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Stock-Based Compensation Expense

9 Months Ended

Sep. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

10. Stock-Based Compensation Expense

On May 16, 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) as the successor to and continuation of the 2013 Equity Incentive Plan (the “2013 Plan”). The 2018 Plan initially consisted of 12,000,000 new shares plus the number of unallocated shares remaining available for grant for new awards under the 2013 Plan. In May 2020, the 2018 Plan was amended to increase the number of shares of common stock that may be issued under the 2018 Plan by 12,500,000 shares.

Effective upon the approval of the 2018 Plan by the Company’s stockholders in May 2018, no additional awards have been or may be granted under the 2013 Plan. Any Prior Plans’ Returning Shares will increase the number of shares issuable under the 2018 Plan. The “Prior Plans’ Returning Shares” are shares subject to outstanding stock awards granted under the 2013 Plan or the 2004 Equity Incentive Plan (collectively, “Prior Plans”) that, from and after the effective date of the 2018 Plan, (i) expire or terminate for any reason prior to exercise or settlement, (ii) are forfeited, cancelled or otherwise returned to the Company because of the failure to meet a contingency or condition required for the vesting of such shares, or (iii) other than with respect to outstanding stock options and stock appreciation rights granted under the Prior Plans with an exercise or strike price of at least 100% of the fair market value of the underlying common stock on the date of grant, are reacquired or withheld (or not issued) by the Company to satisfy a tax withholding obligation in connection with a stock award.

The 2018 Plan provides for the granting of stock awards including stock options and restricted stock units to employees, directors and consultants. The Company’s board of directors or its compensation committee determines eligibility, vesting schedules and criteria, and exercise prices for stock awards granted under the 2018 Plan. Options and restricted stock unit awards under the 2018 Plan or the Prior Plans expire not more than ten years from the date of the grant and are exercisable upon vesting. Stock options that vest over time generally vest over four years. Current time-based vesting stock option grants vest and become exercisable at the rate of 25% after one year and ratably on a monthly basis over a period of 36 months thereafter. The Company also issues PNQ awards with performance conditions. For PNQs, the Company evaluates the probability that the performance conditions will be met and estimates

the service period for recognition of the associated expense. Restricted stock units with time-based vesting generally vest at a rate of 25% per year over four years with consideration satisfied by service to the Company. The Company also issues restricted stock units with market conditions. The grant date fair value and the effect of the market conditions was estimated using a Monte Carlo valuation. The resulting stock-based compensation expense will be recognized over the service period regardless of whether the market conditions are achieved, as long as the service condition is rendered.

Total stock-based compensation expense recognized in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
RSUs and options	$	1,225	$	1,534	$	4,413	$	4,931
Employee stock purchase plan		69		106		194		381
Total stock compensation expense	$	1,294	$	1,640	$	4,607	$	5,312

During 2020, the Company granted the following awards:

	Three Months Ended			Three Months Ended			Three Months Ended			Nine Months Ended
	March 31, 2020			June 30, 2020			September 30, 2020			September 30, 2020
Employee awards:
Market RSUs		—			—			1,571,000	⁽⁷⁾		1,571,000
RSUs		230,000	⁽¹⁾		2,109,228	⁽²⁾		1,776,250	⁽⁸⁾		4,115,478
Options		78,500	⁽³⁾		117,900	⁽⁴⁾		—			196,400
Non-employee director awards:
RSUs		42,067	⁽⁵⁾		772,685	⁽⁶⁾		—			814,752
Total awards:
Market RSUs		—			—			1,571,000			1,571,000
RSUs		272,067			2,881,913			1,776,250			4,930,230
Options		78,500			117,900			—			196,400

(1)	RSUs had a weighted average grant date fair value of $1.25 per share and a primary vesting period of four years.

(2)	RSUs had a weighted average grant date fair value of $1.34 per share and a primary vesting period of four years.

(3)

Options had a weighted average exercise price of $1.25 per share and vest over a four year period. The weighted average grant date fair value was $0.93 per share, as determined using a Black-Scholes option pricing model, with the following key assumptions: risk-free interest rate of 0.79%; expected life of approximately 5.67 years; volatility of 93.83%, and dividend yield of zero.

(4)

Options had a weighted average exercise price of $1.34 per share and vest over a four year period. The weighted average grant date fair value was $0.99 per share, as determined using a Black-Scholes option pricing model, with the following key assumptions: risk-free interest rate of 0.39%; expected life of approximately 5.67 years; volatility of 93.83%, and dividend yield of zero.

(5)	RSUs had a weighted average grant date fair value of $1.17 per share and vested immediately upon grant, but the underlying shares of common stock will not be delivered until there is a separation of service, such as resignation, retirement or death.

(6)	RSUs had a weighted average grant date fair value of $1.34 per share and vested immediately upon grant, but the underlying shares of common stock will not be delivered until there is a separation of service, such as resignation, retirement or death.

(7)

Market RSUs had a grant date fair value of $3.77 per share and will vest on May 22, 2023 provided that the closing price of the Company’s common stock on such vesting date is not less than the closing price on August 27, 2020. The number of shares delivered on the vesting date is determined by the percentile ranking of MannKind total shareholder return (TSR) over the period from August 27, 2020 until May 22, 2023 related to the TSR of the Russell 3000 Pharmaceutical & Biotechnology Index over the same period, as follows: less than 25th percentile=0% of target, 25th percentile=50% of target, 50th percentile=100% of target, 75th percentile=200% percent of target, 90th percentile or higher=300% maximum. Payout values will be interpolated between the percentile rankings above.

(8)	RSUs had a weighted average grant date fair value of $1.70 per share and a primary vesting period of four years.

As of September 30, 2020, there was $5.6 million of unrecognized stock-based compensation expense related to options and PNQs, which is expected to be recognized over a weighted average period of approximately 2.2 years, and $5.8 million and $5.7 million of unrecognized stock-based compensation expense related to RSUs and Market RSUs, respectively, which is expected to be recognized over a weighted average period of approximately 3.7 and 2.6 years, respectively.