Stock-Based Compensation |
(8) Stock-Based Compensation The Company’s board of directors adopted the 2023 Zynerba Pharmaceuticals, Inc. Stock Option and Incentive Plan (the “2023 Plan”) in April 2023, which was subsequently approved by the stockholders in June 2023, under which the Company may grant incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, cash-based awards, and dividend equivalent rights to employees, officers, non-employee directors, consultants, and advisors. The number of shares available for issuance under awards granted pursuant to the 2023 Plan was 6,900,000 shares of the Company’s common stock. Shares of common stock underlying awards granted under the 2023 Plan that are forfeited, canceled or otherwise terminated (other than by exercise) will be added back to the share reserve available for issuance under the 2023 Plan. Notwithstanding the foregoing, the following shares shall not be added to the share reserve authorized for grant under the 2023 Plan: shares tendered or held back upon exercise of an option or shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right upon exercise thereof. Further, shares reacquired by the Company on the open market will not be added to the share reserve authorized for issuance. As of June 30, 2023, there were 6,182,640 shares available for future issuance under the 2023 Plan. The Company also maintained the Amended and Restated 2014 Omnibus Incentive Compensation Plan, as amended (the “2014 Plan”), which allows for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units, performance units and other stock-based awards to employees, officers, non-employee directors, consultants, and advisors. In addition, the 2014 Plan provides selected employees with the opportunity to receive bonus awards that are considered “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code. As of June 6, 2023, no additional awards will be granted under the 2014 Plan. Options issued under the 2023 and 2014 Plans have a contractual life of 10 years and may be exercisable in cash or as otherwise determined by the board of directors. The Company has granted options to employees and non-employee directors. Stock options granted to employees primarily vest 25% upon the first anniversary of the grant date and the balance of unvested options vests in quarterly installments over the remaining three years. Stock options granted annually to non-employee directors vest on the earlier of the one-year anniversary of the grant date, or one day before the date of the Company’s next annual stockholders’ meeting that occurs after the grant date. The Company’s non-employee director compensation policy enables directors to receive stock options in lieu of quarterly cash payments. Any option granted to the directors in lieu of cash compensation vests in full on the grant date. The Company records forfeitures as they occur. a. | Time-Based Restricted Stock Awards: |
During 2022, the Company granted 841,654 time-based restricted stock awards to employees, non-employee directors and consultants, of which 595,664 restricted stock awards remain outstanding as of June 30, 2023. During the six months ended June 30, 2023, the Company granted 1,554,944 time-based restricted stock awards to employees and non-employee directors, which all remain outstanding as of June 30, 2023. b. | Restricted Stock Awards in Lieu of Bonus: |
During the six months ended June 30, 2023, the Company granted 431,556 fully vested stock awards to certain employees in lieu of their earned annual bonus. The fair value of those vested stock awards was $0.3 million and was recorded against accrued compensation that existed as of December 31, 2022. c. | Performance-Based Restricted Stock Awards: |
Stock-based compensation expense for performance-based grants are recorded when management estimates that the vesting of these shares is probable based on the status of the Company’s research and development programs and other relevant factors, which were established by the Company’s board of directors. The Company’s board of directors determines if the performance conditions have been met. During 2021, the Company granted 506,911 performance-based restricted stock awards to employees, of which 187,964 restricted stock awards have fully vested and 281,947 restricted stock awards remained outstanding as of June 30, 2023. The performance-based conditions for these performance-based grants were deemed probable of achievement during the six months ended June 30, 2021 and, as of June 30, 2023, the Company has recorded $1.7 million in stock-based compensation expense related to these grants. During 2022, the Company granted 556,500 performance-based restricted stock awards to employees, of which 548,000 restricted stock awards remained outstanding as of June 30, 2023. During the six months ended June 30, 2023, the Company granted 628,167 performance-based restricted stock awards to employees. As of June 30, 2023, satisfaction of the related performance conditions for both the 2022 and 2023 grants have not been deemed probable of being achieved and there was $1.1 million and $0.3 million, respectively, of unrecognized stock-based compensation expense related to these performance-based awards, which will be expensed over the estimated service period related to each performance condition once the performance conditions have been deemed probable. For the six months ended June 30, 2023 and 2022, the Company recorded stock-based compensation expense related to its stock option grants and restricted stock awards, as follows: | | | | | | | | | | | | | | | | | | | | | Stock Option Grants | | Restricted stock awards | | Total | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 | | | 2022 | Research and development | | $ | 421,200 | | $ | 520,729 | | $ | 299,994 | | $ | 497,412 | | $ | 721,194 | | $ | 1,018,141 | General and administrative | | | 507,374 | | | 638,241 | | | 362,002 | | | 612,643 | | | 869,376 | | | 1,250,884 | | | $ | 928,574 | | $ | 1,158,970 | | $ | 661,996 | | $ | 1,110,055 | | $ | 1,590,570 | | $ | 2,269,025 |
The following table summarizes the Company’s stock option activity for the six months ended June 30, 2023: | | | | | | | | | | | | | | | Weighted- | | Weighted- | | | | | | | | Average | | Average | | Aggregate | | | Number | | Exercise | | Contractual | | Intrinsic | | | of Shares | | Price | | Life (in Years) | | Value | Outstanding as of December 31, 2022 | | 6,276,016 | | $ | 7.52 | | | | | | Granted | | 430,416 | | | 0.35 | | | | | | Outstanding as of June 30, 2023 | | 6,706,432 | | $ | 7.06 | | 5.72 | | $ | — | Exercisable as of June 30, 2023 | | 5,159,646 | | $ | 8.47 | | 4.86 | | $ | — | Vested and expected to vest as of June 30, 2023 | | 6,706,432 | | $ | 7.06 | | | | | |
The weighted-average grant date fair values of options granted during the six months ended June 30, 2023 and 2022 were $0.25 and $1.74, respectively. The fair values of stock options granted were calculated using the Black-Scholes option pricing model with the following weighted-average assumptions: | | | | | | | Six months ended June 30, | | | 2023 | | 2022 | Weighted-average risk-free interest rate | | 3.99% | | 2.02% | Expected term of options (in years) | | 5.50 | | 6.11 | Expected stock price volatility | | 87.35% | | 100.23% | Expected dividend yield | | 0% | | 0% |
As of June 30, 2023, there was $2.5 million of unrecognized stock-based compensation expense related to stock options, which is expected to be recognized over a weighted-average period of 1.9 years. The following table summarizes the Company’s restricted stock award activity under the 2014 Plan for the six months ended June 30, 2023: | | | | | | | | | | | | | Weighted | | | | | | | Average | | Aggregate | | | | | Grant Date | | Intrinsic | | | Shares | | Fair Value | | Value | Unvested as of December 31, 2022 | | 2,114,512 | | $ | 2.86 | | | | Granted | | 2,614,667 | | | 0.56 | | | | Vested | | (1,110,457) | | | 2.92 | | | | Unvested as of June 30, 2023 | | 3,618,722 | | $ | 1.21 | | $ | 1,179,703 | Expected to vest as of June 30, 2023 | | 2,437,555 | | $ | 1.38 | | $ | 794,643 |
As of June 30, 2023, excluding performance-based restricted stock awards that have not been deemed probable, there was $1.3 million of unrecognized stock-based compensation expense related to unvested restricted stock awards, which is expected to be recognized over a weighted-average period of 1.2 years.
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