Prior to the Conversion, Day One Holding LLC granted incentive shares under the Incentive Share Plan and was authorized to issue 8,924,177 incentive shares. Incentive shares were a separate non-voting class of shares that participated in distributions only after incentive shares vested, unless it was approved by the board of directors and included at least two of the preferred members, and a participation threshold was met. The incentive shares represented profits interests in Day One Holding LLC, which was an interest in the increase in the Company’s value over the participation threshold, as defined in its operating agreement and as determined at the time of grant. A holder of incentive shares had the right to participate in distributions of profits only in excess of the participation threshold. The participation threshold was based on the valuation of the Company’s common shares on or around the grant date.

The fair value of the incentive shares was estimated using an option pricing model with the following assumptions:


	Three Months Ended June 30,	Six Months Ended June 30,
	2021	2021
Common share fair value	$8.89	$6.36 - $8.89
Participating threshold	$7.51	$6.36 - $7.51
Risk free rate	0.14%	0.14%
Volatility	72.90%	72.90%
Time to liquidity (in years)	0.20 - 1.80	0.20 - 1.80
Grant date fair value	$4.24	$4.24 - $4.52

During the Conversion, the Company converted all incentive shares to vested and unvested shares of common stock. As such, there was no incentive shares activity for the three and six months ended June 30, 2022.

The Company used the option pricing model to estimate the fair value of each incentive shares award on the date of grant. The members’ equity value was based on a recent enterprise valuation analysis performed and common share fair value. The participation threshold amounts were determined by the board of directors at the time of grant. The expected life of the awards granted during the period was determined based on an expected time to the liquidation event. The Company applied the risk-free interest rate based on the U.S. Treasury yield in effect at the time of the grant.

The following table provides a summary of the unvested common stock awards activity during the six months ended June 30, 2022.


	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Unvested common stock as of December 31, 2021		3,753,862		$	16.00
Vested		(905,402	)	$	16.00
Forfeiture		(40,363	)	$	16.00
Unvested common stock as of June 30, 2022		2,808,097		$	16.00

In May 2021, in connection with the IPO, the board of directors and stockholders approved the 2021 Equity Incentive Plan, or the 2021 Plan, which became effective on the day before the date of the effectiveness of the IPO. The 2021 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, awards of restricted stock, restricted stock units and other stock-based awards. The number of shares of common stock reserved for issuance under the 2021 Plan is equal to the sum of: (x) 6,369,000 shares of common stock; plus (y) 4,719,605 shares of common stock issued in respect of the Conversion of incentive shares that were subject to vesting immediately prior to the effectiveness of the registration statement for the IPO that expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right. The number of shares available for grant and issuance under the 2021 Plan will be automatically increased on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2021 and continuing for each fiscal year until, and including, the fiscal year commencing on January 1, 2031, by the lesser of (a) 5% of the number of shares of all classes of the Company’s common stock, plus the total number of shares of Company common stock issuable upon conversion of any preferred stock or exercise of any warrants to acquire shares of Company common stock for a nominal exercise price issued and outstanding on each December 31 immediately prior to the date of increase or (b) such number of shares determined by the board of directors.

The following table provides a summary of stock option activity under the 2021 Plan during the six months ended June 30, 2022.


	Options			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		5,071,896		$	16.90
Granted		2,540,780		$	13.93
Forfeiture		(86,840	)	$	17.64
Outstanding at June 30, 2022		7,525,836		$	15.89		9.2	$	18,367
Exercisable at June 30, 2022		1,448,186		$	15.91		9.0	$	2,985

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

The total fair value of options that vested during the six months ended June 30, 2022 was $10.1 million. The weighted-average grant date fair value of options granted during the six months ended June 30, 2022 was $8.36 per share.

Unamortized stock-based compensation for stock options as of June 30, 2022 was $53.1 million, which is expected to be recognized over a weighted-average period of 3.1 years.

The following table provides a summary of restricted stock units activity under the 2021 Plan during the six months ended June 30, 2022:


	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Unvested restricted stock units at December 31, 2021		96,890		$	22.93
Granted		368,145		$	13.69
Vested		(28,175	)	$	14.26
Forfeiture		(6,010	)	$	20.00
Unvested restricted stock units at June 30, 2022		430,850		$	15.64

Restricted stock units vest quarterly over four years with a one-year cliff from the grant date. Unamortized stock-based compensation for restricted stock units as of June 30, 2022 was $6.1 million, which is expected to be recognized over a weighted-average period of 3.5 years.

