Stock based compensation

9 Months Ended

Sep. 30, 2022

Stock based compensation

Stock based compensation

Note 17—Stock-based compensation

As part of the merger discussed in Note 2 above, the Company adopted from Prior Century, the 2018 Stock Option and Grant Plan (the “Plan”). The Plan provides for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the Board of Directors, and consultants of the Company under terms and provisions established by the Board of Directors. Under the terms of the Plan, options may be granted at an exercise price not less than fair market value.

The Company’s stock-based awards are subject to service-based vesting conditions and performance-based vesting conditions. Compensation expense related to awards to employees and directors with service-based vesting conditions is recognized on a straight-line basis based on the grant date fair value over the associated service period of the award, which is generally the vesting term. Stock awards granted typically vest over a four-year period but may be granted with different vesting terms. For performance-based awards, the Company reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable. On June 17, 2021, this plan was replaced by the Century Therapeutics, Inc. 2021 Equity Incentive Plan (the “2021 Incentive Plan”) and future issuances of incentive awards will be governed by that plan.

Upon adoption of the 2021 Incentive Plan, the Company was authorized to issue 5,481,735 shares of Common Stock under the 2021 Incentive Plan (which represents 5,640,711 shares of Common Stock initially available for grant under the 2021 Incentive Plan less 158,976 shares of Common Stock reserved for issuance upon the exercise of previously granted stock options that remain outstanding under the 2018 Incentive Plan).

The 2021 Employee Stock Purchase Plan (the “2021 ESPP”) was approved by the board of directors on May 27, 2021. A total of 564,071 shares of common stock were initially reserved for issuance under this plan. No shares are issued or outstanding under the 2021 ESPP.

On January 1, 2022, the Company was authorized to issue an additional 2,750,276 shares of Common Stock under the 2021 Incentive Plan and an additional 550,055 shares of Common Stock under the 2021 ESPP pursuant to “evergreen” provisions contained in each of the 2021 Incentive Plan and 2021 ESPP.

The Company recognizes the costs of the stock-based payments as the employees vest in the awards. For the three months ended September 30, 2022, the Company recognized $2,786 of stock-based compensation expense of which $1,419 was general and administrative expense and $1,367 was research and development expenses recorded within the consolidated statement of operations and comprehensive loss. For the nine months ended September 30, 2022, the Company recognized $7,937 of stock-based compensation expense of which $3,728 was general and administrative expense and $4,209 was research and development expenses recorded within the consolidated statement of operations and comprehensive loss.

Stock Options

The following table summarizes stock option activity for the nine month period ended September 30, 2022:

		Weighted Average
				Remaining		Aggregate
				Contractual		Intrinsic
				Term		Value
	Shares	Exercise Price		(years)		(in thousands)
Outstanding January 1, 2022	5,678,604	$	5.36	8.35	$	11,595
Granted	2,417,782		12.55	—		—
Exercised - vested	(203,001)		1.24	—		—
Forfeited	(169,326)		6.30	—		—
Outstanding, September 30, 2022	7,724,059	$	7.63	8.04	$	28,307
Exercisable at September 30, 2022	3,186,663	$	3.93	7.51	$	17,362

The weighted average grant date fair value of awards for options granted during the nine months ended September 30, 2022 was $8.22. As of September 30, 2022, there was $28,936 of total unrecognized compensation expense related to unvested stock options with time-based vesting terms, which is expected to be recognized over a weighted average period of 2.75 years.

During 2020, the Company issued 213,624 performance-based awards, respectively, that vest upon contingent events. The performance condition for these awards were achieved as of September 30, 2021. As a result, the Company recorded compensation expense related to the performance-based awards of $227 in 2021.

The Company estimates the fair value of its option awards to employees and directors using Black-Scholes. Due to the lack of substantial company-specific historical and implied volatility data of its common stock, the Company has based its estimate of expected volatility on the historical volatility of a group of similar public companies. The Company has never paid dividends and does not expect to in the foreseeable future. The expected term of the options granted to employees is derived from the “simplified” method as described in Staff Accounting Bulletin 107 relating to stock-based compensation. The risk-free interest rates for periods within the expected term of the option are based on the U.S. Treasury securities with a maturity date commensurate with the expected term of the associated award. The Company will account for actual forfeitures as they occur.

The weighted-average assumptions used to calculate the fair value of stock options granted are as follows:

	September 30, 2022
Expected dividend rate	—
Expected option term (years)	6.07
Expected volatility	73.47	%
Risk-free interest rate	1.95	%

Restricted Stock

The following table summarizes restricted stock activity as of September 30, 2022 and December 31, 2021:

		Weighted Average
	Shares	Grant Date Fair Value
Total Unvested December 31, 2021	681,789	$	4.20
Granted	—		—
Vested	(434,009)		1.80
Total Unvested September 30, 2022	247,780	$	8.41

Pursuant to certain stock purchase agreements containing vesting and other provisions, the Company has the right to repurchase unvested shares.

As of September 30, 2022, there was $2,063 of total unrecognized compensation expense related to the unvested restricted stock with time-based vesting terms, which is expected to be recognized over a weighted average period of 1.38 years. All restricted stock vests over a four-year period.

Early-Exercise of Unvested Equity Awards

As part of the merger, the Company assumed a deposit liability from Prior Century. Certain equity award holders early exercised unvested equity awards. The cash received upon early exercise of options of $1,831 was recorded as a deposit liability on the Company’s balance sheet as of September 30, 2022.