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Stock-Based Compensation | 9 Months Ended
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Sep. 30, 2022
Share-based Payment Arrangement [Abstract] |
Stock-Based Compensation | NOTE 7. STOCK-BASED COMPENSATION 2021 Equity Incentive Plan The 2021 Equity Incentive Plan (the “2021 Plan”), which provides for the grant of incentive stock options to employees, and the grant of nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors and consultants, became effective on June 30, 2021. The 2021 Plan is a successor to the Company’s Amended and Restated Stock Performance Plan that was adopted by the Board and stockholders on April 8, 2013 (as amended from time to time, most recently on November 20, 2020, the “2013 Plan”). Following the effectiveness of the 2021 Plan, no further grants may be made under the 2013 Plan; however, any outstanding equity awards granted under the 2013 Plan continue to be governed by the terms of the 2013 Plan. Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2021 Plan was 7,698,282 shares, which is the sum of (1) 3,550,000 new shares, plus (2) 667,104 shares that remained available for issuance under the Company’s 2013 Plan at the time the 2021 Plan became effective, plus (3) any shares subject to outstanding stock options or other stock awards that were granted under the 2013 Plan that, on or after the 2021 Plan became effective, terminate or expire prior to exercise or settlement, are settled in cash, are forfeited or repurchased because of the failure to vest, or are reacquired or withheld to satisfy a tax withholding obligation or the purchase or exercise price in accordance with the terms of the 2013 Plan. In addition, the number of shares of the Company’s common stock reserved for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2022 through January 1, 2031, in an amount equal to 5% of the total number of shares of the Company’s common stock outstanding on December 31 of the fiscal year before the date of each automatic increase, or a lesser number of shares determined by the Board prior to the applicable January 1. On January 1, 2022, the Board increased the number of shares of common stock reserved for issuance under the 2021 Plan by 2,023,663 shares. The maximum number of shares of the Company’s common stock that may be issued upon the exercise of incentive stock options under the 2021 Plan is 12,000,000. As of September 30, 2022, 9,721,945 shares were authorized for issuance under the 2021 Plan and 4,030,960 shares remained available for issuance under the 2021 Plan. Stock Options The Black-Scholes option-pricing model was used to estimate the fair value of stock options granted during the nine months ended September 30, 2022 and 2021 with the following weighted average assumptions:
|  | Nine Months Ended September 30,
|  | 2022 |  | 2021
Risk-free interest rate |  | 1.71% - 4.17% |  | 0.4% - 1.1%
Expected term (in years) |  | 5.8 - 6.1 |  | 5.3 - 6.1
Expected volatility |  | 90% |  | 90%
Expected dividend yield |  | 0% |  | 0%
The weighted average grant date fair value of options granted during the nine months ended September 30, 2022 and 2021, was $3.77 per share and $1.34 per share, respectively. Prior to the Company’s IPO, the fair value of the Company’s common stock underlying the stock options was historically determined by the Board with assistance from management and, occasionally with input from an independent third-party valuation firm. For the year ended December 31, 2020, management engaged an independent third-party valuation firm to provide an estimate of the fair value of the Company’s common stock, which was utilized as an input to the Company’s Black-Scholes option pricing model for stock options awarded during the three months ended March 31, 2021. The December 31, 2020 fair value of common stock was determined considering a number of objective and subjective factors, including valuations of comparable companies, sales of convertible preferred stock, operating and financial performance, the lack of liquidity of the Company’s common stock and the general and industry specific economic outlook. The fair value of the Company’s common stock as of June 30, 2021 was estimated based upon the per share offering price of the Company’s common stock to the public in its IPO which closed on July 6, 2021. The June 30, 2021 fair value for the Company’s common stock was utilized as an input for options granted by the Company to its Board on June 30, 2021, which was immediately prior to the IPO. As of June 30, 2021 and December 31, 2020, management estimated the fair value of a share of common stock to be $16.00 and $0.83, respectively. Stock options granted after December 31, 2017 vest monthly over a range of 12 to 36 months or vest monthly over a total of 48 months following a one-year cliff and all have a ten-year contractual term. Stock options granted prior to December 31, 2017 were either fully vested upon grant or generally vested monthly over a range of three to 24 months and have a ten-year term. The Company became publicly traded in July 2021 and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options has been determined using the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following table reflects summarized stock option activity:
|  | Stock Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life (in years) |  |  | Aggregate Intrinsic Value (in thousands) |
Outstanding at December 31, 2021 |  |  | 3,835,618 |  |  | $ | 2.51 |  |  |  |  |  |  |  |  |
Granted |  |  | 1,932,050 |  |  | $ | 5.00 |  |  |  |  |  |  |  |  |
Exercised |  |  | (31,848 | ) |  | $ | 0.86 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (79,872 | ) |  | $ | 6.35 |  |  |  |  |  |  |  |  |
Outstanding at September 30, 2022 |  |  | 5,655,948 |  |  | $ | 3.31 |  |  |  | 8.3 |  |  | $ | 39,818 |
Vested and exercisable at September 30, 2022 |  |  | 2,084,736 |  |  | $ | 1.75 |  |  |  | 7.1 |  |  | $ | 17,772 |
As of September 30, 2022, total unrecognized compensation costs related to unvested stock option awards granted was approximately $9.4 million, which the Company expects to recognize over a weighted-average period of approximately 2.8 years. The Company recorded stock-based compensation expense related to stock options in the following expense categories of its condensed statements of operations for the periods shown (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
General and administrative |  | $ | 563 |  |  | $ | 254 |  |  | $ | 1,525 |  |  | $ | 412 |
Research and development |  |  | 277 |  |  |  | 50 |  |  |  | 648 |  |  |  | 145 |
Total stock-based compensation |  | $ | 840 |  |  | $ | 304 |  |  | $ | 2,173 |  |  | $ | 557 |
Employee Stock Purchase Plan The 2021 Employee Stock Purchase Plan (the “ESPP”), which permits employees to purchase shares of the Company’s common stock, became effective on June 30, 2021. A total of 375,000 shares of the Company’s common stock were initially reserved for sale under the ESPP. The number of shares of the Company’s common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2022 and through January 1, 2031, by the lesser of (1) 1% of the total number of shares of the Company’s common stock outstanding on the last day of the fiscal year before the date of the automatic increase, and (2) 800,000 shares; provided that before the date of any such increase, the Board may determine that such increase will be less than the amount set forth in clauses (1) and (2). On January 1, 2022, the Board increased the number of shares of common stock reserved for issuance under the ESPP by 404,732 shares. As of September 30, 2022, there are 779,732 shares authorized for issuance under the ESPP and there have been no purchases of shares under the ESPP.

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