9 METERS BIOPHARMA, INC. - 10-Q filing on 2020-08-13

SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

SHARE-BASED COMPENSATION

The Company has two stock option plans in existence: the 2012 Omnibus Incentive Plan (the “Omnibus Plan”) and the Innovate 2015 Stock Incentive Plan (the “Private Innovate Plan”). In addition, the Company assumed 1,014,173 options in accordance with the terms of the RDD Merger Agreement. The shares reserved for issuance under the Omnibus Plan automatically increase on the first day of each calendar year beginning in 2019 and ending in 2022 by an amount equal to the lesser of (i) five percent of the number of shares of common stock outstanding as of December 31^st of the immediately preceding calendar year or (ii) such lesser number of shares of common stock as determined by the Board (the “Evergreen Provision”). On January 1, 2020 and 2019, the number of shares of common stock available under the Omnibus Plan automatically increased by 1,973,883 and 1,304,441 shares pursuant to the Evergreen Provision, respectively. Additionally, on June 30, 2020, stockholders approved an amendment to the Omnibus Plan to increase the number of shares of common stock available under the Omnibus Plan to 20,794,492 shares.

The terms of the option agreements are determined by the Board. The Company’s stock options vest based on the terms in the stock option agreements and typically vest over a period of three or four years. These stock options typically have a maximum term of ten years.

Private Innovate Plan

As of June 30, 2020, there were 6,028,781 stock options outstanding under the Private Innovate Plan. Since 2018, the Company has not issued, and does not intend to issue, any additional awards from the Private Innovate Plan.

The range of assumptions used in estimating the fair value of the options granted or re-measured under the Private Innovate Plan using the Black-Scholes option pricing model for the periods presented were as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Expected dividend yield	0%	0%	0%	0%
Expected stock-price volatility	—%	—%	—%	67%
Risk-free interest rate	—%	—%	—%	2.6%
Expected term of options (in years)	0	0	0	8.2 - 8.7

The following table summarizes stock option activity under the Private Innovate Plan:



	Number of Shares		Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (in years)
Outstanding at December 31, 2019	6,063,745		$	1.53	$	496,275	5.4
Options granted	—		—		—
Options forfeited	(34,964	)	2.16		—
Options exercised	—		—		—
Outstanding at June 30, 2020	6,028,781		1.53		526,849		3.7
Exercisable at June 30, 2020	5,910,695		1.52		526,849		3.6
Vested and expected to vest at June 30, 2020	6,026,508		$	1.53	$	526,849	3.7

There were no options granted under the Private Innovate Plan during the six months ended June 30, 2020 and 2019.

The total fair value of stock option awards vested during the six months ended June 30, 2020 under the Private Innovate Plan was approximately $361,000. As of June 30, 2020, there was approximately $0.1 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements under the Private Innovate Plan, which is expected to be recognized over a weighted average period of 1.5 years.

The Private Innovate Plan provides for accelerated vesting under certain change-of-control transactions, if approved by the Company’s board of directors.

Omnibus Plan

As of June 30, 2020, there were options to purchase 5,651,726 shares of the Company’s common stock outstanding under the Omnibus Plan and 14,726,818 shares available for future grants under the Omnibus Plan.

The range of assumptions used in estimating the fair value of the options granted under the Omnibus Plan using the Black-Scholes option pricing model for the periods presented were as follows:



	Three Months Ended June 30,		Six Months Ended June 30,
	2020	2019	2020	2019
Expected dividend yield	0%	0%	0%	0%
Expected stock-price volatility	72% - 74%	70%	72% - 74%	68% - 72%
Risk-free interest rate	0.4% - 0.6%	2.0% - 2.2%	0.4% - 0.6%	2.0% - 2.7%
Expected term of options (in years)	5.0 - 10.0	5.7	5.0 - 10.0	5.4 - 10.0

The following table summarizes stock option activity under the Amended Omnibus Plan:



	Number of Shares	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Life (in years)
Outstanding at December 31, 2019	2,717,870	$	1.87	$	—	9.4
Options granted	2,933,856	0.67		—
Options forfeited	—	—		—
Options exercised	—	—		—
Outstanding at June 30, 2020	5,651,726	1.25		—		9.4
Exercisable at June 30, 2020	4,243,881	1.41		—		9.2
Vested and expected to vest at June 30, 2020	5,519,649	$	1.25	$	—	9.4

The weighted-average grant date fair value of options granted under the Omnibus Plan was $0.41 during the three and six months ended June 30, 2020. There were 2,933,856 options granted and no options exercised under the Omnibus Plan during the three and six months ended June 30, 2020, respectively.

The total fair value of stock option awards vested under the Omnibus Plan was approximately $1,825,893 during the six months ended June 30, 2020. As of June 30, 2020, there was approximately $0.6 million of total unrecognized compensation cost related to unvested stock-based compensation arrangements under the Omnibus Plan. This cost is expected to be recognized over a weighted average period of 3.7 years.

The Omnibus Plan provides for accelerated vesting under certain change-of-control transactions, if approved by the Company’s board of directors. Upon consummation of the RDD Merger on April 30, 2020, the Company’s board of directors approved the acceleration of certain options for employees, board members and key consultants. The Company recognized an additional $2.7 million in non-cash stock compensation expense related to the modification during the three and six months ended June 30, 2020.

During the three and six months ended June 30, 2020, the board approved grants of 415,948 RSUs, which vest immediately upon the date of grant. During the six months ended June 30, 2019, the board approved grants of 490,000 RSUs, which vest immediately upon the date of grant. The weighted-average fair value of RSUs was $0.57 during the three and six months ended June 30, 2020, and $1.44 during the three and six months ended June 30, 2019. The Company recognized share-based compensation expense for the RSUs of approximately $238,000 and $255,000 during the three and six months ended June 30, 2020, respectively, and $449,000 and $639,000 during the three and six months ended June 30, 2019, respectively.

RDD Option Grants

Pursuant to the RDD Merger Agreement, the Company assumed option grant agreements awarded to RDD employees upon consummation of the RDD Merger (the “RDD Options”) on April 30, 2020. There were 1,014,173 RDD Options outstanding as of June 30, 2020 at a weighted-average exercise price of $0.63 per share. The total fair value of RDD Options vested during the three and six months ended was approximately $471,000. All of the RDD Options are fully vested and there is no unrecognized compensation expense as of June 30, 2020. The range of assumptions used in estimating the fair value of the RDD Options using the Black-Scholes option pricing model for the periods presented were as follows:



	Three and Six Months Ended June 30, 2020
Expected dividend yield	—	%
Expected stock-price volatility	72% - 74%
Risk-free interest rate	0.4% - 0.6%
Expected term of options (in years)	5.0 - 10.0

Total share-based compensation expense recognized in the accompanying condensed consolidated statements of operations and comprehensive loss was as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Research and development	$	1,460,550	$	351,000	$	1,588,550	$	443,000
General and administrative	2,560,450		501,000		2,708,450		935,000
Total share-based compensation	$	4,021,000	$	852,000	$	4,297,000	$	1,378,000