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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2023
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation In June 2018, the Company adopted its 2018 Equity Incentive Plan (Prior 2018 Plan). The Prior 2018 Plan provided for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the Company’s Board of Directors and consultants of the Company under terms and provisions established by the Company’s Board of Directors. In September 2018, the Board of Directors adopted a new amended and restated 2018 Equity Incentive Plan as a successor to and continuation of the Prior 2018 Plan, which became effective in October 2018 (the 2018 Plan), which authorized additional shares for issuance and provided for an automatic annual increase to the number of shares issuable under the 2018 Plan by an amount equal to 5% of the total number of shares of common stock outstanding on December 31st of the preceding calendar year. The term of any stock option granted under the 2018 Plan cannot exceed 10 years. The Company generally grants stock-based awards with service conditions only. Options granted typically vest over a four-year period but may be granted with different vesting terms. Restricted Stock Units granted typically vest annually over a four-year period but may be granted with different vesting terms. Options shall not have an exercise price less than 100% of the fair market value of the Company’s common stock on the grant date. If the individual possesses more than 10% of the combined voting power of all classes of stock of the Company, the exercise price shall not be less than 110% of the fair market value of a common share of stock on the date of grant. This requirement is applicable to incentive stock options only. As of September 30, 2023, there were 6,730,462 shares reserved by the Company under the 2018 Plan for the future issuance of equity awards. Stock Option Exchange Program On June 21, 2022, the Company commenced an offer to exchange certain eligible options held by eligible employees of the Company for new options (the Exchange Offer). The Exchange Offer expired on July 19, 2022. Pursuant to the Exchange Offer, 199 eligible holders elected to exchange, and the Company accepted for cancellation, eligible options to purchase an aggregate of 3,666,600 shares of the Company’s common stock, representing approximately 93.5% of the total shares of common stock underlying the eligible options. On July 19, 2022, immediately following the expiration of the Exchange Offer, the Company granted new options to purchase 3,666,600 shares of common stock, pursuant to the terms of the Exchange Offer and the 2018 Plan. The exercise price of the new options granted pursuant to the Exchange Offer was $13.31 per share, which was the closing price of the common stock on the Nasdaq Global Select Market on the grant date of the new options. The new options are subject to a new three-year vesting schedule, vesting in equal annual installments over the vesting term. Each new option has a maximum term of seven years. The exchange of stock options was treated as a modification for accounting purposes. The incremental expense of $5.2 million for the modified options was calculated using a lattice option pricing model. The incremental expense and the unamortized expense remaining on the exchanged options as of the modification date are being recognized over the new three-year service period. Stock Option Activity The following summarizes option activity under the 2018 Plan:
| Outstanding Options
| Number of Options |  | Weighted- Average Exercise Price |  | Weighted- Average Remaining Contract Term |  | Aggregate Intrinsic Value
|  |  |  |  | (in years) |  | (in thousands)
Balance, December 31, 2022 | 17,569,575 |  |  | $ | 12.90 |  |  | 7.73 |  | $ | 6,658 |
Granted | 9,300,276 |  |  | 5.13 |  |  |  |  |
Exercised | (782,538) |  |  | 2.47 |  |  |  |  | 2,283 |
Forfeited | (4,097,851) |  |  | 10.85 |  |  |  |  |
Balance, September 30, 2023 | 21,989,462 |  |  | $ | 10.37 |  |  | 7.61 |  | $ | 673 |
Exercisable, September 30, 2023 | 13,651,398 |  |  | $ | 12.33 |  |  | 6.95 |  | $ | 673 |
Vested and expected to vest, September 30, 2023 | 21,989,462 |  |  | $ | 10.37 |  |  | 7.61 |  | $ | — |
The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on the Nasdaq Global Select Market on September 30, 2023. For the nine months ended September 30, 2023, the estimated weighted-average grant-date fair value of employee options granted was $3.45 per share. As of September 30, 2023, there was $67.0 million of unrecognized stock-based compensation related to unvested stock options, which is expected to be recognized over a weighted-average period of 2 years, 198 days. The fair value of employee, consultant and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:
| Nine Months Ended September 30,
| 2023 |  | 2022
Expected term in years | 5.27 - 6.08 |  | 5.25 - 6.08
