Stock-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

In June 2018, the Company adopted the 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan provided for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the Company’s Board of Directors and consultants of the Company under terms and provisions established by the Company’s Board of Directors. In October 2018, the Board of Directors approved an amendment and restatement of the 2018 Plan, increasing the shares of common stock issuable under the 2018 Plan as well as allowing for an automatic annual increase to the shares issuance under the 2018 Plan to the amount equal to 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year. The term of any stock option granted under the 2018 Plan cannot exceed 10 years. The Company generally grants stock-based awards with service conditions only. Options shall not have an exercise price less than 100% of the fair market value of the Company’s common stock on the grant date. Options granted typically vest over a four-year period but may be granted with different vesting terms. Restricted Stock Units granted typically vest annually over a four-year period but may be granted with different vesting terms.

As of June 30, 2020, there were 12,562,263 shares reserved by the Company under the 2018 Plan for the future issuance of equity awards.

Stock Option Activity

The following summarizes option activity under the 2018 Plan:


	Outstanding Options
	Number of Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contract Term	Aggregate intrinsic value
				(in years)	(in thousands)
Balance, December 31, 2019	9,190,522	$	14.51	8.82	$	110,490
Granted	2,896,287	20.01
Exercised	(498,406)	9.89
Forfeited	(536,964)	11.97
Balance, June 30, 2020	11,051,439	$	16.28	8.59	$	293,934
Exercisable, June 30, 2020	6,474,921	$	14.24	8.45	$	184,688
Vested and expected to vest, June 30, 2020	11,051,439	$	16.28	8.59	$	293,934

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on the Nasdaq Global Select Market on June 30, 2020. For the six months ended June 30, 2020, the estimated weighted-average grant-date fair value of employee options granted was $20.01 per share. As of June 30, 2020, there was $91.8 million of unrecognized stock-based compensation related to unvested stock options, which is expected to be recognized over a weighted-average period of 2 years, 336 days.

The fair value of employee, consultant and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:


	Six Months Ended June 30,
	2020	2019
Expected term in years	5.31 - 6.09	5.99 - 6.25
Expected volatility	71.42% - 72.14%	74.84%
Expected risk-free interest rate	0.38% - 1.65%	2.45% - 2.62%
Expected dividend	0%	0%

Expected term— The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards.

Expected volatility— The Company uses an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company does not have sufficient trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Restricted Stock Unit Activity

The following summarizes restricted stock unit activity under the 2018 Plan:


	Outstanding Restricted Stock Units
	Restricted Stock Units	Weighted- Average Fair Value at Date of Grant per Share		Weighted Average Remaining Vesting Life	Aggregate Intrinsic Value
				(in years)	(in thousands)
Unvested December 31, 2019	1,941,155	$	27.45	1.98	$50,431
Granted	1,042,799	21.71		2.19
Vested	(383,730)	27.28
Forfeited	(108,515)	24.93
Unvested June 30, 2020	2,491,709	$	25.18	2.03	$106,695
Vested and expected to vest, June 30, 2020	2,491,709	$	25.18	2.03	$106,695

As of June 30, 2020, there was $55.1 million of unrecognized stock-based compensation related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 3 years, 55 days.

Total stock-based compensation related to stock options, restricted stock units, employee stock purchase plan and vesting of the founders’ common stock was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	7,979	$	4,747	$	14,636	$	7,478
General and administrative	8,791		6,740		16,349		11,876
Total stock-based compensation	$	16,770	$	11,487	$	30,985	$	19,354

Early Exercised Options

The Company allows certain of its employees and its directors to exercise options granted under the 2018 Plan prior to vesting. The shares related to early exercised stock options are subject to the Company’s lapsing repurchase right upon termination of employment or service on the Company’s board of directors at the lesser of the original purchase price or fair market value at the time of repurchase. In order to vest, the holders are required to provide continued service to the Company. The proceeds are initially recorded in accrued and other liabilities for the current portion, and other long-term liabilities for the non-current portion. The proceeds are reclassified to paid-in capital as the repurchase right lapses. As of June 30, 2020 and December 31, 2019 there was $2.8 million and $2.8 million recorded in accrued and other liabilities and $2.5 million and $3.9 million recorded in other long-term liabilities related to shares held by employees and directors that were subject to repurchase. The underlying shares are shown as outstanding in the condensed consolidated financial statements since the exercise date but the shares which are subject to future vesting conditions are not included in the calculation of earnings per share.