Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Stock-Based Compensation

Stock-Based Compensation

10. Stock-Based Compensation

Stock-based compensation expense as reflected in the Company’s condensed consolidated statements of operations and comprehensive loss was as follows (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Research and development	$	211	$	83	$	485	$	157
General and administrative		672		576		1,862		725
Stock-based compensation expense included in operating expenses	$	883	$	659	$	2,347	$	882

2021 Equity Incentive Plan

The Company has two equity incentive plans: the 2019 Equity Incentive Plan (“2019 Plan”), and the 2021 Equity Incentive Plan (“2021 Plan”). New awards can only be granted under the 2021 Plan, under which the Company is able to issue equity awards to employees, board members, consultants, and advisors. The 2021 Plan became effective on June 24, 2021, the date the prospectus related to the Company's IPO was deemed effective by the SEC. The 2021 Plan authorizes the award of stock options, restricted stock awards (“RSAs”), stock appreciation rights (“SARs”), restricted stock units (“RSUs”), cash awards, performance awards and stock bonus awards. The Company initially reserved 1,483,445 shares of its common

stock, plus any reserved shares not issued or subject to outstanding grants under the 2019 Plan on the effective date of the 2021 Plan, for issuance pursuant to awards granted under the 2021 Plan. The number of shares reserved for issuance under the 2021 Plan will increase automatically on January 1 of 2022 through 2031 by the number of shares equal to the lesser of 5% of the aggregate number of outstanding shares of the Company’s common stock as of the immediately preceding December 31, or a number as may be determined by the Company’s board of directors in any particular year. As such, 1,160,296 shares were added to the Plan in January 2022. As of September 31, 2022, 1,484,779 shares remained available for future issuance under the 2021 Plan.

2021 Employee Stock Purchase Plan

The Company has adopted the Employee Stock Purchase Plan (“ESPP”) which became effective June 24, 2021, the date the prospectus related to the Company's IPO was deemed effective by the SEC, to enable eligible employees to purchase shares of its common stock with accumulated payroll deductions at a discount beginning on a date to be determined by the board of directors or compensation committee. The ESPP is intended to qualify under Section 423 of the Code. The Company initially reserved 228,222 shares of its common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP will increase automatically on January 1st of 2022 through 2031 by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31 (rounded to the nearest whole share) or a number of shares as may be determined by the Company’s board of directors in any particular year. As such, 232,059 shares were added to the Plan in January 2022. As of September 30, 2022, no offering periods have commenced, and 460,281 shares remained available for future issuance under the ESPP.

The aggregate number of shares issued over the term of the ESPP, subject to stock splits, recapitalizations or similar events, may not exceed 4,564,440 shares of the Company’s common stock.

Stock options

The following is a summary of the Company’s stock option activity for the nine months ended September 30, 2022:

		Weighted-		Weighted- average	Aggregate
		average		remaining contractual	intrinsic value
	Options	exercise price		term (in years)	(in thousands)
Outstanding at December 31, 2021	3,021,799	$	3.71	8.94	$	10,903
Granted	1,628,795		3.06
Exercised	(44,105)		0.43
Cancelled	(232,987)		4.24
Outstanding at September 30, 2022	4,373,502		3.47	8.86	$	477
Vested at September 30, 2022	1,189,491		1.95	8.66	$	316
Vested and expected to vest at September 30, 2022	4,373,502	$	3.47	8.86	$	477

The following is a summary of the Company’s stock option activity for the nine months ended September 30, 2021:

		Weighted-		Weighted- average	Aggregate
		average		remaining contractual	intrinsic value
	Options	exercise price		term ( in years)	(in thousands)
Outstanding at December 31, 2020	1,761,062	$	0.95	9.54	$	723
Granted	1,088,000		7.78	—		3,087
Outstanding at September 30, 2021	2,849,062		3.56	9.13	$	12,056
Vested at September 30, 2021	398,157		0.96	8.30	$	2,805
Vested and expected to vest at September 30, 2021	2,849,062	$	3.56	9.13	$	12,056

The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2022 and 2021 was $2.04 and $5.07 per share, respectively. The fair value of each stock option was estimated using a Black-Scholes option-pricing model with the following assumptions:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Risk-free interest rate	2.71 - 3.47	%	1.19	%	1.62 - 3.47	%	0.95 - 1.19	%
Volatility	72	%	76	%	72 - 80	%	76 - 77	%
Dividend yield	0.00	%	0.00	%	0.00	%	0.00	%
Expected term (years)	6		6		6		6

The fair value of options that vested during the nine months ended September 30, 2022 and 2021 was $1.5 million and $0.3 million, respectively. The Company recorded stock-based compensation expense associated with stock option awards of $1.7 million and $0.7 million during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there was $7.2 million of total unrecognized compensation cost related to unvested stock-based awards, which the Company expects to recognize over a remaining weighted-average period of 2.8 years.

Restricted Common Stock

The terms of the 2019 Plan permitted certain option holders to exercise options before their options were vested, subject to certain limitations. Upon early exercise, the awards become subject to a restricted stock agreement and are subject to the same vesting provisions in the original stock option awards. Shares issued as a result of early exercise that have not vested are subject to repurchase by the Company upon termination of the purchaser’s employment, at the lesser of the price paid by the purchaser or the fair value of the shares at the time of repurchase. Such shares are not deemed to be issued for accounting purposes until they vest and are therefore excluded from shares outstanding until the repurchase right lapses and the shares are no longer subject to the repurchase feature. The liability is reclassified as common stock and additional paid-in capital as the shares vest and the repurchase right lapses. Accordingly, the Company has recorded the unvested portion of the exercise proceeds of less than $0.01 million as a liability from the early exercise in the accompanying condensed consolidated balance sheets as of each of September 30, 2022 and December 31, 2021. The Company recorded stock-based compensation expense associated with restricted common stock of less than $0.1 million during each of the three and nine months ended September 30, 2022 and 2021.

Restricted Stock Units

The Company issues RSUs to employees that generally vest over a four-year period with 25% of awards vesting after one year and then quarterly thereafter. Any unvested shares will be forfeited upon termination of services. The fair value of an RSU is equal to the fair market value price of the Company’s common stock on the date of grant. RSU expense is amortized straight-line over the vesting period.

The following table summarizes activity related to RSUs:

		Weighted- average
		grant date
	Number of shares	fair value
Unvested at December 31, 2021	200,996	$	16.00
Granted	—		—
Vested	(62,811)	$	16.00
Unvested at September 30, 2022	138,185	$	16.00

The Company recorded stock-based compensation expense of $0.2 million and $0.6 million for the three and nine months ended September 30, 2022, related to RSUs, respectively. As of September 30, 2022, the total unrecognized expense related to all RSUs was $2.2 million, which the Company expects to recognize over a weighted-average period of 2.7 years.

In connection with the vesting of RSUs, the Company adopted a net settlement method whereby shares of Common Stock are withheld to satisfy tax withholding and remittance obligations. During the nine months ended September 30, 2022, the Company withheld 23,868 shares, which are held in Treasury Stock, for less than $0.1 million.