Expected volatility | 73.18% - 73.85% |  | 70.82% - 73.39%
Expected risk-free interest rate | 3.45% - 4.30% |  | 1.61% - 3.49%
Expected dividend | 0% |  | 0%
The fair value of the options granted under the Option Exchange program was estimated at the date of grant using a lattice option pricing model with the following assumptions: expected volatility of 73.74%, expected risk-free rate of 3.06%, expected dividends of 0% and expected exercise barrier of 2.57. Expected term— The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the stock-based awards. Expected volatility— The Company uses an average historical stock price volatility of comparable public companies within the biotechnology and pharmaceutical industry that were deemed to be representative of future stock price trends as the Company does not have sufficient trading history for its common stock. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option. Expected dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero. Expected exercise barrier— The modified options are assumed to be exercised upon vesting and when the ratio of stock market price to exercise price reaches 2.57, or expiration, whichever is earlier. Restricted Stock Unit Activity The following summarizes restricted stock unit activity under the 2018 Plan:
| Outstanding Restricted Stock Units
| Restricted Stock Units |  | Weighted- Average Grant Date Fair Value per Share |  | Weighted Average Remaining Vesting Life |  | Aggregate Intrinsic Value
|  |  |  |  | (in years) |  | (in thousands)
Unvested December 31, 2022 | 5,493,406 |  |  | $ | 16.86 |  |  | 1.54 |  | $ | 34,554 |
Granted | 11,215,162 |  |  | 4.70 |  |  | 2.0 |  |
Vested | (1,545,458) |  |  | 18.49 |  |  |  |  |
Forfeited | (2,993,273) |  |  | 9.35 |  |  |  |  |
Unvested September 30, 2023 | 12,169,837 |  |  | $ | 7.29 |  |  | 2.14 |  | $ | 38,578 |
Vested and expected to vest, September 30, 2023 | 12,169,837 |  |  | $ | 7.29 |  |  | 2.14 |  | $ | 38,578 |
As of September 30, 2023, there was $60.1 million of unrecognized stock-based compensation related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 2 years, 176 days. For the nine months ended September 30, 2023, the Company granted 3,069,751 performance-based restricted stock units and 1,994,125 restricted stock units with a market condition to certain executive officers and other employees pursuant to the 2018 Plan. These awards are subject to the holders' continuous service to the Company through each applicable vesting event. Through September 30, 2023, the Company believes that the achievement of the requisite performance conditions for these awards are not probable. As a result, no compensation expense has been recognized related to the performance-based restricted stock units in the quarter ended September 30, 2023. The Company recognized $1.5 million in stock-based compensation expense related to the restricted units with a market condition for the nine months ended September 30, 2023. Total stock-based compensation expense related to stock options, restricted stock units, employee stock purchase plan and vesting of the founders’ common stock was as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2023 |  | 2022 |  | 2023 |  | 2022
Research and development | $ | 6,733 |  |  | $ | 11,016 |  |  | $ | 22,849 |  |  | $ | 35,068 |
General and administrative | 8,621 |  |  | 10,132 |  |  | 27,869 |  |  | 31,286 |
Total stock-based compensation | $ | 15,354 |  |  | $ | 21,148 |  |  | $ | 50,718 |  |  | $ | 66,354 |
Early Exercised Options The Company allows certain of its employees and its directors to exercise options granted under the Prior 2018 Plan and the 2018 Plan prior to vesting. The shares related to early exercised stock options are subject to the Company’s lapsing repurchase right upon termination of employment or service on the Company’s Board of Directors at the lesser of the original purchase price or fair market value at the time of repurchase. In order to vest, the holders are required to provide continued service to the Company. The proceeds are initially recorded in accrued and other liabilities for the current portion, and other long-term liabilities for the non-current portion. The proceeds are reclassified to paid-in capital as the repurchase right lapses. In May 2021, 293,594 options were early exercised, resulting in proceeds of $5.3 million. As of September 30, 2023 and December 31, 2022, there was $1.1 million and $1.9 million, respectively, recorded in accrued and other liabilities and zero and $0.6 million, respectively, recorded in other long-term liabilities related to shares held by employees and directors that were subject to repurchase. The underlying shares are shown as outstanding in the condensed consolidated financial statements but the shares which are subject to future vesting conditions are not included in the calculation of earnings per share.

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