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SHARE BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2021
Share-based Payment Arrangement [Abstract] |
SHARE BASED COMPENSATION | SHARE BASED COMPENSATION Equity incentive plans: Upon closing of the Merger, the Company adopted Foamix’s 2019 Equity incentive plan (the “2019 Plan”). As of December 31, 2021, 979,795 shares remain issuable under the 2019 Plan. In addition, the Company adopted the 2018 Omnibus Incentive Plan (the "2018 Plan") in January 2018. As of December 31, 2021, 147,550 shares remain issuable under the 2018 Plan. Employee Share Purchase Plan: Upon closing of the Merger, the Company adopted Foamix's Employee Share Purchase Plan ("ESPP") pursuant to which qualified employees (as defined in the ESPP) may elect to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of the common stock at the beginning or end of each semi-annual share purchase period (“Purchase Period”). Employees are permitted to purchase the number of shares purchasable with up to 15% of the earnings paid (as such term is defined in the ESPP) to each of the participating employees during the Purchase Period, subject to certain limitations under Section 423 of the U.S. Internal Revenue Code. As of December 31, 2021, 2,232,207 shares remain available for grant under the ESPP. During the year ended December 31, 2021, 71,890 shares were issued to employees pursuant to the ESPP. During the year ended December 31, 2020, 61,031 Foamix ordinary shares were purchased by Foamix employee pursuant to the ESPP prior to the Merger, which were later exchanged for 36,155 shares of the Company's common stock and one CSR in the Merger, adjusted retrospectively to 9,038 shares of common stock and one CSR upon the reverse stock split effective February 12, 2021, and 38,716 shares were issued to employees after the Merger. Options and RSUs granted to employees and directors: In the years ended December 31, 2021 and 2020, the Company granted options as follows:
| Year ended December 31, 2021
| Award amount |  | Exercise price range |  | Vesting period |  | Expiration
Employees and Directors: |  |  |  |  |  |  |
Options | 1,686,405 |  |  | $1.68- $11.08 |  | 1 year -4 years |  | 10 years
RSU | 970,813 |  |  | — |  |  | 2 years -4 years |  | — |
| Year ended December 31, 2020
| Award amount |  | Exercise price range |  | Vesting period |  | Expiration
Employees and Directors: |  |  |  |  |  |  |
Options | 1,327,214 |  |  | $5.84- $12.52 |  | 1 year -4 years |  | 10 years
RSU | 654,427 |  |  | — |  |  | 1 year -4 years |  | — |
The fair value of options and RSUs granted to employees and directors during 2021 and 2020 was $9.4 million and $11.9 million, respectively. The fair value of RSUs granted to employees and directors is based on the share price on grant date . The fair value of each option granted is estimated using the Black-Scholes option pricing method. The volatility is based on a combination of the Company’s historical volatility, historical volatilities of companies in comparable stages as well as companies in the industry, by statistical analysis of daily share pricing model. The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the options granted in dollar terms. The Company’s management uses the expected term of each option as its expected life. The expected term of the options granted represents the period of time that granted options are expected to remain outstanding. The underlying data used for computing the fair value of the options are as follows:
| Year ended December 31
| 2021 |  | 2020
Fair value of stock option | $1.02-$6.75 |  | $3.47-$7.68
Dividend yield | 0 | % |  | 0 | %
Expected volatility | 68.38%-69.38% |  | 60.44%-69.83%
Risk-free interest rate | 0.50%-1.29% |  | 0.31%-1.26%
Expected term | 6 years |  | 6 years
Modification of share-based compensation: Pursuant to the Merger, all outstanding options and RSUs granted by Foamix were exchanged for stock options and RSUs of Menlo’s common stock according to the Exchange Ratio. In addition, for each option and RSU the holder received a CSR as described in Note 3- Business Combination. This transaction was considered by the company to be a modification under ASC 718, Compensation - Stock Compensation. The modification did not affect the remaining requisite service period. