Annual report pursuant to Section 13 and 15(d)

Equity Incentive Plans, Employee Stock Purchase Plan and Stock-Based Compensation

v3.22.0.1
Equity Incentive Plans, Employee Stock Purchase Plan and Stock-Based Compensation
12 Months Ended
Dec. 31, 2021
Share-based Payment Arrangement [Abstract]  
Equity Incentive Plans, Employee Stock Purchase Plan and Stock-Based Compensation

11. Equity Incentive Plans, Employee Stock Purchase Plan and Stock-Based Compensation

2004 Equity Incentive Plan, 2018 Equity Incentive Plan and 2021 Equity Inducement Plan

In September 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”), which became effective on September 25, 2018. As a result, the Company will not grant any additional awards under the 2004 Equity Incentive Plan (“2004 Plan”). The terms of the 2004 Plan and applicable award agreements will continue to govern any outstanding awards thereunder. In addition to the shares of common stock reserved for future issuance under the 2004 Plan that were added to the 2018 Plan upon its effective date, the Company initially reserved 2,300,000 shares of common stock for issuance under the 2018 Plan. In addition, the number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2019, in an amount equal to 5% of the total number of

shares of the Company’s capital stock outstanding on the immediately preceding December 31 (rounded to the nearest whole share), or a lesser number of shares determined by the Company’s board of directors. As a result, common stock reserved for issuance under the 2018 Plan was increased by 2,287,605 shares on January 1, 2021.

In August 2021, the Company adopted the 2021 Equity Inducement Plan (“2021 Plan”), which became effective on August 4, 2021. Upon its effective date, the Company initially reserved 750,000 shares of common stock for issuance pursuant to non-qualified stock options and restricted stock units (“RSUs”) under the 2021 Plan. In accordance with Rule 5635(c)(4) of the Nasdaq listing rules, equity awards under the 2021 Plan may only be made to an employee if he or she is granted such equity awards in connection with his or her commencement of employment with the Company and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. In addition, awards under the 2021 Plan may only be made to employees who have not previously been an employee or member of the Board (or any parent or subsidiary of the Company) or following a bona fide period of non-employment of the employee by the Company (or a parent or subsidiary of the Company). At all times the Company will reserve and keep available a sufficient number of shares as will be required to satisfy the requirements of all outstanding awards granted under the 2021 Plan.

As of December 31, 2021, the Company had 1,504,641 shares available for grant under the 2018 Plan and the 2021 Plan.

The following table summarizes option activities under the Company’s 2004 Plan, 2018 Plan and 2021 Plan:

 

 

 

Outstanding
Options

 

 

Weighted-
Average
Exercise Price

 

 

Weighted-
Average
Remaining
Contract Term
(Years)

 

 

Aggregate
Intrinsic Value
(in thousands)

 

Balances at December 31, 2020

 

 

5,439,295

 

 

$

11.93

 

 

 

7.75

 

 

$

53,202

 

Granted

 

 

1,449,834

 

 

$

20.27

 

 

 

 

 

 

 

Exercised

 

 

(237,370

)

 

$

10.47

 

 

 

 

 

 

 

Canceled/Forfeited

 

 

(139,673

)

 

$

10.94

 

 

 

 

 

 

 

Balances at December 31, 2021

 

 

6,512,086

 

 

$

13.86

 

 

 

7.39

 

 

$

14,955

 

Exercisable at December 31, 2021

 

 

3,866,289

 

 

$

12.91

 

 

 

6.63

 

 

$

9,170

 

 

The aggregate intrinsic value was calculated as the difference between the exercise prices of the underlying stock option awards and the estimated fair value of the Company’s common stock on the date of exercise. For the years ended December 31, 2021, 2020 and 2019, the aggregate intrinsic value of stock options exercised was $2.8 million, $1.2 million and $0.2 million, respectively, determined at the date of the option exercise.

Employee Stock Options Valuation

For determining stock-based compensation expense, the fair-value-based measurement of each employee stock option was estimated as of the date of grant using the Black-Scholes option pricing model with assumptions as follows:

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

Expected term (in years)

 

5.3-6.1

 

 

3.1-7.0

 

 

4.5-7.0

 

Expected volatility

 

80.9%-84.9%

 

 

73.2%-87.4%

 

 

72.7%-74.9%

 

Risk-free interest rate

 

0.6%-1.3%

 

 

0.2%-1.6%

 

 

1.4%-2.6%

 

Expected dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. The Company used the “simplified” method to determine the expected term of options granted, which calculates the expected terms as the average of the weighted-average vesting term and the contractual term of the option.

Expected Volatility—Since the Company has limited information available on the volatility of its common stock due to its short trading history, the expected volatility was estimated based on the average historical volatilities of common stock of comparable publicly traded entities over a period equal to the expected term of the stock option grants. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the options.

Expected Dividend—The Company has never paid dividends on its common stock. Therefore, the Company used an expected dividend of zero.

Using the Black-Scholes option-valuation model, the weighted-average estimated grant-date fair value of employee stock options granted during the years ended December 31, 2021, 2020 and 2019 was $14.24, $5.59 and $6.71 per share, respectively.

Restricted Stock Units

Restricted stock units (“RSUs”) are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs generally vest over a four-year period provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.

