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Convertible Preferred Stock and Stockholders’ Equity (Deficit)
 9 Months Ended
Sep. 30, 2023
Equity [Abstract]  
Convertible Preferred Stock and Stockholders’ Equity (Deficit) Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Convertible Preferred Stock
The authorized, issued and outstanding shares of convertible preferred stock as of December 31, 2022 consist of the following (in thousands, except share amounts):
Shares
Authorized		Shares Issued
and
Outstanding		Liquidation
Preference		Carrying
Value
Series A45,000,0008,753,147$41,512 $45,937 
Series B46,666,6729,077,34296,860 104,270 
Series C23,999,9964,668,33899,628 105,702 
Series D63,972,98212,443,676159,755 159,349 
Total179,639,65034,942,503$397,755 $415,258 
Upon closing of the IPO in September 2023, all outstanding shares of the Company's convertible preferred stock automatically converted into 35,616,773 shares of common stock. As a result, there were no shares of convertible preferred stock issued and outstanding as of September 30, 2023.
In August 2022, the Company entered into a Series D preferred stock purchase agreement with new and existing investors, pursuant to which it issued, in August and September 2022, an aggregate of 12,443,676 shares of its Series D convertible preferred stock at $12.83824 per share for gross proceeds of $159.8 million.
The issuance of the Series D convertible preferred stock triggered the anti-dilution protection provision for Series C stockholders. As a result, the Company recorded a $4.6 million deemed dividend for the change in fair value of the Series C convertible preferred stock before and after the anti-dilution adjustment. The fair value of the Series C convertible preferred stock was determined using a “with-and-without” model under which the equity value of the Company was allocated using a hybrid method, whereby the enterprise value in the IPO scenario is allocated to each class of shares using the fully-diluted shares outstanding and whereby the enterprise value in the non-IPO scenario is allocated using an OPM to reflect the full distribution of possible non-IPO outcomes, both before and after the anti-dilution adjustment. The following table summarizes information about the significant Level 3 unobservable inputs used to estimate the fair value of the Company’s preferred stock at the modification date:
Risk-free interest rate3.45 %
Expected volatility80.0 %
Expected term (in years)2.0
Expected dividend yield0.0 %
In September 2023, the IPO triggered the anti-dilution protection provision for the Series C stockholders. As a result, the Company recorded a $1.2 million deemed dividend for the value of the anti-dilution protection. The value was determined as the difference between fair values of two financial instruments, the shares of common stock into which the preferred stock converted based on the adjusted conversion rates (determined using the IPO price of $18.00 per share), and the value of the common stock that preferred stock would have converted into upon completion of the IPO, had there not been a provision for anti-dilution.
Founders Stock
From April to July 2020, in conjunction with the founding of the Company, an aggregate of 1,884,213 shares of common stock were issued to the founders (the “Founders Stock”) at prices up to $0.005141 per share. At issuance, 1,167,087 shares of Founders Stock were fully vested and 717,126 shares of Founders Stock were subject to vesting over a period of up to four years. As of September 30, 2023 and December 31, 2022, 178,761 shares and 313,230 shares, respectively, of Founders Stock were unvested and subject to repurchase by the Company at the lower of the original cost or the fair value of the stock at the time of repurchase. As of September 30, 2023 and December 31, 2022, the repurchase liability for the Founders Stock was $1,000 and $2,000, respectively. For accounting purposes, unvested shares of common stock are not considered outstanding until they vest.
In February 2022, the Company entered into a stock purchase agreement to repurchase 194,514 shares of common stock from a stockholder at a cash purchase price of $9.56226 per share. The repurchase was completed using cash on hand and the shares were retired upon reacquisition. The common stock was originally issued at par value and the excess of the repurchase price over the par value was charged to accumulated deficit.
Equity Incentive Plans
In July 2020, the Company adopted the RayzeBio, Inc. 2020 Equity Incentive Plan (as amended, the “2020 Plan”), which provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other awards to its employees, members of its board of directors and consultants. The Company will not grant any additional awards under the 2020 Plan after the effectiveness of the 2023 Plan.
