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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2024
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation 2023 Employment Inducement Incentive Award Plan In August 2023, the Company’s Board of Directors adopted the 2023 Employment Inducement Incentive Award Plan, or the 2023 Plan, under which the Company may exclusively grant awards to its new employees as an inducement material to the employee’s entry into employment with the Company. The 2023 Plan was approved by the Company's Board of Directors without stockholder approval in accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules. Stock Option Activity A summary of the Company’s stock option activity under the 2012 Plan, the 2018 Plan and the 2023 Plan, and related information is as follows:
|  |  | Options Outstanding
| Shares Available for Grant |  | Shares Subject to Options Outstanding |  | Weighted-Average Exercise Price |  | Weighted-Average Remaining Contractual Life (Years) |  | Aggregate Intrinsic Value
| (unaudited)
|  |  | (in thousands)
Balance as of January 1, 2024 | 12,003,394 |  | 4,012,903 |  | $ | 31.76 |  |  | 6.6 |  | $ | 39,115 |
2018 Plan annual increase(1) | 3,689,000 |  | — |  |  |  |  |  |
Granted | (478,263) |  | 478,263 |  | 23.96 |  |  |  |  |
Exercised | — |  | (581,495) |  | 4.47 |  |  |  |  |
Canceled | 166,790 |  | (166,790) |  | 50.77 |  |  |  |  |
Restricted stock units granted | (1,874,273) |  | — |  | — |  |  |  |  |
Restricted stock units canceled | 682,506 |  | — |  | — |  |  |  |  |
Market-based restricted stock units canceled | 2,260,764 |  | — |  | — |  |  |  |  |
Performance-based restricted stock units granted | (870,268) |  | — |  | — |  |  |  |  |
Performance-based restricted stock units adjusted for performance achievement | (48,234) |  |  | — |  | — |  |  |  |  |
Performance-based restricted stock units canceled | 36,852 |  | — |  | — |  |  |  |  |
Balance as of September 30, 2024 | 15,568,268 |  | 3,742,881 |  | $ | 34.15 |  |  | 6.7 |  | $ | 21,302 |
Vested and Exercisable as of September 30, 2024 |  |  | 2,178,301 |  | $ | 33.96 |  |  | 5.1 |  | $ | 20,696 |
(1)Effective as of January 1, 2024, an additional 3,689,000 shares of common stock became available for issuance under the 2018 Plan, as a result of the operation of an automatic annual increase provision therein. 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 intrinsic value of the options exercised was $0.1 million and $0.2 million for the three months ended September 30, 2024, and 2023, respectively, and $9.1 million and $0.9 million for the nine months ended September 30, 2024, and 2023, respectively. The weighted-average grant date fair value of options granted was $19.42 and $24.42 per share for the three months ended September 30, 2024, and 2023, respectively, and $15.35 and $22.39 per share for the nine months ended September 30, 2024, and 2023, respectively. Future stock-based compensation for unvested options as of September 30, 2024 was $29.3 million, which is expected to be recognized over a weighted-average period of 1.9 years. Restricted Stock Units A summary of the Company’s restricted stock unit activity excluding the performance-based and market-based restricted stock units under the 2018 Plan and the 2023 Plan, and related information is as follows:
|  | Restricted Stock Units Outstanding |  | Weighted-Average Grant Date Fair Value
|  | (unaudited)
Balance as of January 1, 2024 |  | 4,346,785 |  | $ | 42.63 |
Granted |  | 1,874,273 |  | 21.31 |
Vested and released |  | (572,985) |  | 53.74 |
Canceled |  | (682,506) |  | 46.73 |
Balance as of September 30, 2024 |  | 4,965,567 |  | $ | 32.74 |
