Share-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-Based Compensation

Share-Based Compensation

9.           Share-Based Compensation

2018 Incentive Award Plan

In May 2018, the Company’s board of directors and shareholders approved the 2018 Incentive Award Plan (the “2018 Plan”), which became effective on May 23, 2018. The 2018 Plan provides for the grant of incentive share options, nonqualified share options, share appreciation rights, restricted shares, dividend equivalents, restricted share units and other share- or cash- based awards. Upon the effectiveness of the 2018 Plan, the Company ceased granting awards under its 2015 Equity Incentive Plan (as amended, the “2015 Plan” together with the 2018 Plan, the “Plans”).

A total of 4,466,500 Class A common shares were initially reserved for issuance under the 2018 Plan. The number of Class A common shares that may be issued under the 2018 Plan will automatically increase on each January 1, beginning in 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the lesser of (1) 4% of the Class A common shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (2) a smaller number of Class A common shares determined by the Company’s board of directors. In December 2019, the board of directors approved the automatic increase as of January 1, 2020 of 2,197,505 shares, equal to 4% of the as-converted Class A common shares outstanding on December 31, 2019. No more than 27,915,000 Class A common shares may be issued under the 2018 Plan upon the exercise of incentive share options. The Class A common shares underlying any awards issued under the 2018 Plan or the 2015 Plan that on or after the effective date of the 2018 Plan expire, lapses unexercised or are terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised, or forfeited under the 2018 Plan or the 2015 Plan will be added back to the Class A common shares available for issuance under the 2018 Plan. As of December 31, 2020, 1,618,474 shares remained available for future grant.

2015 Equity Incentive Plan

Until May 23, 2018 (the effective date of the 2018 Plan), the 2015 Plan provided for the Company to grant incentive share options, nonqualified share options, share grants and other share-based awards to employees and non-employees to purchase the Company’s Class A common shares. On the effective date of the 2018 Plan, the Company ceased granting awards under the 2015 Plan. At that time, the 4,691,213 Class A common shares subject to outstanding awards under the 2015 Plan remained reserved for issuance under the plan pursuant to such awards and the

92,170 Class A common shares that had been available for future grant under the 2015 Plan were no longer authorized and reserved for issuance or available for future grant under the 2015 Plan.

As of December 30, 2020, there were 2,794,056 Class A common shares subject to outstanding awards under the 2015 Plan and reserved for issuance thereunder pursuant to such awards. The 2015 Plan continues to govern the terms and conditions of the outstanding awards granted under it. Class A common shares subject to awards granted under the 2015 Plan that expire, lapse unexercised or are terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised, or forfeited become available for issuance under the 2018 Plan.

The exercise price for share options granted under the 2015 Plan was determined by the Company’s board of directors. All incentive share options granted to any person possessing 10% or less of the total combined voting power of all classes of shares could not have an exercise price of less than 100% of the fair market value of the Class A common shares on the grant date. All incentive share options granted to any person possessing more than 10% of the total combined voting power of all classes of shares could not have an exercise price of less than 110% of the fair market value of the Class A common shares on the grant date. The option term for incentive share options could not be greater than 10 years. Incentive share options granted to persons possessing more than 10% of the total combined voting power of all classes of shares could not have an option term of greater than five years. The vesting period for equity-based awards was determined by the board of directors, which was generally four to six years. For awards granted to employees and non-employees with four year vesting terms, 25% of the option vests on the first anniversary of the grant date and the remaining shares vest equally each month for three years thereafter. For awards granted to employees with six year vesting terms, 16% of the option vests on the first anniversary of the grant date and the remaining shares vest based on a predetermined vesting schedule for five years thereafter.