In May 2021, the board of directors adopted, and the stockholders approved the 2021 Employee Stock Purchase Plan, or the ESPP, which became effective on May 26, 2021. A total of 603,000 shares of common stock were initially reserved for issuance under the ESPP. The number of shares of the common stock reserved for issuance under the ESPP will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2021 and continuing for each fiscal year until, and including, the fiscal year commencing on January 1, 2031, by the lesser of: (a) 1% of the total number of outstanding shares of common stock of the Company (on an as converted basis outstanding on the immediately preceding December 31 (rounded down to the nearest whole share) and (b) an amount determined by the board of directors. 72,524 shares have been issued under the ESPP as of June 30, 2022. The Company recognized $0.3 million compensation expense related to the ESPP plan for the three and six months ending June 30, 2022.

The fair value of our common stock to be issued under the ESPP is estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended June 30,			Six Months Ended June 30,
	2022	2021		2022	2021
Expected term (in years)	0.50		—	0.50		—
Expected volatility	58.49%		—	58.49%		—
Risk-free interest rate	1.54%		—	1.54%		—
Expected dividend yield	—		—	—		—

The Company used the Black-Scholes option pricing model to estimate the fair value of stock options awards granted with the following assumptions:


	Three Months Ended June 30,			Six Months Ended June 30,
	2022	2021		2022	2021
Expected term (in years)	5.27 - 6.33	5.28 - 5.90		5.27 - 6.33	5.28 - 5.90
Expected volatility	65.30% - 69.43%	64.91% - 66.51%		65.20% - 69.43%	64.91% - 66.51%
Risk-free interest rate	1.73% - 3.38%	0.86% - 1.00%		1.47% - 3.38%	0.86% - 1.00%
Expected dividend yield	—		—	—		—

In June 2022, the Company granted performance awards consisting of performance stock options, or PSOs, and performance stock units, or PSUs, pursuant to the 2021 Equity Incentive Plan. Each performance award is earned through the achievement of a performance-based metric over a defined performance period determined by the compensation committee of the Company's board of directors. The estimated fair value of the equity awards that contain performance conditions is expensed over the term of the award once the Company has determined that it is probable that the performance conditions will be satisfied. During the three and six months ended June 30, 2022, the Company granted 152,550 PSOs with a weighted-average grant date fair value of $7.89 per share and 99,250 PSUs with a weighted-average grant date fair value of $15.25 per share. The total fair values of PSOs and PSUs granted were $1.2 million and $1.5 million, respectively. As of June 30, 2022, no PSOs or PSUs had vested since the achievement of the performance-based metrics of the performance awards was not deemed probable.

The Company used the Black-Scholes option pricing model to estimate the fair value of the PSO awards granted with the following assumptions:


	Three Months Ended June 30,			Six Months Ended June 30,
	2022	2021		2022	2021
Expected term (in years)	2.96 - 3.71		—	2.96 - 3.71		—
Expected volatility	72.13% - 72.36%		—	72.13% - 72.36%		—
Risk-free interest rate	3.37%		—	3.37%		—
Expected dividend yield	—		—	—		—

Share/stock-based compensation expense recorded in the accompanying condensed consolidated statements of operations is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development expense	$	2,075	$	713	$	4,222	$	832
General and administrative expense		3,556		1,824		7,611		2,243
Total share-based compensation expense	$	5,631	$	2,537	$	11,833	$	3,075

As of June 30, 2022, there was $70.0 million of unrecognized compensation cost related to unvested restricted stock, unvested restricted stock units, unvested stock options, and shares subject to purchase under the ESPP that is expected to be recognized over a weighted-average period of approximately 2.9 years.

As of June 30, 2022, there was $2.7 million of unrecognized compensation cost related to unvested PSOs and PSUs. The Company will recognize the PSO and PSU expense through the expected vesting dates when the achievement of the performance-based metrics is probable. As of June 30, 2022, the achievement of the performance-based metrics of the PSOs and PSUs were not deemed probable.