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded immaterial incremental compensation expense. As described in Note 3 - Business Combination, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. The conversion was considered by the company to be a modification under ASC 718. As a result of the modification, for outstanding options and RSUs granted to Foamix employees and consultants, the Company recorded incremental compensation of $1.8 million and $11.8 million for the years ended December 31, 2021 and December 31, 2020, respectively. As of December 31, 2021 there is $0.9 million of unrecognized incremental compensation expense related to the modification which will primarily be amortized using a graded vesting method over the next 1 year. Awards granted to holders who are no longer employed or providing services to the Company are accounted for in accordance with ASC 815-40, Derivatives and Hedging. Under this guidance, the awards are classified as a derivative liability because the award no longer exchanges a fixed amount of cash for a fixed number of shares. Accordingly, as of March 9, 2020 the Company reclassified $1.6 million from additional paid-in capital to derivative liability on the consolidated balance sheet. Prior to the reclassification of these awards as a liability instrument, the Company recorded an incremental compensation expense of $0.6 million due to the above mentioned modification in accordance with ASC 718. Subsequent to the reclassification of these awards as a liability instrument, the Company recorded incremental compensation expense of $1.0 million for the year ended December 31, 2020. There was no incremental compensation for the year ended December 31, 2021. As described in Note 3 - Business Combination, on April 6, 2020, the Company announced that study MTI-105 and study MTI-106 did not meet their respective primary endpoint of demonstrating statistically significant reduction in pruritus in patients treated with serlopitant compared to placebo based upon a 4-point improvement responder analysis. Accordingly, on April 6, 2020, pursuant to the terms of the CSR Agreement, each CSR was converted into 1.2082 shares of Menlo common stock, resulting in an effective Exchange Ratio in the Merger of 1.8006 shares of Menlo common stock for each Foamix ordinary share. On April 6, 2020, the awards are exchangeable for a fixed amount of cash for a fixed number of shares and were remeasured to fair value and reclassified from derivative liability to additional paid-in capital. Prior to the Merger, Menlo recognized all expenses relating to awards outstanding as of the Effective Date. These awards were subject to acceleration upon the change of control per the previous Menlo stock option plan. Summary of outstanding and exercisable options and RSUs: The following table summarizes the number of options outstanding for the year ended December 31, 2021, and related information:
| Number of options |  | Weighted Average Exercise Price |  |  |  |
Outstanding at December 31, 2020 | 4,274,649 |  |  | $ | 13.36 |  |  |  |  |
Granted | 1,686,405 |  |  | 5.29 |  |  |  |  |
Exercised | (70,827) |  |  | 7.18 |  |  |  |  |
Forfeited | (435,569) |  |  | 8.25 |  |  |  |  |
Expired | (1,410,706) |  |  | 17.53 |  |  |  |  |
Outstanding at December 31, 2021 | 4,043,952 |  |  | $ | 9.20 |  |  |  |  |
Exercisable at December 31, 2021 | 1,971,922 |  |  | $ | 12.39 |  |  |  |  |
The weighted average remaining contractual term of outstanding and exercisable options as of December 31, 2021, is 7.0 years and 5.5 years, respectively. Total unrecognized share based compensation for options at December 31, 2021 is $6.4 million, which is expected to be recognized over a weighted average period of 2.3 years. There was no intrinsic value of outstanding and exercisable options as of December 31, 2021 The following table summarizes the number of RSUs outstanding for the year ended December 31, 2021:
| Number of RSUs
Outstanding at December 31, 2020 | 719,443 |  |  |
Awarded | 970,813 |  |  |
Vested | (293,034) |  |  |
Forfeited | (134,822) |  |  |
Outstanding at December 31, 2021 | 1,262,400 |  |  |
Total unrecognized compensation expense related to the unvested portion of the Company's RSUs at December 31, 2021 was $5.6 million, which is expected to be recognized over a weighted average period of 2.27 years. Share-based compensation expenses: The following table illustrates the effect of share-based compensation on the statements of operations:
| Year ended December 31
| 2021 |  | 2020
Research and development expenses | 1,714 |  |  | 4,746 |
Selling, general and administrative | 6,366 |  |  | 13,354 |
| $ | 8,080 |  |  | $ | 18,100 |

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- Definition The entire disclosure for share-based payment arrangement. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 + Details
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