2018 Employee Share Purchase Plan

In May 2018, the Company’s board of directors and shareholders approved the 2018 Employee Share Purchase Plan (the “2018 ESPP”), which became effective on May 23, 2018. A total of 670,000 Class A common shares were initially reserved for issuance under the 2018 ESPP. The number of Class A common shares that may be issued under the 2018 ESPP will automatically increase on each January 1, beginning in 2019 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2028, equal to the lesser of (1) 1% of the Class A common shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year and (2) a smaller number of Class A common shares determined by the Company’s board of directors, provided that no more than 6,420,000 Class A common shares may be issued under the 2018 ESPP. In December 2020, the board of directors approved an increase as of January 31, 2021 of 130,000 shares. As of December 31, 2020, 518,794 Class A common shares were available for future issuance under the 2018 ESPP.

Share Options

The following table summarizes option activity for the year ended December 31, 2020:

				Weighted
				Average
		Weighted		Remaining
		Average		Contractual	Aggregate
	Number of	Exercise		Term	Intrinsic
	Shares	Price		(in years)	Value
Outstanding as of December 31, 2019	8,491,734	$	11.17	7.88	$	27,217
Granted	3,794,735	$	16.50
Exercised	(1,324,429)	$	4.57
Forfeited	(1,003,182)	$	14.88
Outstanding as of December 31, 2020	9,958,858	$	13.53	8.15	$	52,394
Share options exercisable as of December 31, 2020	3,799,854	$	10.83	7.00	$	31,526
Share options unvested as of December 31, 2020	6,159,004	$	15.19	2.79	$	64,715

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s common shares for those share options that had exercise prices lower than the fair value of the Company’s common shares.

During the year ended December 31, 2020, share option holders exercised 1,324,429 share options for Class A common shares with an intrinsic value of $18,271 for total cash proceeds to the Company of $6,058. During the year ended December 31, 2019, share option holders exercised 150,253 share options for Class A common shares with an intrinsic value of $1,776 for total cash proceeds to the Company of $590. During the year ended December 31, 2018, share option holders exercised 25,683 share options for Class A common shares with an intrinsic value of $411 for total cash proceeds to the Company of $87.

The weighted-average grant-date fair value per share of share options granted during the years ended December 31, 2020, 2019 and 2018 was $11.38, $9.36 and $11.96, respectively.

The total fair value of share options vested during the years ended December 31, 2020, 2019 and 2018 was $17,931, $13,997 and $2,255, respectively.

Option Valuation

The assumptions that the Company used to determine the grant-date fair value of share options granted to employees and directors under the 2015 Plan and the 2018 Plan during the years ended December 31, 2019 and 2018 were as follows, presented on a weighted-average basis:

	Years Ended
	December 31,
	2020		2019		2018
Risk-free interest rate	0.55	%	2.07	%	2.82	%
Expected term (in years)	6.21		6.22		6.40
Expected volatility	80.81%	%	79.14	%	75.04	%
Expected dividend yield	—	%	—	%	—	%

During the year ended December 31, 2020, the Company did not grant share options to non-employees. During the year ended December 31, 2019 and 2018, the assumptions that the Company used to determine the fair value of share options granted to non-employees were as follows, presented on a weighted-average basis:

	Years Ended
	December 31,
	2019		2018
Risk-free interest rate	1.38	%	2.91	%
Expected term (in years)	2.77		7.35
Expected volatility	68.17	%	74.18	%
Expected dividend yield	—	%	—	%

Rilonacept Long-Term Incentive Plan

A restricted share unit (“RSU”) represents the right to receive shares of the Company’s Class A common shares upon vesting of the RSU. The fair value of each RSU is based on the closing price of the Company’s Class A common shares on the date of grant. In December 2019, the compensation committee of the Company’s board of directors approved the Company’s Rilonacept Long-Term Incentive Plan (“RLTIP”) under the Company’s 2018 Plan to incentivize eligible employees of the Company or any of its subsidiaries to achieve U.S. Food and Drug Administration (“FDA”) approval for the commercial sale and marketing of rilonacept for the treatment of recurrent pericarditis in the United States (“RLTIP Milestone”). The RLTIP provides for the potential to receive a cash award and two grants of RSU awards covering Class A common shares under the 2018 Plan. The target award value for each of the cash award and the two RSU awards will be equal to one-third of a participant’s annual target bonus in the year of grant, as determined in accordance with the RLTIP.

