Stock-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

2018 Equity Incentive Plan

In June 2018, the Company adopted its 2018 Equity Incentive Plan (Prior 2018 Plan). The Prior 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 September 2018, the Board of Directors adopted a new amended and restated 2018 Equity Incentive Plan as a successor to and continuation of the Prior 2018 Plan, which became effective in October 2018 (the 2018 Plan), which authorized additional shares for issuance and provided for an automatic annual increase to the number of shares issuable under the 2018 Plan by an amount equal to 5% of the total number of shares of common stock outstanding on December 31st 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 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. 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. If the individual possesses more than 10% of the combined voting power of all classes of stock of the Company, the exercise price shall not be less than 110% of the fair market value of a common share of stock on the date of grant. This requirement is applicable to incentive stock options only.

As of December 31, 2023 and 2022, there were 6,468,650 and 12,932,861 shares reserved by the Company under the 2018 Plan for the future issuance of equity awards.

Stock Option Exchange program

On June 21, 2022, the Company commenced an offer to exchange certain eligible options held by eligible employees of the Company for new options (the Exchange Offer). The Exchange Offer expired on July 19, 2022. Pursuant to the Exchange Offer, 199 eligible holders elected to exchange, and the Company accepted for cancellation, eligible options to purchase an aggregate of 3,666,600 shares of the Company’s common stock, representing approximately 93.5% of the total shares of common stock underlying the eligible options. On July 19, 2022, immediately following the expiration of the Exchange Offer, the Company granted new options to purchase 3,666,600 shares of common stock, pursuant to the terms of the Exchange Offer and the 2018 Plan. The exercise price of the new options granted pursuant to the Exchange Offer was $13.31 per share, which was the closing price of the common stock on the Nasdaq Global Select Market on the grant date of the new options. The new options are subject to a new three-year vesting schedule, vesting in equal annual installments over the vesting term. Each new option has a maximum term of seven years.

The exchange of stock options was treated as a modification for accounting purposes. The incremental expense of $5.2 million for the modified options was calculated using a lattice option pricing model. The incremental expense and the unamortized expense remaining on the exchanged options as of the modification date are being recognized over the new three-year service period.

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, 2022	17,569,575	$	12.90	7.73	$	6,658
Options granted	10,315,270	4.94
Options exercised	(850,396)	2.45			$	2,334
Options forfeited	(5,221,503)	11.31
Balance, December 31, 2023	21,812,946	$	9.93	7.53	$	662
Exercisable, December 31, 2023	18,687,724	$	9.98	7.56	$	639
Vested and expected to vest, December 31, 2023	21,812,946	$	9.93	7.53	$	662

The aggregate intrinsic values of options exercised, 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 December 31, 2023. The aggregate intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021 was $2.3 million, $1.9 million and $21.9 million, respectively. During the years ended December 31, 2023, 2022 and 2021, the estimated weighted-average grant-date fair value of employee options granted was $3.33 per share, $9.97 per share and $18.79 per share, respectively. As of December 31, 2023 and 2022, there was $58.1 million and $83.2 million, respectively, of unrecognized stock-based compensation related to unvested stock options, which is expected to be recognized over a weighted-average period of 2.42 years and 2.70 years, respectively.

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:


	Year Ended December 31,
	2023	2022
Fair value of common stock	$2.72 - $7.23	$7.08 - $17.28
Expected term in years	5.27 - 6.08	5.25 - 6.08
Expected volatility	73.18% - 74.10%	70.82% - 73.39%
Expected risk-free interest rate	3.45% - 4.61%	1.61% - 4.12%
Expected dividend	0%	0%

The fair value of the new options granted under the Option Exchange program was estimated at the date of grant using a lattice option pricing model with the following assumptions: expected volatility of 73.74%, expected risk-free rate of 3.06%, expected dividends of 0% and expected exercise barrier of 2.57.

The Black-Scholes option-pricing model and the lattice option pricing model require the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Fair value of common stock—For grants before October 2018 when the Company was private and there was no public market for the Company’s common stock, the fair value of the Company’s common stock underlying share-based awards was estimated on each grant date by the Company’s Board of Directors. In order to determine the fair value of the Company’s common stock underlying option grants, the Company’s Board of Directors considered, among other things, valuations of the Company’s common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For all grants subsequent to the Company’s IPO in October 2018, the fair value of common stock was determined by taking the closing price per share of common stock per Nasdaq.

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.

Expected exercise barrier - The modified options are assumed to be exercised upon vesting and when the ratio of stock market price to exercise price reaches 2.57, or expiration, whichever is earlier.

For the years ended December 31, 2023, 2022 and 2021, total stock-based compensation expense related to stock options was $34.4 million, $42.2 million and $38.2 million, respectively.

