11. Stock-based compensation

2018 Stock Option and Grant Plan

In connection with a transaction between entities under common control by which the Company became the reporting entity in June 2018, the Board of Directors approved the 2018 Stock Option and Grant Plan, by which options granted by the previous reporting entity under the 2016 Stock Option Plan and outstanding at the time of the effectiveness of the transaction were replaced at similar commercial terms. In the accompanying consolidated financial statements and notes, options issued under previous stock option plans and respective compensation expenses are retrospectively presented as if such options had been issued and outstanding under the 2018 Stock Option and Grant Plan for all periods during which the previous reporting entity was under common control.

The exercise price for options granted as a replacement of the 2016 Stock Option Plan is the U.S. dollar equivalent of €0.09, except for 23,286 options granted to an US employee, for which the exercise price is $2.93 following a repricing of these options in December 2018. For any new options, the exercise price shall not be less than 100% of the fair market value of the common stock on the grant date.

Options granted under the 2018 Stock Option and Grant Plan generally vest over four years, with 25% of the options vesting upon the first anniversary of the grant date and the remaining 75% of the options vesting in 12 equal quarterly installments following the first anniversary of the grant date, provided the option holder continues to have an employment or service relationship with the Company on each vesting date. The options expire on the 10th anniversary of the grant date. As of December 31, 2019, 1,357,764 options granted under the 2018 Stock Option and Grant Plan remained outstanding. Any authorization to issue new options under the 2018 Stock Option and Grant Plan was cancelled upon the effectiveness of the 2019 Stock Option and Incentive Plan and no further awards will be granted under the 2018 Plan.

2019 Stock Option and Incentive Plan

On April 1, 2019, the Company’s stockholders approved the 2019 Stock Option and Incentive Plan, which became effective as of the effective date of the registration statement in connection with the Company’s IPO. The maximum number of shares of the Company’s common stock that may be issued under the Company’s 2019 Stock Option and Incentive Plan is 2,608,042, shares which shall be cumulatively increased each year by up to 4.0% of the then outstanding number of shares. Options granted under the 2019 Stock Option and Incentive Plan generally vest over four years, with 25% of the options vesting upon the first anniversary of the grant date and the remaining 75% of the options vesting in 12 equal quarterly installments following the first anniversary of the grant date, provided the option holder continues to have an employment or service relationship with the Company on each vesting date. Initial options granted to non-executive directors upon their election generally vest over a three-year term with 33% of the options vesting upon the first anniversary of the grant date and the remaining 67% of the options vesting in eight equal quarterly installments following the first anniversary of the grant date. Option re-grants to non-executive directors generally vest on the first anniversary of the grant date. The options expire on the 10th anniversary of the grant date. For each option the beneficiary is entitled to receive one share of common stock upon the exercise of the option.

Stock option valuation

The Company estimates the option’s fair value on the date of grant using the Black-Scholes option-pricing model. Black-Scholes utilizes assumptions related to expected term, volatility, the risk-free interest rate, the dividend and employee exercise behavior. Forfeitures are accounted for when they occur. Expected volatilities utilized in the Black-Scholes model are based on historical volatilities of a group of comparable companies. The group of representative companies have characteristics similar to the Company, including the stage of product development and focus of the life science industry. Management believes that this represents the most accurate basis for estimating expected future volatilities under the current conditions. The risk-free interest rate is derived from the yields for U.S. Treasuries with a remaining term approximating the expected life of the options. The expected term represents the period of time that the options granted are expected to be outstanding.

The following table summarizes, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model for estimating the fair value of stock options granted during:


	Year ended December 31,
	2019		2018		2017

Risk-free interest rate	2.21	%	2.78	%	(0.67)	%
Expected term (in years)	6.1		5.1		2.8
Expected volatility	74.2	%	72.1	%	66.1	%
Expected dividends	—	%	—	%	—	%

For option grants in 2017, the Company used AAA-rated euro area central government bond yields as the basis for the risk-free interest rate in the Black-Scholes model. For 2018 and 2019 option grants, following the change of incorporation to the United States, the Company used a risk-free interest rate based on the U.S. Treasury yield curve in effect at the time of grant. For the 2019 grants, the Company used the simplified method in developing an estimate of the expected term due to a lack of historical exercise data.

Stock option activity

The following table summarizes the Company’s stock option activity since January 1, 2019 (in thousands, except share and per share amounts):


				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
	Number of	Exercise		Contractual	Intrinsic
	Shares	Price		Term	Value
				(in years)
Outstanding as of December 31, 2018	1,606,325	$	1.95	8.0	$	13,466
Granted	1,661,200		12.34
Exercised	(157,636)		0.10
Forfeited	(110,605)		6.72
Outstanding as of December 31, 2019	2,999,284	$	7.63	8.1	$	15,840

Options exercisable as of December 31, 2019	836,105	$	0.88	6.1	$	9,488
Options unvested as of December 31, 2019	2,163,179	$	10.23	8.9	$	6,352

The aggregate intrinsic value of stock options was calculated as the difference between the exercise price of the stock options and the estimated 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 estimated fair value per common stock used for calculating the intrinsic values as of December 31, 2019 and December 31, 2018, was $12.23 and $10.33, respectively.

The aggregate intrinsic value of options exercised during the years ended December 31, 2019 and 2018 was $1.4 million and $1.0 million, respectively. There were no options exercised during the year ended December 31, 2017.

The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2019 and 2018 was $7.92 and $2.55, respectively.

Cash received from option exercise under share-based payment arrangements for the years ended December 31, 2019 and 2018 was $16 thousand and $9 thousand, respectively. No cash from option exercise was received in the year ended December 31, 2017.

Stock-based compensation

Stock-based compensation expense was classified in the consolidated statements of operations and comprehensive loss as follows (in thousands):


	Year ended December 31,
	2019		2018		2017

Research and development expenses	$	1,981	$	399	$	295
General and administrative expenses		3,584		468		475
	$	5,565	$	867	$	770

In the year ended December 31, 2018, the terms of 2,000 outstanding stock options were modified to increase the exercise price from $1.17 to $34.12. The Company determined that the fair value of the modified award on the effective date of the modification was smaller than the fair value of the original award immediately before the modification. Therefore, the modification did not lead to recognition of additional compensation cost or a change in unrecognized compensation cost.

As of December 31, 2019 and 2018, total unrecognized compensation cost related to the unvested stock-based awards was $9.3 million and $2.2 million, respectively, which is expected to be recognized over weighted average periods of 1.8 and 1.7 years, respectively.