v3.22.2.2
Stockholders' Equity and Equity Incentive Plans
 9 Months Ended
Sep. 30, 2022
Equity [Abstract]  
Stockholders' Equity and Equity Incentive Plans Stockholders' Equity and Equity Incentive Plans
Common Stock
The Company is authorized to issue 1,000,000,000 shares of common stock, at a par value of $0.001 per share. Each share of common stock is entitled to one vote.
The Company's outstanding equity awards as well as reserved common stock for future issuance is as follows:
September 30, 2022December 31, 2021
Outstanding options under the 2016 Equity Incentive Plan (the 2016 Plan)1,800,3341,935,240
Outstanding options under the 2019 Equity Incentive Plan (the 2019 Plan)2,775,9262,078,232
Outstanding options under the 2021 Equity Inducement Plan (the 2021 Plan)514,883270,600
Outstanding performance stock units (PSUs) under the 2019 Plan1,038,250—
Unvested restricted stock units (RSUs) under the 2019 Plan987,428179,149
Equity awards available for grant under the 2019 Plan (1)
66,3801,535,488
Equity awards available for grant under the 2021 Plan135,117379,400
Shares reserved for purchase under the Employee Stock Purchase Plan (the ESPP) (2)
362,316225,447
Total7,680,6346,603,556
(1) Effective January 1, 2022, in connection with the evergreen provision contained in the 2019 Plan, an additional 1,070,967 shares of common stock were reserved for issuance under the 2019 Plan, including 7,784 shares of common stock that have become available for issuance under the 2019 Plan as a result of the forfeiture, termination, tender to or withholding for payment of an exercise price or for tax withholding obligations, expiration or repurchase of stock options, restricted stock units or other stock awards that had been granted under the 2016 Plan, pursuant to the terms of the 2019 Plan.

(2) Effective January 1, 2022, in connection with an evergreen provision contained in the ESPP, an additional 265,795 shares of common stock were reserved for issuance under the ESPP.

Performance Stock Units

July 2022 PSU Grant

In July 2022, the Company's Board of Directors granted 350,000 PSUs to the Company’s President and Chief Executive Officer and 300,000 PSUs to the Company’s Chief Financial and Business Officer. Upon vesting, each PSU will entitle the grantee to receive one share of the Company’s common stock based on the following conditions and the executive officer’s continued service with the Company:

•50% of the PSUs will vest on July 6, 2023 (Tranche 1); and
•The remaining 50% of the PSUs will vest at such time, if any, during the period that begins on July 6, 2023, and ending on July 6, 2024, as the thirty-day volume-weighted average stock price (VWAP) of the Company’s common stock reaches $6.00 per share (Tranche 2).

The fair value of Tranche 1 is based on the market price of the Company's stock at the date of grant. The fair value of Tranche 2 is estimated using a Monte Carlo simulation in a risk-neutral framework and uses the following inputs to determine the fair value:

•Expected term - 2.00 years.
•Expected volatility - Historical volatility of the Company's common stock price over a lookback period that is commensurate to the vesting period, which is 68.8%.
•Risk-free interest rate - The Constant Maturity U.S. Treasury Curve, which is 2.95%.
•Expected dividend rate - The Company has estimated the dividend yield to be zero.
•Derived service period - 1.123 years.
The Company recorded stock-based compensation expense of $0.6 million related to these PSUs for the three and nine months ended September 30, 2022.

January 2022 PSU Grant

In January 2022, the Company granted a target number of PSUs to certain executive officers that are subject to vesting based on the Company’s attainment of pre-established performance milestones and service conditions. The performance milestones are comprised of two non-market milestones and one market milestone. The non-market performance milestones are subject to attaining certain forecasted net product revenues and future prescriptions of TYRVAYA Nasal Spray, and the market performance milestone is subject to (i) at least one of the non-market milestones being met and (ii) attaining total shareholder return based on the change in the price of the Company's common stock. Depending on the terms of the PSUs and the outcome of the performance milestones, a recipient may ultimately earn 0% to 125% (as specified for each PSU grant) of the target number of PSUs granted of 310,600.

