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Share-Based Compensation | 3 Months Ended
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Mar. 31, 2023
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | 11. Share-Based Compensation The Company’s 2017 Equity Incentive Plan (the 2017 Plan) provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, and restricted stock awards to the Company’s employees, directors, and consultants. The 2017 Plan terminated one business day prior to effectiveness of the 2022 Equity Incentive Plan (the 2022 Plan) with respect to the grant of future awards. The 2022 Plan became effective on February 3, 2022 and provides for the grant of incentive stock options to the Company’s employees and for the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs), and performance awards to the Company’s employees, directors, and consultants. As of March 31, 2023, the aggregate n umber of shares of common stock that may be issued pursuant to equity awards under the 2022 Plan is 6,502,174 shares, which includes shares subject to awards granted under the 2017 Plan that expire or otherwise terminate without having been exercised in full or are forfeited to or repurchased by the Company (provided that the maximum number of shares that may be added to the 2022 Plan pursuant to awards under the 2017 Plan is 6,269,300 shares). The number of shares of common stock reserved for issuance under the 2022 Plan shall be cumulatively increased on the first day of each fiscal year, beginning with the Company’s 2023 fiscal year and ending on the ten year anniversary of the date the Company’s board of directors approves the 2022 Plan by an amount equal to the least of 6,502,174 shares, 5% of the total number of shares of common stock outstanding as of the last day of the immediately preceding fiscal year, or a lesser number of shares determined by the administrator of the 2022 Plan. Share-based compensation expense by type of award was as follows (in thousands):
| March 31 |
| 2023 |  | 2022 |
Stock options | $ | 4,915 |  | $ | 3,030 |
Restricted stock units |  | 2,877 |  |  | 696 |
Restricted stock units - chief executive officer |  | 2,206 |  |  | 755 |
ESPP |  | 158 |  | — |
Total share-based compensation expense | $ | 10,156 |  | $ | 4,481 |
Share-based compensation expense as reflected in the condensed consolidated statement of operations and comprehensive loss was as follows (in thousands):
| March 31 |
| 2023 |  | 2022 |
Research and development | $ | 2,691 |  | $ | 1,284 |
General and administrative |  | 7,465 |  |  | 3,197 |
Total share-based compensation expense | $ | 10,156 |  | $ | 4,481 |
Stock Options Stock options granted under the 2017 Plan and the 2022 Plan vest over three or four years and expire after 10 years. The Company uses the Black Scholes option pricing model to determine the grant date fair value of stock options. A summary of stock option activity for awards under the 2017 Plan and the 2022 Plan is presented below:
| Options Outstanding and Exercisable |
| Shares Subject to Outstanding Options |  | Weighted Average Exercise Price per Option |  | Weighted Average Remaining Contractual Life Term (in Years) |  | Aggregate Intrinsic Value (1) (in thousands) |
Outstanding as of January 1, 2023 |  | 8,053,704 |  | $ | 9.59 |  |  | 8.3 |  | $ | 172,294 |
Options Granted |  | 821,604 |  |  | 31.03 |  |  |  |  |
Options Forfeited |  | — |  |  | — |  |  |  |  |
Options Exercised |  | (34,713 | ) |  | 10.78 |  |  |  |  |
Outstanding as of March 31, 2023 |  | 8,840,595 |  | $ | 11.58 |  |  | 8.2 |  | $ | 170,230 |
Exercisable as of March 31, 2023 |  | 3,706,377 |  | $ | 7.36 |  |  | 7.3 |  | $ | 86,935 |
(1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the common stock for the options that were in the money as of March 31, 2023. Restricted Stock Units (RSUs) RSUs granted under the 2022 Plan generally vest annually over three or four years. The Company uses the market price of the Company’s common shares on the date of grant to determine the fair value of RSUs. A summary of RSU activity for awards under the 2022 Plan, excluding those granted the chief executive officer below, is presented below:
| Shares Subject to Outstanding Awards |  | Weighted Average Grant Date Fair Value |
Outstanding as of January 1, 2023 |  | 927,954 |  | $ | 17.20 |
RSUs Granted |  | 745,660 |  |  | 31.25 |
RSUs Vested |  | (222,433 | ) |  | 18 |
RSUs Forfeited |  | (6,800 | ) |  | 22.81 |
Outstanding as of March 31, 2023 |  | 1,444,381 |  | $ | 24.33 |
Restricted Stock Units - Chief Executive Officer 2023 RSU Award In January 2023, the Company granted 495,000 RSUs (the 2023 RSU Award) to the chief executive officer. The RSUs have two different scenarios to vesting. The first vesting scenario is subject to service and market conditions. The second vesting scenario adds a performance condition. Each RSU granted in the 2023 RSU Award entitles the chief executive officer to one share of common stock upon vesting subject to the service, performance, and market conditions. All 495,000 RSUs were outstanding and no RSUs were vested as of March 31, 2023. Service Condition The service condition to vesting of the 2023 RSU Award requires the chief executive officer’s continued employment with the Company through the achievement of any of the performance and market conditions. Performance Condition The performance condition to vesting of the 2023 RSU Award requires the consummation of a change in control event. Market Condition The market condition to vesting of the 2023 RSU Awards involves Company value thresholds depending upon which of the two vesting scenarios is applicable at the time of measurement. The Company value is measured each June 30 and December 31 subsequent to the grant of the 2023 RSU Award and represents the Company’s Enterprise Value. The Company’s Enterprise Value is determined using the total market capitalization of the Company based on the average closing trading price of one share of the Company’s common stock over the 60-day period ending on the day prior to the applicable semi-annual measurement date, less cash. On the semi-annual measurement date, (i) one-sixth of the award will vest if a minimum Enterprise Value of $2.5 billion is achieved, (ii) all of the award will vest if a $5.0 billion Enterprise Value is achieved, and (iii) a portion of the award will vest based on a straight-line interpolation if an Enterprise Value of between $2.5 billion and $5.0 