A summary of the status and activity of non-vested RSUs for the year ended December 31, 2021 is as follows:

 

 

 

Number of
Shares

 

 

Weighted
Average
Grant-Date
Fair Value

 

Non-vested December 31, 2020

 

 

666,375

 

 

$

9.83

 

Granted

 

 

2,094,250

 

 

 

20.31

 

Released

 

 

(238,724

)

 

 

11.23

 

Canceled

 

 

(118,075

)

 

 

17.66

 

Non-vested December 31, 2021

 

 

2,403,826

 

 

$

18.43

 

 

2018 Employee Stock Purchase Plan

In September 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“ESPP”), in order to enable eligible employees to purchase shares of the Company’s common stock. The Company initially reserved 230,000 shares of common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP will increase automatically on January 1st of each of the first ten calendar years after the effective date by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31 (rounded to the nearest whole share) or a number of shares as may be determined by the Company’s board of directors. As a result, common stock reserved for issuance under the ESPP was increased by 457,521 shares on January 1, 2021. The aggregate number of shares issued over the term of the Company’s ESPP, subject to stock-splits, recapitalizations or similar events, may not exceed 2,300,000 shares of the Company’s common stock.

The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model. For the years ended December 31, 2021, 2020 and 2019, the fair value of ESPP shares was estimated using the following assumptions:

 

 

 

 

 

 

Year Ended December 31,

 

 

 

 

 

 

2021

 

 

2020

 

 

2019

 

Expected term (in years)

 

0.5

 

 

0.5

 

 

0.5

 

Expected volatility

 

65.9-111.4%

 

 

63.0%-111.4%

 

 

63.0%-83.2%

 

Risk-free interest rate

 

 

0.1

%

 

0.1%-1.9%

 

 

1.9%-2.5%

 

Expected dividend

 

 

-

 

 

 

-

 

 

 

-

 

 

During the years ended December 31, 2021, 2020 and 2019, 145,809, 195,992, and 131,939 shares, respectively, had been purchased. As of December 31, 2021, 673,251 shares were available for future issuance under the ESPP.

Stock-Based Compensation Expense

The Company believes that the fair value of the stock options, RSUs and ESPP shares is more reliably measurable than the fair value of services received.

Total stock-based compensation expense recognized was as follows:

 

 

 

Year Ended December 31,

 

 

 

2021

 

 

2020

 

 

2019

 

 

 

(in thousands)

 

Research and development expense:

 

 

 

 

 

 

 

 

 

  Stock options

 

$

2,208

 

 

$

1,405

 

 

$

903

 

  Restricted stock units

 

 

4,280

 

 

 

770

 

 

 

623

 

  ESPP

 

 

638

 

 

 

512

 

 

 

389

 

  Subtotal

 

 

7,126

 

 

 

2,687

 

 

 

1,915

 

General and administrative expense:

 

 

 

 

 

 

 

 

 

  Stock options

 

 

11,045

 

 

 

7,098

 

 

 

6,815

 

  Restricted stock units

 

 

4,920

 

 

 

2,021

 

 

 

1,464

 

  ESPP

 

 

150

 

 

 

111

 

 

 

118

 

  Subtotal

 

 

16,115

 

 

 

9,230

 

 

 

8,397

 

Total

 

$

23,241

 

 

$

11,917

 

 

$

10,312

 

 

As of December 31, 2021, unrecognized stock-based compensation expense related to the unvested stock options and RSUs granted was $24.7 million and $36.3 million, respectively. The remaining unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.5 years and 3.2 years, respectively. As of December 31, 2021, there is $0.1 million of unrecognized stock-based compensation expense related to the ESPP.

Call Option Plan

In February 2017, the Company adopted a Call Option Plan to grant selected employees, officers, directors and consultants (collectively, the “Participants”) options to purchase shares of the common stock of Vaxcyte. As of December 31, 2021, the Company has reserved 266,724 shares of Vaxcyte common stock for issuance under the program, under which call options covering 248,944 and 17,780 shares were granted in February 2017 and August 2019, respectively. The call options granted in February 2017 vested 25% on each of January 1, 2017, 2018, 2019, and 2020, and expire one year from the vesting date. The call options granted in August 2019 vest 25% on each of January 1, 2019, 2020, 2021, and 2022, and expire one year from the vesting date.

A summary of the status of the call options at December 31, 2021 and 2020 is as follows:

 

 

 

December 31, 2021

 

 

December 31, 2020

 

 

 

 

Shares

 

 

Shares

 

 

Options vested and exercised

 

 

262,279

 

 

 

257,834

 

 

Options vested and outstanding

 

-

 

 

-

 

 

Options unvested and outstanding

 

 

4,445

 

 

 

8,890

 

 

Total options granted

 

 

266,724

 

 

 

266,724

 

 

 

 

 

 

 

 

 

 

 

The amounts recognized as compensation expense related to the Call Option Plan for the years ended December 31, 2021, 2020 and 2019 were $97,000, $109,000 and $78,000, respectively. The amounts recognized as other expense or income related to the remeasurement of the vested call options for the years ended December 31, 2021, 2020 and 2019 were $109,000 of other income and $76,000 and $153,000 of other expense, respectively. As of December 31, 2021 and 2020, the liability attributable to the Call Option Plan was $97,000 and $109,000, respectively.