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Stock Option Plan and Stock-based Compensation | 6 Months Ended
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Jun. 30, 2022
Share-Based Payment Arrangement [Abstract] |
Stock Option Plan and Stock-based Compensation | Stock Option Plan and Stock-based Compensation On June 8, 2021, the stockholders of the Company approved the 2021 Equity Incentive Plan (“2021 Plan”) and the 2021 Employee Stock Purchase Plan (“2021 ESPP”). As of June 30, 2022, 17,384,590 and 2,439,577 shares were available for grant under the 2021 Plan and 2021 ESPP, respectively. 2021 Employee Stock Purchase Plan Under the 2021 ESPP, the Company can grant stock options to employees to purchase shares of Common Stock at a purchase price which equal to 85% of the fair market value of common stock on the enrollment date or on the exercise date, whichever is lower. Participants are permitted to purchase shares of the Company’s Common Stock at 85% of the lower of the fair market value of the Company’s Common Stock on the first trading day of an offering period or on the last trading date in each purchase period. Participants may end their participation at any time during an offering and will be paid their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment with the Company. The number of shares of common stock available for issuance under the 2021 ESPP will be increased on the first day of each fiscal year beginning on January 1, 2022, in an amount equal to the least of (i) 3,734,500 shares of common stock, (ii) a number of s hares of common stock equal to one percent (1%) of the total number of shares of all classes of common stock of the Company on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the Administrator no later than the last day of the immediately preceding fiscal year. On January 1, 2022, the number of shares available under the ESPP increased by 1,243,030 shares pursuant to this feature. The first offering period was from October 1, 2021 through June 1, 2022. For subsequent offering periods, the Company will be offering a six month purchase period. As of June 30, 2022, 48,353 shares of common stock were purchased under the 2021 ESPP. 2021 Equity Incentive Plan Under the 2021 Plan, the Company can grant incentive stock options, nonstatutory stock options, stock appreciation rig hts, restricted stock, restricted stock units and performance awards to employees, directors and consultants. Options generally expire ten years after the date of grant. The number of shares available for issuance under the 2021 Plan will be increased on the first day of each fiscal year, beginning on January 1, 2022, in an amount equal to the least of (i) 18,672,200 shares, (ii) a number of shares equal to five percent (5%) of the total number of shares of all classes of common stock of the Company outstanding on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the Administrator no later than the last day of the immediately preceding fiscal year. On January 1, 2022, the number of shares available under the 2021 Plan increased by 6,215,154 shares pursuant to this feature. 2017 Equity Incentive Plan At the time of adoption of the 2021 Plan and the 2021 ESPP, no further awards will be granted under the 2017 Equity Incentive Plan (“2017 Plan”) and 7,106,767 shares of common stock were initially reserved for outstanding awards issued under the 2017 Plan. In determining the compensation cost of the option awards, the fair value for each option award has been estimated using the Black Scholes model. The significant assumptions used in these calculations are summarized as follows:
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2022 |  | 2021 |  | 2022 |  | 2021
Expected term (in years) | 5.3 - 6.1 |  | 5.6 - 6.1 |  | 5.3 - 6.1 |  | 5.5 - 6.6
Expected volatility | 105.2% - 109.1% |  | 93.0% - 93.7% |  | 105.2% - 110.0% |  | 92.0% - 94.2%
Expected dividend rate | 0.0 | % |  | 0.0 | % |  | 0.0 | % |  | 0.0 | %
Risk free interest rate | 2.80% - 3.36% |  | 0.91% - 1.02% |  | 1.73% - 3.36% |  | 0.53% - 1.02%
Stock price | $2.70 - $4.72 |  | $10.10 - $11.16 |  | $2.70 - $4.72 |  | $7.56 - $11.16
Expected term: The expected term of stock options represents the weighted-average period the stock options are expected to remain outstanding. The Company does not have sufficient historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term of options and has opted to use the “simplified method,” whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. Expected volatility: Historically, the Company has been a private company and lacked company‑specific historical and implied volatility information for its common stock. Therefore, the expected volatility of the Company’s common stock was determined by using an average of historical volatilities of selected industry peers deemed to be comparable to the Company’s business corresponding to the expected term of the awards and the Company expects to continue to do so until such time as the Company has adequate historical data regarding the volatility of its traded common stock price. Expected dividend yield: The expected dividend rate is zero as the Company has no history or expectation of declaring dividends on its common stock. Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the awards. Fair value of common stock: Prior to the Business Combination, the fair value of the shares of common stock underlying the stock options has historically been determined by the Company’s Board of Directors. Because there has been no public market for the common stock, the Board of Directors has determined the fair value of the common stock at the time of grant of the option by contemporaneous valuations performed by an unrelated third-party valuation firm as well as a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the implied equity value of the Company as contemplated by the Business Combination, the lack of liquidity of capital stock and general and industry specific economic outlook, among other factors. The fair value of common stock was determined in accordance with applicable elements of the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Subsequent to the completion of the Business Combination (as defined in Note 1 and further described in Note 3) the fair value of the Company’s common stock is determined based on its closing market price. The awards granted in late January 2021 had an exercise price equal to the grant date fair value of the Company’s common stock. The Company’s board of directors made a determination of the fair market value of the Company’s common stock which contemplated the implied equity value of the Company per the Business Combination Agreement that was executed on February 7, 2021. The following table summarizes option award activity during the six months ended June 30, 2022:
| Number of Stock Option Awards |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Life (Years) |  | Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2021 | 8,550,076 |  |  | $ | 4.66 |  |  |  |  |
Granted | 4,037,863 |  |  | $ | 3.81 |  |  |  |  |
Exercised | (211,309) |  |  | $ | 0.89 |  |  |  |  |
Forfeited | (725,836) |  |  | $ | 8.11 |  |  |  |  |
Outstanding as of June 30, 2022 | 11,650,794 |  |  | $ | 4.21 |  |  | 8.8 |  | $ | 7,964 |
Options vested and expected to vest as of June 30, 2022 | 11,650,794 |  |  | $ | 4.21 |  |  |  |  |
Vested and exercisable at June 30, 2022 | 3,279,223 |  |  | $ | 3.59 |  |  | 7.7 |  | $ | 4,474 |
As of June 30, 2022, there was $31.0 million of total unrecognized compensation expense expected to be recognized over a weighted average-period of 2.94 years. Aggregate intrinsic value represents the difference between the fair market value of the common stock and the exercise price of outstanding, in-the-money options. Stock-based Compensation Expense The following sets forth the total stock-based compensation expense for the Company’s stock options included in the Company’s condensed consolidated statement of operations:
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in thousands) | 2022 |  | 2021 |  | 2022 |  | 2021
Research and development | $ | 975 |  |  | $ | 666 |  |  | $ | 1,843 |  |  | $ | 1,163 |
General and administrative | 1,592 |  |  | 1,154 |  |  | 2,834 |  |  | 1,993 |
Total stock-based compensation expense | $ | 2,567 |  |  | $ | 1,820 |  |  | $ | 4,677 |  |  | $ | 3,156 |

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