In September 2023, the Company’s board of directors adopted and stockholders approved the 2023 Equity Incentive Plan (the “2023 Plan” and together with the 2020 Plan, the “Plans”). The 2023 Plan became effective on September 14, 2023. Under the 2023 Plan, the Company may grant stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors and consultants of the Company, and employees and consultants of the Company’s affiliates. A total of 6,000,000 new shares of common stock were approved to be initially reserved for issuance under the 2023 Plan. The number of shares of common stock reserved for issuance under the 2023 Plan will automatically increase on January 1 of each year, beginning on January 1, 2024, and continuing through and including January 1, 2033, by 5% of the total number of shares of common stock outstanding on December 31 of the immediately preceding calendar year, or a lesser number of shares determined by the Company’s board of directors prior to the applicable January 1.
A summary of the Company’s unvested shares and unvested stock liability, including unvested Founders Stock, is as follows (in thousands, except share data):
Number of
Unvested
Shares		Unvested
Stock
Liability
  
Balance at December 31, 2022982,299$929 
Early exercised shares745,5672,413 
Vested shares(506,861)(722)
Balance at September 30, 20231,221,005$2,620 
A summary of the Company’s stock option activity is as follows (in thousands, except share and per share data):
Number of
Outstanding
Options		Weighted-
Average
Exercise
Price		Weighted-
Average
Remaining
Contractual
Term (in
Years)		Aggregate
Intrinsic
Value
Balance at December 31, 20224,674,131$3.07 9.47$21,702 
Granted879,628$6.71 
Exercised(1,209,126)$3.22 
Cancelled(87,053)$2.99 
Balance at September 30, 20234,257,580$3.78 8.97$78,411 
Vested and expected to vest at September 30, 20234,257,580$3.78 8.97$78,411 
Exercisable at September 30, 20234,219,723$3.66 8.96$78,251 
Stock-Based Compensation Expense
The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Risk-free interest rate
4.47% – 4.63%
—%
3.41% – 4.63%
1.58% – 2.93%
Expected volatility
93.8% – 94.7%
—%
88.9% – 94.7%
81.9% – 84.5%
Expected term (in years)
5.77 – 6.07
0.00
5.77 – 6.07
6.03 – 10.00
Expected dividend yield0.0%0.0%0.0%0.0%
Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards.
Expected volatility. Given the Company's limited stock price volatility data for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. 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.
Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, for employees, which is an average of the contractual term of the option and its vesting period. The expected term for nonemployee options is generally the contractual term.
Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero.
2023 Employee Stock Purchase Plan
In September 2023, the Company’s board of directors adopted and stockholders approved and adopted the 2023 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on September 14, 2023. The ESPP permits participants to purchase common stock through payroll deductions of up to a specified percentage of their eligible compensation. A total of 600,000 shares of common stock were approved to be initially reserved for issuance under the ESPP. The number of shares of common stock reserved for issuance under the ESPP will automatically increase on January 1 of each calendar year, beginning on January 1, 2024 and continuing through and including January 1, 2033, by the lesser of (1) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, (2) 1,200,000 shares, and (3) a number of shares determined by the Company’s board of directors that is less than the amount set forth in clauses (1) and (2).
Employees automatically enrolled in the ESPP upon its effective date. The ESPP is considered a compensatory plan as defined by the authoritative guidance for stock-based compensation. Stock-based compensation expense attributable to the ESPP was $0 for the three and nine months ended September 30, 2023 and no funds had been withheld from employees in connection with the ESPP.
Stock-based compensation expense has been reported in the condensed statements of operations and comprehensive loss as follows (in thousands):
Three Months Ended
September 30,		Nine Months Ended
September 30,
2023202220232022
Research and development$1,063 $757 $3,023 $2,219 
General and administrative1,501 690 4,172 2,000 
Total$2,564 $1,447 $7,195 $4,219 
The weighted-average grant date fair value per share of option grants for the three and nine months ended September 30, 2023 was $8.86 and $8.36, respectively, and for the three and nine months ended September 30, 2022 $0 and $7.11, respectively. No options were granted for the three months ended September 30, 2022. As September 30, 2023, total unrecognized stock-based compensation cost was $26.1 million, which is expected to be recognized over a remaining weighted-average period of approximately 2.7 years. The total intrinsic value of stock options exercised for the three and nine months ended September 30, 2023 was $1.9 million and $9.8 million, respectively. The total intrinsic value of stock options exercised for the three and nine months ended September 30, 2022 was $0 and $0.4 million, respectively.
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consists of the following:
September 30,
2023		December 31,
2022
Conversion of preferred stock—35,543,204
Common stock options outstanding4,257,5804,674,131
Shares available for issuance under the Plans6,006,598799,173
Shares available for purchase under the ESPP600,000—
Total
10,864,17841,016,508