billion is achieved. The Company value on a change in control event is measured on the date of the change in control and represents the aggregate amount of deal consideration paid at the closing of the change in control by an acquirer for the Company’s shares of common stock in connection with such change in control. Upon a change in control, (i) one-sixth of the award will vest if a minimum deal consideration of $2.5 billion is achieved, (ii) all of the award will vest if a $5.0 billion deal consideration is achieved, and (iii) a portion of the award will vest based on a straight-line interpolation if a deal consideration of between $2.5 billion and $5.0 billion is achieved. The Company utilized Monte Carlo simulation models to estimate the fair value of the 2023 RSU Award on the date of grant in each of the two vesting scenarios. The application of the Monte Carlo simulation model to each of the two vesting scenarios requires various subjective assumptions, including the following: • Expected Time to Award End Date – The expected time to the award end date is based on the Company’s best estimate of the period of employment for the chief executive officer or the achievement of the performance condition, i.e., the change in control event. • Expected Equity Volatility – Due to the limited company-specific historical and implied volatility data, the Company based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company (e.g., public entities of similar size, complexity, stage of development, and industry focus) in addition to the historical volatility of the Company. The historical volatility for the representative group of public companies was calculated based on a period commensurate with the expected time to the award end date. • Risk-Free Interest Rate – The risk-free interest rate is based on a U.S. Treasury instrument which term is consistent with the expected time to the measurement dates. The Company determined the fair value of the 2023 RSU Award considering third-party valuation reports. The Company considered several objective and subjective factors, including weighted probability of various scenarios, operating and financial performance, and general and industry-specific economic outlook, among other factors. The assumptions used in the Monte Carlos simulation models to determine the grant date fair value of the 2023 RSU Award for the two vesting scenarios were as follows:
|  | Semi-Annual Measurement |  |  | Change in Control |
Time to award end date |  | 10 years |  |  | 5 years |
Equity volatility |  | 75.0% |  |  | 75.0% |
Risk-free interest rate |  | 3.8% |  |  | 3.9% |
Fair value of the 2023 RSU award (in thousands) |  | $ | 13,811 |  |  | $ | 10,999 |
The Company began recognizing share-based compensation expense based on the fair value ($13.8 million) on an accelerated attribution basis over the anticipated service period (10 years) according to the semi-annual measurement scenario. The performance condition under the change in control scenario was not deemed probable as of March 31, 2023. The Company recognized $1.6 million in share-based compensation expense related to the 2023 RSU Award during the three months ended March 31, 2023. 2021 RSU Award In June 2021, the Company granted 952,804 RSUs (the 2021 RSU Award) to the chief executive officer subject to service, performance, and market conditions. In December 2021, the Company added alternative performance conditions for vesting of the same RSUs. These additional performance conditions provided alternative paths to vesting and the original award from June 2021 and its vesting conditions remained the same, i.e., the original award was not modified. Each RSU granted in the 2021 RSU Award entitles the chief executive officer to one share of common stock upon vesting subject to the service, performance, and market conditions. All 952,804 RSUs were outstanding and no RSUs were vested as of March 31, 2023 and December 31, 2022. Service Condition The service condition to vesting of the 2021 RSU Award requires the chief executive officer’s continued employment with the Company through the achievement of any of the performance and the market conditions. Performance Condition The performance conditions to vesting of the 2021 RSU Award include (i) the consummation of a change in control event, (ii) the consummation of the first firm commitment underwritten public offering covering the offer and sale of Company shares, the consummation of the direct listing or direct placement of Company shares on a publicly traded exchange, or the completion of a merger or consolidation with a special purpose acquisition company in which the shares of the surviving or parent entity are listed on a national securities exchange (IPO), or (iii) a change in control following an IPO. The Company satisfied the IPO performance condition in February 2022 upon completion of the IPO. Market Condition The market condition to vesting of the 2021 RSU Award involves Company value thresholds depending upon which of the vesting scenarios is applicable at the time of measurement. The Company value is measured each June 30 and December 31 following the IPO (subject to applicable lock-up period) and represents the Company’s Enterprise Value. The methodology to determine the Company’s Enterprise Value and the vesting thresholds on the semi-annual measurement dates are the same as those under the 2023 RSU Award. The Company value on a change in control is measured on the date of the change in control. The methodology to determine the Company value and the vesting thresholds on the change in control date are the same as those under the 2023 Award. The Company utilized Monte Carlo simulation models to estimate the fair value of the 2021 RSU Award on the date of grant in each of the three vesting scenarios. Upon completion of the IPO in February 2022, the IPO performance condition of the 2021 RSU Award was satisfied and the Company began recognizing share-based compensation expense on an accelerated attribution basis over the anticipated service period (10 years) based on the fair value (aggregate $10.3 million) according to the IPO scenario. No other performance condition was deemed probable as of March 31, 2023. The Company recognized $0.6 million and $0.8 million in share-based compensation expense related to this 2021 RSU Award during the three months ended March 31, 2023 and 2022, respectively.

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