SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2022

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

NOTE 11—SHARE-BASED COMPENSATION

2015 Equity Incentive Plan

The Company’s board of directors and stockholders have approved and adopted the 2015 Plan, which provided for the grant of incentive stock options, within the meaning of Section 422 of the Code (the Internal Revenue Code), to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units to the Company’s employees, directors and consultants and its parent and subsidiary corporations’ employees and consultants. A total of 4,500,000 shares of the Company’s common stock were reserved for issuance pursuant to the 2015 Plan. Options granted under the 2015 Plan vest according to the schedule specified in the grant agreements, which is generally a four year period and generally become immediately exercisable upon the occurrence of a change in control, as defined. Upon the 2018 Equity Incentive Plan (the “2018 Plan”) becoming effective in September 2018, no further grants are allowed under the 2015 Plan.

2018 Equity Incentive Plan

The Company’s board of directors and stockholders approved and adopted the 2018 Plan, which became effective upon the Company’s initial public offering in September 2018 and which provides for the grant of incentive stock options, within the meaning of Section 422 of the Code (the Internal Revenue Code), to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units to the Company’s employees, directors and consultants and the Company’s parent and subsidiary corporations’ employees and consultants. A total of 5,500,000 shares of the Company’s common stock, inclusive of the awards previously granted under the 2015 Equity Incentive Plan, are reserved for issuance pursuant to the 2018 Plan. In addition, the number of shares available for issuance under the 2018 Plan will also include an annual increase on the first day of each fiscal year beginning in 2019, equal to 4% of the outstanding shares of common stock as of the last day of the Company’s immediately preceding fiscal year. The exercise price of options granted under the plans must at least be equal to the fair market value of the Company’s common stock on the date of grant. The term of an incentive stock option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes of the Company’s outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. Options granted under the 2018 Plan vest according to the schedule specified in the grant agreements, which is generally between one and four years and generally become immediately exercisable upon the occurrence of a change in control, as defined.

Stock Option Valuation

For the three month periods ended September 30, 2022 and 2021, stock-based compensation for stock option grants were $3,257,000 and $4,829,000, respectively, for options granted to employees and directors. For the three months ended September 30, 2022, the expenses were recorded as $1,801,000 in research and development expense and $1,456,000 in selling, general, and administrative expense. For the three months ended September 30, 2021, the expenses were recorded as $1,827,000 in research and development expense and $3,002,000 in selling, general, and administrative expense.

For the nine month periods ended September 30, 2022 and 2021, stock-based compensation for stock option grants were $21,822,000 and $14,209,000, respectively, for options granted to employees and directors. Stock-based compensation during the nine months ended September 30, 2022 includes $9,286,000 related to the departure of the former Chief Executive Officer, which was recorded upon his separation in the second quarter of 2022 based on the terms of his service agreement and is further described in NOTE 9—LICENSE AGREEMENTS AND COMMITMENTS. For the nine months ended September 30, 2022, the expenses were recorded as $5,582,000 in research and development expense and $16,240,000 in selling, general, and administrative expense. For the nine months ended September 30, 2021, the expenses were recorded as $5,271,000 in research and development expense and $8,938,000 in selling, general, and administrative expense.

The following table summarizes common stock options issued and outstanding:

						Weighted
		Weighted		Aggregate		average
		average		intrinsic		remaining
		exercise		value		contractual
	Options	price		(in thousands)		life (years)
Outstanding and expected to vest at December 31, 2021	6,687,128	$	22.43	$	26,412	7.21
Granted	635,000		11.42
Exercised	(20,000)		4.22
Forfeited	(218,361)		29.27
Outstanding and expected to vest at September 30, 2022	7,083,767	$	21.28	$	23,619	6.70
Exercisable at September 30, 2022	4,556,127	$	18.95	$	21,543	5.55

The weighted average fair value of stock options granted for the three months ended September 30, 2022 and 2021 was $10.14 and $20.19, respectively. There were 210,000 and 102,000 stock options granted for the three months ended September 30, 2022 and 2021, respectively.