Future stock-based compensation for unvested restricted stock units as of September 30, 2024 was $119.1 million, which is expected to be recognized over a weighted-average period of 2.0 years. Performance-based Restricted Stock Units Since November 2020, the Compensation Committee of the Board of Directors started to approve, and the Company started to grant performance-based restricted stock units, or PSUs, to its employees and non-employees. The PSUs granted consist of financial and/or operational metrics to be met over a performance period of approximately 0.6 to 4 years and an additional service period requirement of up to 2 years after the performance metrics are met. In addition, granted units might be adjusted when certain performance metrics are met. The PSUs are expected to be expensed over a period of approximately 0.6 to 4.5 years subject to meeting the respective performance metrics and service requirements. In November 2020 and May 2021, and as part of these PSU programs, the Company granted PSUs consisting of a performance period of 4 years combined with an additional service period requirement of six months should the vesting criteria be met, with a grant date fair value of $113.40 per share and $148.19 per share, respectively. Before the third quarter of 2024, no compensation expense for these PSUs had been recorded since the achievement of the performance metrics did not meet the criteria for accrual. In the third quarter of 2024, the performance metrics of these PSUs were considered to be achieved; as such the Company recorded a cumulative charge of $23.5 million in stock-based compensation expense related to these PSUs, based on 221,347 shares granted with fair values of $113.40 per share and $148.19 per share. A summary of the Company’s PSU activity under the 2018 Plan and related information is as follows:
|  | Performance-based Restricted Stock Units Outstanding |  | Weighted-Average Grant Date Fair Value
|  | (unaudited)
Balance as of January 1, 2024 |  | 412,490 |  | $ | 91.25 |
Granted |  | 870,268 |  | 18.09 |
Vested and released |  | (2,251) |  | 32.86 |
Adjusted for performance achievement |  | 48,234 |  | 32.84 |
Canceled |  | (36,852) |  | 76.65 |
Balance as of September 30, 2024 |  | 1,291,889 |  | $ | 40.30 |
Stock-based compensation recorded for the PSUs was $22.7 million and $0.8 million for the three months ended September 30, 2024, and 2023, respectively, and $26.3 million and $1.3 million for the nine months ended September 30, 2024, and 2023, respectively. Future stock-based compensation for unvested PSUs that are probable to vest as of September 30, 2024 was $13.9 million, which is expected to be recognized over a weighted-average period of 1.9 years. Market-based Restricted Stock Units In May 2020, the Board of Directors approved and granted 1,695,574 market-based restricted stock units, or MSUs, under the 2018 Plan to each of the Company's Co-Chief Executive Officers, which is subject to the achievement of market-based share price goals established by the Board of Directors. The MSUs consist of three separate tranches and the vesting of each tranche is subject to the Company's common stock closing price being maintained at or above a predetermined share price goal for a period of 30 consecutive calendar days. The grant date fair values of the MSUs were determined using a Monte Carlo valuation model for each tranche. The related stock-based compensation expense for each tranche was recognized based on an accelerated attribution method over the estimated derived service period, which was the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model. On January 1, 2021, Tranche 1 of the MSUs became vested because it had met both service requirement and market-based performance metrics. All three tranches of the MSUs were fully expensed as of June 30, 2022. As of December 31, 2023, 2,260,764 shares of the MSUs, with a weighted-average grant date fair value of $65.20 per share, were outstanding under the 2018 Plan. In March 2024, the Board of Directors approved to cancel the unvested MSUs and concurrently approved to grant new awards to the Co-Chief Executive Officers, which was accounted for as a modification, however no stock-based compensation expense was reversed as the Company's Co-Chief Executive Officers had fulfilled the service requirement. Stock-Based Compensation Expense The following table presents the effect of employee and non-employee related stock-based compensation expense:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
|  | (unaudited)
|  | (in thousands)
Cost of precision oncology testing |  | $ | 1,484 |  |  | $ | 1,092 |  |  | $ | 4,020 |  |  | $ | 3,470 |
Cost of development services and other |  | 2,410 |  |  | 436 |  |  | 3,400 |  |  | 1,387 |
Research and development expense |  | 18,643 |  |  | 8,491 |  |  | 38,413 |  |  | 25,390 |
Sales and marketing expense |  | 13,215 |  |  | 5,061 |  |  | 27,633 |  |  | 18,387 |
