service to the Company in varying capacity as a Scientific Advisory Board member, consultant, director, officer or employee, as set forth in each grantee’s individual restricted stock purchase agreement.

The remaining 352,941 of the shares issued begin vesting upon the achievement of certain performance objectives as well as continued service to the Company, as set forth in the agreements. These performance conditions are tied to certain milestone events specific to the Company’s corporate goals, including but not limited to preclinical and clinical development milestones related to the Company’s product candidates. Stock-based compensation expense associated with these performance-based awards is recognized when the achievement of the performance condition is considered probable, using management’s best estimates. Management concluded that the achievement of the performance milestone for one of the three performance-based awards had been met during 2016. Stock-based compensation expense in the amount of $0.3 million was recorded in the year ended December 31, 2018 related to this award.

In December 2019, the Company modified one of the remaining performance awards, repurchasing 58,823 shares of common stock previously issued to one of the Company’s founders. Additionally, the Company modified the award to vest solely based on time rather than on performance. The Company revalued the award at the modification date and is recognizing expense on a straight-line basis over the three-year vesting period. Stock-based compensation related to this award was de minimis in the years ended December 31, 2020 and 2019. The performance-based milestone of the remaining performance-based award has not been met as of December 31, 2020.

2015 Stock Option Plan

In October 2015, the Company’s board of directors and stockholders approved the 2015 Stock Option and Incentive Plan (“2015 Stock Option Plan”), which became effective upon the completion of the IPO. The 2015 Stock Option Plan provides the Company with the flexibility to use various equity-based incentive and other awards as compensation tools to motivate its workforce. These tools include stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance share awards and cash-based awards. The 2015 Stock Option Plan replaced the 2014 Plan. Any options or awards outstanding under the 2014 Plan remained outstanding and effective. The number of shares initially reserved for issuance under the 2015 Stock Option Plan is the sum of (i) 1,311,812 shares of common stock and (ii) the number of shares under the 2014 Plan that are not needed to fulfill the Company’s obligations for awards issued under the 2014 Plan as a result of forfeiture, expiration, cancellation, termination or net issuances of awards thereunder. The number of shares of common stock that may be issued under the 2015 Stock Option Plan is also subject to increase on the first day of each fiscal year by up to 4% of the Company’s issued and outstanding shares of common stock on the immediately preceding December 31.

Effective January 1, 2016 and every anniversary thereafter an additional 4% of outstanding common stock was added to the Company’s 2015 Stock Option Plan pursuant to its “evergreen” provision, for future issuance. This has accumulated to a total of 7,707,888 shares through January 1, 2021. During the year ended December 31, 2020, the Company granted options to purchase 1,388,075 shares of common stock to employees and directors under the 2015 Stock Option Plan. As of December 31, 2020, there were 2,827,185 shares available for future issuance under the 2015 Stock Option Plan.

2015 Employee Stock Purchase Plan

In October 2015, the Company’s board of directors and stockholders approved the 2015 Employee Stock Purchase Plan (the “2015 ESPP”). Under the 2015 ESPP, all full-time employees of the Company are eligible to purchase common stock of the Company twice per year, at the end of each six-month payment period. During each payment period, eligible employees who so elect, may authorize payroll deductions in an amount of 1% to 10% (whole percentages only) of the employee’s base pay for each payroll period. At the end of each payment period, the accumulated deductions are used to purchase shares of common stock from the Company at a discount. A total of 262,362 shares of common stock were initially authorized for issuance under this plan.

The 2015 ESPP became effective upon the completion of the IPO. Effective January 1, 2016 and every anniversary thereafter an additional 1% of outstanding common stock was added to the 2015 ESPP, pursuant to its evergreen provision, for future issuance. This has accumulated to a total of 1,926,969 shares through January 1, 2021. The Company issued 104,108 and 70,217 shares of common stock under the 2015 ESPP in the years ended December 31, 2020 and 2019. As of December 31, 2020, there were 1,484,923 shares available for future purchase under the 2015 ESPP.

Inducement Awards

In  the year ended December 31, 2020, the Company issued non-statutory stock options to purchase an aggregate of 172,500 shares of the Company’s common stock and restricted stock unit awards for an aggregate of 29,000 shares of the Company’s common stock, respectively, to three individuals in each case outside of the Company’s 2015 Stock Option Plan as an inducement material to such individual’s acceptance of an offer of employment with the Company in accordance with  Nasdaq Listing Rule 5635(c)(4).

In the year ended December 31, 2019, the Company issued non-statutory stock options to purchase an aggregate of 338,750 shares of the Company’s common stock and restricted stock unit awards for an aggregate of 58,125 shares of the Company’s common stock, respectively, to two executives in each case outside of the Company’s 2015 Stock Option Plan as an inducement material to such executive’s acceptance of an offer of employment with the Company in accordance with  Nasdaq Listing Rule 5635(c)(4).

