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Equity Incentive Plans | 3 Months Ended
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Mar. 31, 2024
Share-Based Payment Arrangement [Abstract] |
Equity Incentive Plans | 11. Equity Incentive Plans 2009 Equity Incentive Plan We adopted an equity incentive plan in 2009 (the “2009 Plan”) that provided for the issuance of incentive and nonqualified common stock options and other share-based awards for employees, directors and consultants. Under the 2009 Plan, the exercise price for incentive and nonqualified stock options were not to be less than the fair market value of our common stock at the date of grant. Stock options granted under this plan expire no later than ten years from the grant date and vesting was established at the time of grant. Pursuant to the terms of the 2019 Plan, any shares subject to outstanding stock options originally granted under the 2009 Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof shall become available for issuance pursuant to awards granted under the 2019 Plan. While no shares are available for future grant under the 2009 Plan, it continues to govern outstanding equity awards granted thereunder. 2019 Equity Incentive Plan The 2019 Plan became effective immediately prior to the closing of our initial public offering in July 2019. The 2019 Plan provides for the issuance of awards in the form of stock options and other share-based awards for employees, directors and consultants. Under the 2019 Plan, the stock option exercise price per share shall not be less than the fair market value of a share of stock on the effective date of grant, as defined by the 2019 Plan, unless explicitly qualified under the provisions of Section 409A or Section 424(a) of the Internal Revenue Code of 1986. Additionally, unless otherwise specified, stock options granted under this plan expire no later than ten years from the grant date and vesting is established at the time of grant. Except for certain stock option and restricted stock unit grants made to non-employee directors, stock options and restricted stock units granted under the 2019 Plan generally vest over a four-year period, subject to continuous service through each applicable vesting date. As of March 31, 2024, we had 39,881,924 shares of common stock authorized for issuance under the 2019 Plan. Changes in shares available for grant during the three months ended March 31, 2024 were as follows:
|  | Shares Available for Grant |
Shares available for grant at December 31, 2023 |  |  | 15,299,763 |
2019 Equity Incentive Plan reserve increase effective January 1, 2024 |  |  | 7,254,113 |
Stock options and restricted stock units granted and the maximum market-based restricted stock units granted eligible to be earned |  |  | (8,399,478 | )
Stock options and restricted stock units forfeited or expired |  |  | 995,588 |
Shares available for grant at March 31, 2024 |  |  | 15,149,986 |
Stock Options Stock option activity under the 2009 Plan and 2019 Plan during the three months ended March 31, 2024 was as follows:
|  | Shares Subject to Outstanding Stock Options |  |  | Weighted-Average Exercise Price per Share |  |  | Aggregate Intrinsic Value (in thousands) |
Stock options outstanding at December 31, 2023 |  |  | 12,875,045 |  |  | $ | 15.90 |  |  |  |
Stock options granted |  |  | 1,008,364 |  |  |  | 3.99 |  |  |  |
Stock options forfeited |  |  | (195,745 | ) |  |  | 17.55 |  |  |  |
Stock options expired |  |  | (67,952 | ) |  |  | 17.31 |  |  |  |
Stock options exercised |  |  | (30,900 | ) |  |  | 1.43 |  |  |  |
Stock options outstanding at March 31, 2024 |  |  | 13,588,812 |  |  | $ | 15.02 |  |  | $ | 108 |
Stock options vested and exercisable at March 31, 2024 |  |  | 9,662,208 |  |  | $ | 16.25 |  |  | $ | 108 |
The weighted-average remaining contractual life for stock options outstanding as of March 31, 2024 was 6.2 years. The weighted-average remaining contractual life for vested and exercisable stock options as of March 31, 2024 was 5.2 years. Restricted Stock Units Restricted stock unit activity under the 2019 Plan during the three months ended March 31, 2024 was as follows:
|  | Restricted Stock Units Outstanding |  |  | Weighted-Average Grant Date Fair Value per Share |
Nonvested restricted stock units outstanding at December 31, 2023 |  |  | 9,669,460 |  |  | $ | 10.32 |
Restricted stock units granted |  |  | 5,327,094 |  |  |  | 3.99 |
Restricted stock units forfeited |  |  | (731,891 | ) |  |  | 10.05 |
Restricted stock units vested |  |  | (2,255,158 | ) |  |  | 11.04 |
Nonvested restricted stock units outstanding at March 31, 2024 |  |  | 12,009,505 |  |  | $ | 7.39 |
Market-Based Restricted Stock Units In addition to the restricted stock units described above, our board of directors approved awards of market-based restricted stock units to our chief executive officer, former chief financial officer, president/chief operating officer and chief scientific officer in March 2024. The shares of common stock that may be earned under the awards granted to our chief executive officer, former chief financial officer, president/chief operating officer and chief scientific officer, which range from zero shares to 709,220 shares, 295,580 shares, 350,000 shares and 709,220 shares, respectively, are calculated based on our total shareholder return during a three-year performance period as measured against that of the group of companies comprising the S&P Biotechnology Select Industry Index as of the grant date, subject to certain adjustments to such index group. Except as expressly provided in the terms of each award's agreement, vesting is subject to the respective grantee's continuous service through the end of the three-year performance period. These market-based restricted stock units, along with those granted in March 2022 and March 2023, which had a weighted-average grant date fair value per share of $15.13 and under which zero shares to 1,912,674 shares may be earned, remained outstanding as of March 31, 2024. Grant Date Fair Value of Stock Options, Restricted Stock Units and Market-Based Restricted Stock Units Granted The estimated grant date fair values of stock options granted during the three months ended March 31, 2024 and 2023 were estimated using the Black-Scholes option-pricing model with the following assumptions:
