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Note 14 - Equity Incentive Plan
 12 Months Ended
Dec. 31, 2021
Notes to Financial Statements  
Share-based Payment Arrangement [Text Block]

14. Equity Incentive Plan

 

Equity Incentive Plan

 

The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and subsequently amended on June 18, 2019, June 16, 2020 and June 16, 2021. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SAR’s will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.6 million shares of common stock may be issued under the 2017 Plan. There are 1.9 million shares available for future grant at December 31, 2021 under the 2017 Plan.

 

The Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021. The Inducement Plan reserves 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards may be granted only to an individual who was not previously the Company’s employee or director with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended). There are 123,463 shares available for future grant at December 31, 2021 under the Inducement Plan.

 

The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to or greater than the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over one to four years with a maximum contractual term of ten years.

 

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows (in thousands):

 

  

Years Ended December 31,

 
  

2021

  

2020

  

2019

 

Cost of revenue

 $716  $719  $412 

Research and development

  1,233   713   424 

Selling, general and administrative

  9,136   3,954   5,251 

Total stock-based compensation expense

 $11,085  $5,386  $6,087 

 

For the years ended December 31, 2021, 2020 and 2019, tax benefits of $0.1 million, $0.2 million and $0.1 million, respectively, are associated with the stock-based compensation expense above.

 

The Company’s former President and Chief Executive Officer, Joseph Darling, passed away unexpectedly in January 2020. According to the terms of Mr. Darling’s equity award grants and the 2017 Plan, the unvested portion of his stock-based compensation was forfeited upon his death, resulting in a one-time benefit of $1.8 million that was fully recognized during the three-month period ended March 31, 2020 within selling, general and administrative expenses.

 

Stock Options

 

Stock options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are granted or, in the case of premium options, are granted with an exercise price at 110% of the market price of the Company’s common stock on the date of grant. Options generally vest in equal annual installments over a period of three to four years and expire 10 years after the date of grant. The grant-date fair value of options is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

 

The following summarizes the activity under the Company’s stock option plans:

 

 

  

Number
of
Options

  

Weighted
Average
Exercise Price

  

Weighted Average

Remaining

Contractual

Term (in years)

  

Aggregate
Intrinsic

Value

(in thousands)

 

Outstanding as of December 31, 2020

  896,819  $41.50         

Granted

  529,505  $38.08         

Exercised

  (31,466) $34.58      $257 

Forfeited and canceled

  (218,865) $44.77         

Outstanding as of December 31, 2021

  1,175,993  $39.56   8.4  $975 

Vested, December 31, 2021

  299,451  $43.64   7.2  $264 

Vested or expected to vest, December 31, 2021

  1,175,993  $39.56   8.4  $975 

 

 

The aggregate intrinsic value of options exercised for the years ended December 31, 2020 and 2019 was $2.8 million and $8.5 million, respectively.

 

The Company granted 529,505 stock options during the year ended December 31, 2021, of which 323,766 shares were premium-priced options.

 

The Company uses the Black-Scholes pricing model to determine the fair value of options granted. The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s common stock over the expected term of the award, the expected life of the award, the risk-free interest rate and the dividend yield. The Company estimates the fair value of TSRs using Monte-Carlo simulation model where the expected volatility assumption is evaluated over 6.3 years. The actual number of TSR options that may be earned ranges from 0% to 150% of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years. There are 104,638 TSRs as of December 31, 2021.

 

The assumptions used in the Black-Scholes pricing model for options granted during the years ended December 31, 2021 2020 and 2019, along with the weighted-average grant-date fair values, were as follows:

 

 

2021

 

2020

 

2019

 

Risk-free interest rate

 0.29%- 1.00%  0.21%- 1.59%  1.41%- 2.54% 

Expected stock price volatility

 54.80%- 56.35%  46.48%- 54.06%  44.27%- 48.52% 

Expected life of options (in years)

   4.0      4.0      3.5   

Expected dividend yield

   -%      -%      -%   

Fair value per option

   14.80      16.31      14.73   

 

As of December 31, 2021, there was $9.0 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 1.9 years.

 

Restricted Stock Units

 

RSUs generally vest in equal annual installments over a three or four year periods. The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company determines the fair value of restricted stock units based on the closing price of its common stock on the date of grant.

 

RSU activity for the year ended December 31, 2021 is as follows:

 

  

Number of
Shares

  

Weighted
Average
Fair Value

 

Outstanding as of December 31, 2020

 $233,239  $37.50 

Granted

  328,257  $35.88 

Vested

  (91,680) $37.94 

Forfeited and cancelled

  (57,158) $35.94 

Outstanding as of December 31, 2021

 $412,658  $36.33 

 

The weighted-average grant-date fair value per share of RSUs granted was $38.20 and $34.02 for the years ended December 31, 2020 and 2019, respectively. The total fair value of RSUs vested was $3.7 million, $2.2 million and $0.6 million for the years ended December 31, 2021, 2020 and 2019, respectively.

 

As of December 31, 2021, there was $10.3 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 1.9 years.

 

Performance Stock Units

 

PSUs generally vest over a three-year period from the grant date and include both a service and performance component. The PSUs granted to employees in 2019 contained performance conditions with business and financial targets. The business target, amounting to 30% of the total performance condition awards, was measured and achieved in the 2019 fiscal year. One of the financial targets, amounting to 55% of the total performance condition awards, was measured and achieved in the 2021 fiscal year, while the remaining financial target, amounting to 15% of the total performance condition awards, was not achieved. The PSUs granted to employees in 2020 contained performance conditions with business and financial targets. One of the business targets, amounting to 20% of the total performance condition awards, was not achieved in the 2021 fiscal year, while the remaining business target, amounting to 20% of the total performance condition awards, will ultimately be measured with respect to the regulatory approval process in the 2022 fiscal year. The financial targets, amounting to 60% of the total performance condition awards, will ultimately be measured with respect to the Company’s operating results in the 2022 fiscal year.

 

PSU activity for the year ended December 31, 2021 is as follows:

 

  

Number of
Shares

  

Weighted
Average
Fair Value

 

Outstanding as of December 31, 2020

  178,297  $35.93 

Forfeited and cancelled

  (20,000) $37.44 

Outstanding as of December 31, 2021

  158,297  $37.44 

 

The weighted-average grant-date fair value per share of PSUs granted was $36.93 and $33.05 for the years ended December 31, 2020 and 2019, respectively. The total fair value of PSUs vested was $0 for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, there was $0.1 million of unrecognized compensation cost related to PSUs in which milestones are expected to be achieved, which is expected to be recognized over a weighted-average period of 0.2 years.

 

Employee Stock Purchase Plan

 

On March 17, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (ESPP). The ESPP is authorized to issue up to 200,000 shares of common stock to participating employees. Employees that participate in the Company’s ESPP may purchase up to a maximum of 800 shares per six-month offering period or $25,000 worth of common stock per calendar year by authorizing payroll deductions of up to 10% of their base salary. The purchase price for each share purchased is 85% of the lower of the fair market value of the common stock on the first or last day of the offering period. The Company uses the Black-Scholes pricing model to determine the fair value of shares purchased under the ESPP. The calculation of the fair value of shares purchased is affected by the stock price on the grant date, the expected volatility of the Company’s stock over the expected term and the risk-free interest rate. The estimated fair value of shares purchased under the ESPP were based on the following assumptions:

 

  

2021

 

Risk-free interest rate

  0.06%

Expected stock price volatility

  32.58%

Expected life of options (in years)

  0.5 

Expected dividend yield

  -%