In the year ended December 31, 2018, the Company issued a non-statutory stock option to purchase an aggregate of 650,000 shares of the Company’s common stock to one executive, outside of the Company’s 2015 Stock Option Plan as an inducement material to the executive’s acceptance of an offer of employment with the Company in accordance with Nasdaq Stock Market Listing Rule 5635(c)(4).

The stock options will vest over a four-year period, with 25% of the shares underlying the option award vesting on the first anniversary of the award and the remaining 75% of the shares underlying the award vesting monthly thereafter over the subsequent 36-month period. The restricted stock units vest over a three-year period, with 33% of the restricted stock units vesting on the first anniversary, 33% of the restricted stock units vesting on the second anniversary, and the remaining restricted stock units vesting on the third anniversary.

Stock-based Compensation Expense

Total compensation cost recognized for all stock-based compensation awards in the statements of operations and comprehensive income (loss) is as follows:

	Year ended December 31,
	2020		2019		2018
	(in thousands)
Research and development	$	6,357	$	7,383	$	4,717
General and administrative		8,577		8,257		10,993
Total stock-based compensation expense	$	14,934	$	15,640	$	15,710

Stock-based compensation expense by type of award included within the consolidated statements of operations and comprehensive income (loss) was as follows:

	Year ended December 31,
	2020		2019		2018
	(in thousands)
Stock options	$	11,387	$	13,380	$	14,956
Restricted stock awards and units		3,110		1,935		482
Employee stock purchase plan awards		437		325		272
Total stock-based compensation expense	$	14,934	$	15,640	$	15,710

In June 2019, the Company entered into a consulting agreement (the “Sah Agreement”) with Dr. Dinah Sah, Ph.D., the Company’s former Chief Scientific Officer, pursuant to which Dr. Sah has agreed to provide consulting and advisory services, including but not limited to scientific guidance in connection with certain of the Company’s collaborations and research and development programs for a three-year period which commenced on June 28, 2019. In accordance with its terms, the Sah Agreement triggered an equity modification resulting in the recognition in 2019 of $2.2 million of stock-based compensation expense related to the non-substantive service period of the Sah Agreement.

In August 2018, the Company entered into a consulting agreement (the “Paul Agreement”) with Dr. Steven M. Paul, M.D., the Company’s former President and Chief Executive Officer, pursuant to which Dr. Paul has agreed to provide consulting and advisory services, including but not limited to scientific guidance in connection with certain of the Company’s collaborations and research and development programs for a three-year period which commenced on August 2, 2018. In accordance with its terms, the Paul Agreement triggered an equity modification resulting in the recognition in 2018 of $5.4 million of stock-based compensation expense related to the non-substantive service period of the Paul Agreement.

Restricted Stock Units

A summary of the status of and changes in unvested restricted stock unit activity under the Company’s equity award plans for the year ended December 31, 2020 was as follows:

		Weighted
		Average
		Grant Date
		Fair Value
	Units	Per Unit
Unvested restricted stock units as of December 31, 2019	455,404	$	12.16
Awarded	494,604	$	12.67
Vested	(150,759)	$	12.12
Forfeited	(160,778)	$	11.47
Unvested restricted stock units as of December 31, 2020	638,471	$	12.74

Stock-based compensation of restricted stock units is based on the fair value of the Company’s common stock on the date of grant and recognized over the vesting period. The restricted stock units granted in the year ended December 31, 2020 vest in equal amounts, annually over three years. The stock-based compensation expense related to awards granted was $2.8 million, $1.9 million, and $0.1 million for the years ended December 31, 2020, 2019, and 2018 respectively.

As of December 31, 2020, the Company had unrecognized stock-based compensation expense related to its unvested restricted stock units of $5.6 million which is expected to be recognized over the remaining weighted average vesting period of 1.8 years

Stock Options

A summary of the status of, and changes in, stock options was as follows:

		Weighted		Remaining	Aggregate
		Average		Contractual	Intrinsic
		Exercise		Life	Value
	Shares	Price		(in years)	(in thousands)
Outstanding at December 31, 2019	5,317,326	$	15.98
Granted	1,560,575	$	11.87
Exercised	(228,436)	$	10.15
Cancelled or forfeited	(1,164,387)	$	17.33
Outstanding at December 31, 2020	5,485,078	$	14.77	7.5	$	1,313
Exercisable at December 31, 2020	3,027,116	$	15.24	6.5	$	—

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the year ended December 31, 2020 was $7.64. The stock-based compensation expense related to stock option awards granted to employees and directors was $11.2 million, $13.3 million, and $14.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The fair value of each option was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Year ended December 31,
	2020		2019		2018
Risk-free interest rate	1.0	%	2.2	%	2.8	%
Expected dividend yield	—	%	—	%	—	%
Expected term (in years)	6.0		6.0		6.0
Expected volatility	73.7	%	74.7	%	74.4	%

As of December 31, 2020, the Company had unrecognized stock-based compensation expense related to its unvested stock options of $20.0 million which is expected to be recognized over the remaining weighted average vesting period of 2.5 years.