Equity-Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

The number of shares of common stock reserved for issuance under the 2017 Equity Incentive Plan automatically increases on January 1 of each year, beginning on January 1, 2020, by the lesser of (i) 4,600,000 shares, (ii) 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or (iii) a lesser number of shares determined by the Compensation Committee of the Company’s Board. The Compensation Committee made the determination to increase the share reserve for the 2017 Equity Incentive Plan by 4,303,463 shares, effective January 1, 2020.

As of September 30, 2020, the aggregate number of common stock options available for grant under the 2017 Equity Incentive Plan was 2,219,311.

Equity-based compensation expense is classified in the statements of operations as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development expense	$	247	$	199	$	607	$	423
General and administrative expense	371		312		996		1,016
	$	618	$	511	$	1,603	$	1,439

Unamortized equity-based compensation expense at September 30, 2020 was $4,767, which is expected to be amortized over a weighted-average period of 2.8 years.

The Company utilizes the Black-Scholes option-pricing model to determine the fair value of common stock option grants. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model also requires the input of highly subjective assumptions. In addition to an assumption on the expected term of the option grants as discussed below, application of the Black-Scholes model requires additional inputs for which we have assumed the values described in the table below:


	Nine Months Ended September 30,
	2020		2019
Expected term	5.2 to 6.1 years		5.3 to 6.1 years
Risk-free interest rate	0.31% to 1.68%; weighted avg. 0.61%		1.69% to 2.56%; weighted avg. 2.16%
Expected volatility	81.0% to 85.8%; weighted avg. 83.8%		83.2% to 86.7%; weighted avg. 84.9%
Forfeiture rate	5	%	5	%
Expected dividend yield	—	%	—	%

The expected term is based upon the “simplified method” as described in Staff Accounting Bulletin Topic 14.D.2. Currently, the Company does not have sufficient experience to provide a reasonable estimate of an expected term of its common stock options. The Company will continue to use the “simplified method” until there is

sufficient experience to provide a more reasonable estimate in conformance with ASC 718-10-30-25 through 30-26. The risk-free interest rate assumptions were based on the U.S. Treasury bond rate appropriate for the expected term in effect at the time of grant. The expected volatility is based on calculated enterprise value volatilities for publicly traded companies in the same industry and general stage of development. The estimated forfeiture rates were based on historical experience for similar classes of employees. The dividend yield was based on expected dividends at the time of grant.

The fair value of the underlying common stock and the exercise price for the common stock options granted during the nine months ended September 30, 2020 and 2019 are summarized in the table below:


Common Stock Options Granted During Period Ended:	Fair Value of Underlying Common Stock	Exercise Price of Common Stock Option
Nine months ended September 30, 2020	$1.19 to $2.80; weighted avg. $1.91	$1.19 to $2.80; weighted avg. $1.94
Nine months ended September 30, 2019	$2.32 to $2.95: weighted avg. $2.75	$2.32 to $2.95: weighted avg. $2.75

The weighted-average grant date fair value of common stock options granted in the nine months ended September 30, 2020 and 2019 was $1.33 and $1.96 per common stock option, respectively.

A summary of common stock option activity as of the periods indicated is as follows:


	Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (thousands)
Outstanding - December 31, 2019	5,697,714	$	2.34	6.7	$	4,625
Granted	2,630,248	1.94
Exercised	(78,139)	0.88
Forfeited	(510,042)	2.67
Outstanding - September 30, 2020	7,739,781	$	2.20	6.7	$	2,090
Exercisable - September 30, 2020	4,565,863	$	2.12	4.9	$	1,657
Vested and Expected to Vest - September 30, 2020	7,739,781	$	2.20	6.7	$	2,090

The aggregate intrinsic value of common stock options exercised during the nine months ended September 30, 2020 and 2019 was $74 and $13, respectively.