Restricted Stock Unit Activity

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


	Outstanding Restricted Stock Units
	Restricted Stock Units	Weighted- Average Grant Date Fair Value per Share		Weighted Average Remaining Vesting Life	Aggregate Intrinsic Value
				(in years)	(in thousands)
Unvested December 31, 2022	5,493,406	$	16.86	1.54	$	34,554
Granted	12,119,645	4.55		1.79
Vested	(1,905,294)	17.47
Forfeited	(3,527,286)	9.39
Unvested December 31, 2023	12,180,471	$	6.68	2.00	$	39,099
Vested and expected to vest, December 31, 2023	12,180,471	$	6.68	2.00	$	39,099

For the year ended December 31, 2023, the Company granted 3,264,750 performance-based restricted stock units and 2,189,125 restricted stock units with a market condition to certain executive officers and other employees pursuant to the 2018

Plan. These awards are subject to the holders' continuous service to the Company through each applicable vesting event. Through December 31, 2023, the Company believes that the achievement of the requisite performance conditions for these awards are not probable. As a result, no compensation expense has been recognized related to the performance-based restricted stock units in the year ended December 31, 2023. The Company recognized $2.2 million in stock-based compensation expense related to the restricted units with a market condition for the year ended December 31, 2023.

For the years ended December 31, 2023, 2022 and 2021, total stock-based compensation expense related to restricted stock units, performance based restricted stock units and restricted stock units with a market condition was $28.5 million, $34.3 million and $26.6 million, respectively. For the years ended December 31, 2023, 2022 and 2021, total fair value of vested restricted stock units, performance based restricted stock units and restricted stock units with a market condition as of their grant dates was $33.3 million, $32.8 million and $18.5 million, respectively. As of December 31, 2023 and 2022, there was $50.7 million and $70.5 million, respectively, of unrecognized stock-based compensation which is expected to be recognized over a weighted average period of 2.36 years and 2.55 years, respectively.

Employee Stock Purchase Plan

In October 2018, the stockholders approved the 2018 Employee Stock Purchase Plan (ESPP), which initially reserved 1,160,000 shares of the Company's common stock for employee purchases under terms and provisions established by the Board of Directors. Effective January 1, 2023 and 2022, the number of shares authorized under the ESPP for employee purchases increased by 1,444,383 and 1,426,230 shares respectively. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. Under the current offering adopted pursuant to the ESPP, each offering period is approximately 24 months, which is generally divided into four purchase periods of approximately six months.

Employees are eligible to participate if they are employed by the Company. Under the ESPP, employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of common stock on the first trading day of each offering period or on the purchase date. The ESPP provides for consecutive, overlapping 24-month offering periods. The offering periods are scheduled to start on the first trading day on or after March 16 or September 16 of each year, except for the first offering period which commenced on October 11, 2018, the first trading day after the effective date of the Company’s registration statement. Contributions under the ESPP are limited to a maximum of 15% of an employee’s eligible compensation.

The fair values of the rights granted under the ESPP were calculated using the following assumptions:


	Year ended December 31,
	2023	2022
Expected term (in years)	0.50 – 2.00	0.50 – 2.00
Volatility	67.32% - 85.05%	74.20% - 85.63%
Risk-free interest rate	4.05%-5.35%	0.86% - 3.88%
Dividend yield	—	—

For the years ended December 31, 2023, 2022 and 2021, total stock-based compensation expense related to ESPP was $3.1 million, $3.6 million and $2.3 million, respectively.

Founders’ Stock

In 2018, the Company’s founders agreed to modify their common shares outstanding to include vesting provisions that require continued service to the Company in order to vest in those shares. Stock-based compensation expense is recognized for shares of founders’ stock as vesting conditions are met. In relation to the modification, 24,230,750 shares of founders’ stock remained unvested at the modification date in April 2018. For the years ended December 31, 2022, and 2021, $3.4 million and $13.7 million of stock-based compensation expense was recognized related to the vesting of 1,514,424, and 6,057,695 shares, respectively, of founders' stock. At December 31, 2022, there was no unrecognized stock-based compensation expense. The weighted-average fair value at grant date for founders’ stock was $2.27 per share.

Stock-based compensation expense

For the years ended December 31, 2023, 2022 and 2021, the Company recorded $66.0 million, $83.6 million and $80.8 million, respectively, of stock-based compensation expense related to stock options, restricted stock units, employee stock purchase plans and vesting of the founders’ common stock as research and development and general and administrative expense in its consolidated statements of operations and comprehensive loss.

Early Exercised Options

The Company allows certain of its employees and its directors to exercise options granted under the Prior 2018 Plan and 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 and other long-term liabilities for the noncurrent portion. The proceeds are reclassified to paid-in capital as the repurchase right lapses. During the years ended December 31, 2023 and 2022, no options were early exercised. As of December 31, 2023 and 2022, there was $0.5 million and $1.9 million, respectively, recorded in accrued and other liabilities and zero and $0.6 million, respectively, 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 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.