Depending on the date-range within which the RLTIP Milestone is achieved (such date the “Achievement Date”) occurs, the RLTIP provides for (i) an earnout percentage that can be achieved as to 100%, 50%, 25% or 0% and (ii) an upside earnout percentage that can be achieved as to 50%, 25% or 0%. No awards will be earned or vest, and the second RSU award will not be granted, in the event the Achievement Date does not occur by a specified date.

The cash award is eligible to be earned and vested upon the Achievement Date with respect to an amount determined in accordance with the RLTIP based on the earnout percentage. The number of Class A common shares issuable under the first RSU award (“First RSU Award”) as a result of the RLTIP Milestone will be determined in accordance with the RLTIP based on the earnout percentage, and such RSUs will vest on the first anniversary of the Achievement Date, subject to continued employment on such date. The second RSU award will be granted on the Achievement Date with respect to a number of shares determined in accordance with the RLTIP, based on both the earnout percentage and the upside earnout percentage, and will vest on the second anniversary of the Achievement Date, subject to continued employment through such date. 

Restricted Share Units

In December 2019, the Company granted RSUs with service conditions (“Time-Based RSUs”) that vest in one installment on December 31, 2020, subject to the recipient’s continued employment through that date. During the years ended December 31, 2020 and 2019, the Company also granted the First RSU Award to eligible employees as part of the RLTIP, which becomes eligible to vest upon the Achievement Date and will vest upon the first anniversary of such date, subject to the recipient’s continued employment through that date. In the event the RLTIP Milestone is not achieved, the First RSU Award will not vest.

On December 31, 2020, all outstanding Time-Based RSUs vested and 56,369 class A common shares were issued and remaining shares of 24,332 were withheld for tax purposes. For the year ended December 31, 2020, the Company recognized $980 in compensation expense related to the Time-Based RSUs. For the year ended December 31, 2019, the Company did not recognize any compensation expense related to the Time-Based RSU. The grant-date fair value of the First RSU Award remaining as of December 31, 2020 was $2,754 and will be recognized when the RLTIP Milestone is deemed probable of achievement through the date the First RSU Award will vest. During the years ended December 31, 2020 and 2019, the Company did not recognize any compensation expense related to the First RSU Award, as achievement of the RLTIP Milestone was determined to be not probable.

The following table summarizes RSU activity, including the Time-Based RSUs and First RSU Awards under the RLTIP, for the year ended December 31, 2020:

		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Unvested RSUs as of December 31, 2019	328,296	$	12.93
Granted	17,995	$	19.15
Vested	(80,701)	$	12.95
Forfeited	(60,278)	$	13.09
Unvested RSUs as of December 31, 2020	205,312	$	13.41

Share-Based Compensation

Share-based compensation expense was classified in the consolidated statements of operations and comprehensive loss as follows:

	Years Ended
	December 31,
	2020		2019		2018
Research and development expenses	$	8,866	$	5,746	$	2,285
Selling, general and administrative expenses		12,009		9,334		3,416
	$	20,875	$	15,080	$	5,701

During the year ended December 31, 2020, the Company recorded compensation expense for share options and RSUs granted to employees and directors of $20,860. During the year ended December 31, 2020, the Company recorded compensation expense for share options granted to non-employees of $15.

As of December 31, 2020, total unrecognized compensation expense related to the unvested share option awards was $64,715 which is expected to be recognized over a weighted average remaining period of 2.79 years. As of December 31, 2020, the Company has recognized all of the compensation expense related to the Time-Based RSUs and none remain unvested. As of December 31, 2020, total unrecognized compensation cost related to the First RSU Award was $2,754 which will be recognized when the RLTIP Milestone is deemed probable of achievement through the date the First RSU Award vests.