The weighted average fair value of stock options granted for the nine months ended September 30, 2022 and 2021 was $7.88 and $20.85, respectively. There were 635,000 and 311,000 stock options granted for the nine months ended September 30, 2022 and 2021, respectively.

Options granted in the three and nine months ended September 30, 2022, have a maximum contractual term of ten years.

During the second quarter of 2022, 255,000 options were granted to senior executives and certain other employees under a retention program for their continued service to the Company over the next two years from the grant date. The options granted under the retention program have a vesting schedule in which 50% vest on the first anniversary of the grant date and the remainder vest on the second anniversary of the grant date, provided in each case that the recipient remains an employee of the Company through each vesting date. The expected term for the options granted under the retention program was 5.75 years and the risk-free interest rate was approximately 2.8%. The remaining 170,000 options granted in the second quarter of 2022, have a vesting schedule in which 25% vest on the first anniversary of the grant date and the remainder vest ratably on a monthly basis over the next 36 months, provided in each case that the recipient remain an employee of the Company through each vesting date. The expected term of those options was 6.25 years and the risk-free interest rate was approximately 2.8%.

The above noted retention program also included a cash bonus payable to the same senior executives and other employees that is payable on the anniversary of the grant date provided that the respective recipient remains an employee of the Company through such date and subject further to the achievement by such date of the Company’s product candidate omburtamab having received marketing approval by the FDA. The Company did not record compensation expense related to the cash retention program in the three and nine months ended September 30, 2022, as the payment will not be deemed probable until the Company receives FDA approval for omburtamab. The aggregate value of the cash bonus portion of the retention program is $1,091,000 as of September 30, 2022.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company’s public trading commenced in September 2018, and, as a result, there is only limited available historical volatility experience. Therefore, the Company estimates its expected share price volatility based on a combination of the historical volatility of a group of publicly traded peer companies and the historical volatility of the Y-mAbs share price, and the Company expects to continue to do so until such time as the Company has adequate historical data regarding the volatility of its own traded share price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards as the Company has limited historical data to support the expected term assumption. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is based on the fact that the Company has never paid cash dividends on shares of its common stock and does not expect to pay any cash dividends in the foreseeable future. There were no significant changes to the inputs included in the Black-Scholes option pricing model during the three and nine months ended September 30, 2022.

As of September 30, 2022, the Company had $25,520,000 of unrecognized compensation expense related to employee stock options that are expected to vest over a period of 2.47 years. As of September 30, 2021, the Company had $44,357,000 of unrecognized compensation expense related to employee stock options that are expected to vest over a period of 2.61 years.

Restricted Stock Unit Activity

For the three months ended September 30, 2022 and September 30, 2021, stock-based compensation for restricted stock unit grants was $84,000 and $72,000, respectively. For the three months ended September 30, 2022, the expenses were recorded as $74,000 in research and development expense and $10,000 in selling, general, and administrative expense. For the three months ended September 30, 2021, the expenses were recorded as $63,000 in research and development expense and $9,000 in selling, general, and administrative expense.

For the nine months ended September 30, 2022 and September 30, 2021, stock-based compensation for restricted stock unit grants was $242,000 and $217,000, respectively. For the nine months ended September 30, 2022, the expenses were recorded as $215,000 in research and development expense and $27,000 in selling, general, and administrative expense. For the nine months ended September 30, 2021, the expenses were recorded as $194,000 in research and development expense and $23,000 in selling, general, and administrative expense.

The following table summarizes restricted stock units issued and outstanding:

				Weighted
		Weighted		average
		average		remaining
		grant		vesting
	Restricted Stock Units	price		life (years)
Outstanding and expected to vest at December 31, 2021	28,907	$	28.04	1.82
Granted	19,054		9.92
Vested	(11,314)		25.98
Forfeited	(1,082)		29.81
Outstanding and expected to vest at September 30, 2022	35,565	$	18.42	2.00

As of September 30, 2022, the Company had $504,000 of unrecognized compensation related to employee restricted stock units that are expected to vest over a period of 2.00 years. As of September 30, 2021, the Company had $631,000 of unrecognized compensation related to employee restricted stock units that are expected to vest over a period of 1.91 years.