General and administrative expense |  | 14,017 |  |  | 6,739 |  |  | 30,579 |  |  | 17,805 |
Total stock-based compensation expense |  | $ | 49,769 |  |  | $ | 21,819 |  |  | $ | 104,045 |  |  | $ | 66,439 |
Valuation of Stock Options The grant date fair value of stock options was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2024 |  | 2023 |  | 2024 |  | 2023
|  | (unaudited)
Expected term (in years) |  | 5.81 - 6.09 |  | 5.97 |  | 5.50 - 6.09 |  | 5.50 – 6.10
Expected volatility |  | 68.7% - 69.2% |  | 69.4% |  | 67.8% - 69.4% |  | 69.4% –70.5%
Risk-free interest rate |  | 3.8% - 4.1% |  | 4.2% |  | 3.8% - 4.5% |  | 3.4% – 4.2%
Expected dividend yield |  | —% |  | —% |  | —% |  | —%
The determination of the fair value of stock options on the date of grant using a Black-Scholes option-pricing model is affected by the estimated fair value of common stock of the Company, as well as assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine. The valuation assumptions were determined as follows: Fair Value of Common Stock The fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the Nasdaq Global Select Market. Expected Term The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term. Expected Volatility Prior to the commencement of trading of the Company’s common stock on the Nasdaq Global Select Market on October 4, 2018 in connection with its IPO, there was no active trading market for the Company's common stock. Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies in the same industry plus the Company's expected volatility for the available periods. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty. Risk-Free Interest Rate The risk-free interest rate is based on the U.S. Treasury rate, with maturities similar to the expected term of the stock options. Expected Dividend Yield The Company does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero. 2018 Employee Stock Purchase Plan In September 2018, the Company’s Board of Directors adopted and its stockholders approved the 2018 Employee Stock Purchase Plan, or the ESPP. A total of 922,250 shares of common stock were initially reserved for issuance under the ESPP. Effective as of January 1, 2020, March 2, 2023 and February 23, 2024, an additional 942,614, 1,026,194 and 1,106,700 shares of common stock became available for issuance under the ESPP. Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 10% of their earnings for the purchase of the Company’s common stock at a discounted price per share. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower. The ESPP provides for separate six-month offering periods beginning on May 15 and November 15 of each year. Shares of common stock purchased under the ESPP were nil for the three months ended September 30, 2024, and 2023, respectively, and 371,826 and 298,781 for the nine months ended September 30, 2024, and 2023, respectively. The grant date fair value of the stock purchase right granted under the ESPP was estimated on the first day of each offering period using the Black-Scholes option pricing model. The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the expected term which was based on the term of each purchase period. No stock purchase rights were granted under the ESPP for the three months ended September 30, 2024, and 2023. The grant date fair value of the stock purchase rights granted under the ESPP for the nine months ended September 30, 2024, and 2023 was estimated using a Black-Scholes option-pricing model with the following assumptions:
|  | Nine Months Ended September 30,
|  | 2024 |  | 2023
|  | (unaudited)
Expected term (in years) |  | 0.50 |  | 0.50
Expected volatility |  | 64.2% |  | 76.6%
Risk-free interest rate |  | 5.4% |  | 5.2%
Expected dividend yield |  | —% |  | —%
The total compensation expense related to the ESPP was $0.9 million and $0.8 million for the three months ended September 30, 2024, and 2023, respectively, and $3.4 million and $3.8 million for the nine months ended September 30, 2024, and 2023, respectively. As of September 30, 2024, the unrecognized stock-based compensation expense related to the ESPP was $0.5 million, which is expected to be recognized over the remaining term of the offering period of 0.1 years.

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