|  | Three Months Ended March 31,
|  | 2024 |  | 2023
Fair value of common stock |  | $3.99 |  | $8.46
Expected term (in years) |  | 5.27 - 6.08 |  | 5.27 - 6.08
Risk-free interest rate |  | 4.2% |  | 4.2% - 4.3%
Expected volatility |  | 74.5% - 75.0% |  | 71.2% - 71.6%
Expected dividend yield |  | — |  | —
The determination of the grant date fair value of stock options granted using a Black-Scholes option-pricing model is affected by the fair value of our common stock, as well as assumptions regarding a number of variables that are subjective and generally require judgment to determine. The valuation assumptions were determined as follows: Fair value of common stock—The fair value of each share of common stock is based on the closing price of our common stock on the date of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market. Expected term—The expected term of stock options granted to employees and non-employee directors is determined using the “simplified” method, as illustrated in ASC Topic 718, Compensation—Stock Compensation, as we do not have sufficient exercise history to determine a better estimate of expected term. Under this approach, the expected term is based on the midpoint between the vesting date and the end of the contractual term of the stock option. Risk-free interest rate—We utilize a risk-free interest rate in the option valuation model based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected terms of the stock options. Expected volatility—As we do not have sufficient trading history for our common stock, expected volatility has been based on the historical volatility of our publicly traded industry peers utilizing a period of time consistent with our estimate of expected term. Beginning in 2024, expected volatility was based on a weighted average of our historical volatility and the historical volatility of our publicly traded industry peers utilizing a period of time consistent with our estimate of expected term. Expected dividend yield—We do not anticipate paying any cash dividends in the foreseeable future and, therefore, use an expected dividend yield of zero in the option valuation model. The weighted-average grant date fair value per share of stock options granted during the three months ended March 31, 2024 and 2023 was $2.70 and $5.61, respectively. The grant date fair value of restricted stock units granted is based on the closing price of our common stock on the date of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market. The weighted-average grant date fair value per share of restricted stock units granted during the three months ended March 31, 2024 and 2023 was $3.99 and $8.46, respectively. The weighted-average grant date fair value per share of the market-based restricted stock units granted during the three months ended March 31, 2024 and 2023 was $6.49 and $13.82, respectively, and was determined using a Monte Carlo valuation model, which uses assumptions such as volatility, risk-free interest rate and dividend estimated for the respective performance periods. The weighted-average grant date fair value per share of the target payout level of the market-based restricted stock units outstanding as of March 31, 2024, 1,988,347 shares, was $10.65. The aggregate share-based compensation expense of the market-based restricted stock units granted during the three months ended March 31, 2024 and 2023 was $6.7 million and $9.8 million, respectively, and is recognized on a straight-line basis over the respective grants' three-year performance periods, which are also the requisite service periods. Attainment of each grant's respective market condition and the number of shares earned and vested does not impact the related share-based compensation expense recognized. Share-based compensation expense will be reversed only if the respective grantee does not provide continuous service through the respective performance period for reasons other than those expressly provided in the terms of the respective award. The compensation cost related to stock options, restricted stock units and market-based restricted stock units for the three months ended March 31, 2024 and 2023 are included on the unaudited condensed consolidated statements of operations as follows (in thousands):
|  | Three Months Ended March 31, |
|  | 2024 |  |  | 2023 |
Cost of revenue |  | $ | 906 |  |  | $ | 1,294 |
Research and development |  |  | 4,684 |  |  |  | 4,549 |
Sales and marketing |  |  | 3,013 |  |  |  | 3,431 |
General and administrative |  |  | 5,695 |  |  |  | 5,397 |
Total share-based compensation expense |  | $ | 14,298 |  |  | $ | 14,671 |
As of March 31, 2024, unrecognized share-based compensation expense and the remaining weighted-average recognition period were as follows:
|  | Unrecognized Share-Based Compensation Expense (in thousands) |  |  | Remaining Weighted-Average Recognition Period (in years) |
Nonvested stock options |  | $ | 28,766 |  |  |  | 1.92 |
Nonvested restricted stock units |  |  | 83,591 |  |  |  | 2.79 |
Nonvested market-based restricted stock units |  |  | 14,271 |  |  |  | 2.28 |

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