Stock Based Compensation

9 Months Ended

Sep. 30, 2022

Stock Based Compensation

Stock Based Compensation

7. Stock Based Compensation

The Company uses stock options to provide long-term incentives to its employees, non-employee directors and certain consultants. The Company has two equity compensation plans under which awards are currently authorized for issuance: the 2020 Employee Stock Purchase Plan and the 2020 Equity Incentive Plan. The Company also has outstanding stock-based awards under its 2016 Equity Incentive Plan but is no longer granting awards under this plan. As of September 30, 2022, there were 1,722,783 shares available for issuance under the 2020 Equity Incentive Plan and 853,407 shares available for issuance under the 2020 Employee Stock Purchase Plan.

The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model. The Company was a private company prior to the initial public offering and lacked company-specific historical and implied volatility information for its stock. Therefore, it estimates its expected stock price volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield of 0% is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees and directors:

	Three months ended						Nine months ended
	September 30,						September 30,
	2022			2021			2022			2021
Risk-free interest rate		2.77	%		0.96	%		1.74	%		0.76	%
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%
Expected term (in years)		6.0			6.0			6.0			6.1
Expected volatility		85.10	%		78.36	%		84.28	%		78.34	%

Stock Option Activity

The following table summarizes the Company’s stock option activity since December 31, 2021:

				Weighted
				average
		Weighted		remaining	Aggregate
	Number of	average		contractual term	intrinsic value
	options	exercise price		(in years)	(in thousands)
Balances at December 31, 2021	3,138,646	$	10.74	7.6	$	328
Options granted	2,551,030		2.23
Options cancelled	(687,610)		8.40
Options exercised	(833)		0.57
Outstanding and expected to vest at September 30, 2022	5,001,233		6.72	8.0		—
Exercisable at September 30, 2022	2,041,630	$	7.61	6.3	$	—

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

The aggregate intrinsic value of stock options exercised during the three and nine months ended September 30, 2022 and 2021 were $0, less than $0.1 million, $1.1 million and $5.8 million, respectively. The weighted average grant date fair value of stock options during the three and nine months ended September 30, 2022 and 2021 were $0.74, $2.23, $8.22 and $30.61 respectively.

Restricted Stock Units

The Company has granted restricted stock units with time-based vesting conditions to employees. The restricted stock units primarily vest over 3 years from the grant date. The Company values restricted stock units on the grant-date using the market price of the Company’s common stock.

The following table summarizes restricted stock unit activity since December 31, 2021:

		Weighted
		average grant
	Shares	date fair value
Unvested shares as of December 31, 2021	275,400	$	5.57
Vested	(25,460)		5.65
Forfeited	(85,600)		5.62
Unvested shares as of September 30, 2022	164,340	$	5.53

Stock-based Compensation Expense

Stock-based compensation expense related to stock options and restricted stock units was classified in the statement of operations and comprehensive loss as follows (in thousands):

	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Research and development	$	406	$	318	$	1,470	$	2,028
General and administrative		936		1,187		3,221		3,167
	$	1,342	$	1,505	$	4,691	$	5,195

As of September 30, 2022, total unrecognized stock-based compensation expense related to unvested stock-based awards and units was $11.6 million, which is expected to be recognized over a weighted average period of 2.2 years.

At-the-Market Offering

On April 14, 2022, the Company entered into an Equity Distribution Agreement with Canaccord Genuity LLC, or Canaccord, pursuant to which the Company may issue and sell shares of common stock, from time to time, having an aggregate offering price of up to $10.0 million. Sales of common stock through Canaccord may be made by any method that is deemed an “at the market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. The Company is not obligated to make any sales of its common stock under the Equity Distribution Agreement. Any sales under the Equity Distribution Agreement will be made pursuant to the registration statement on Form S-3 (File No 333- 264296), which became effective on April 22, 2022 and the prospectus relating to such offering. There were no sales under the Equity Distribution Agreement as of September 30, 2022.