The number of PSUs that may vest and be issued is based upon the determination of the Compensation Committee of the Company's Board of Directors that one or more of the three performance milestones are achieved in the period beginning on the vesting commencement date of January 1, 2022 and ending on June 30, 2023, with the PSUs vesting on July 1, 2024, subject to the participant continuing their service through such vesting date.

The fair value of the non-market milestones is based on the market price of the Company’s stock as of the date of grant. The fair value of the market performance milestone is estimated using a Monte Carlo simulation. The probability of the number of actual shares expected to be earned is considered in the grant date valuation, and therefore, stock-based compensation expense is not adjusted at the vesting date to reflect the actual number of shares earned. The Monte Carlo simulation assumes that at least one of the non-market milestones are met and includes the following assumptions:

•Expected term - 1.48 years.
•Expected volatility - Historical volatility of the Company's common stock price over a lookback period that is commensurate to the performance period, which is 61.3%.
•Risk-free interest rate - The Interpolated Constant Maturity U.S. Treasury Curve, which is 0.64%.
•Expected dividend rate - The Company has estimated the dividend yield to be zero.

The Company records stock-based compensation expense over the estimated service period for each performance-based milestone subject to the achievement of the milestones being considered probable. At each reporting date, the Company assesses whether achievements of the milestones are considered probable and, if so, records stock-based compensation expense based on the portion of the service period elapsed to date with respect to the milestones, with a cumulative catch-up. The Company did not record stock-based compensation expense related to these PSUs during the three or nine months ended September 30, 2022.
Stock Options
The following table summarizes stock option activity under the 2016 Plan, the 2019 Plan and the 2021 Plan for the nine months ended September 30, 2022 (in thousands, except shares, contractual term and per share data):

Outstanding Options
Number of Shares Underlying Outstanding Options
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding at January 1, 20224,284,072 $13.54 8.1$28,874 
Options granted1,458,967 14.45 — 
Options exercised(69,930)1.09 995 
Options forfeited(581,966)17.44 23 
Outstanding at September 30, 20225,091,143 13.53 7.83,122 
Shares vested and exercisable as of September 30, 20222,562,866 11.55 6.83,023 
Vested and expected to vest as of September 30, 20225,091,143 $13.53 7.8$3,122 
The weighted average fair value of options granted during the nine months ended September 30, 2022 was $10.32 per share. As of September 30, 2022, the total unrecognized stock-based compensation expense for stock options was $25.1 million, which is expected to be recognized over a weighted average period of 2.6 years.

Restricted Stock Units
The RSUs are granted to the Company's directors and employees. The value of an RSU award is based on the Company's stock price on the date of the grant. The shares underlying the RSUs are not issued until the RSUs vest.
Activity with respect to the Company's RSUs for the nine months ended September 30, 2022 was as follows (in thousands, except share, contractual term, and per share data):

Outstanding RSUs
Number of Shares Underlying Outstanding Awards
Weighted Average Grant Date Fair Value per Share
Weighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value
Outstanding at January 1, 2022179,149 $17.52 2.4$3,271 
Restricted stock units granted918,357 7.43 6,822 
Restricted stock units vested(60,480)17.86 451 
Restricted stock units forfeited (49,598)14.37 251 
Outstanding at September 30, 2022987,428 8.27 2.15,549 
Vested and expected to vest as of September 30, 2022987,428 $8.27 2.1$5,549 
As of September 30, 2022, the total unrecognized stock-based compensation expense for RSUs was $6.6 million which is expected to be recognized over a weighted average period of 2.4 years.
Employee Stock Purchase Plan
The Company maintains an ESPP which allows eligible employees to purchase shares of the Company's common stock at 85% of the fair market value of the Company's stock at the beginning or the end of the offering period, whichever is lower through payroll deductions. The Company issued 128,926 shares of common stock under the ESPP during the nine months ended September 30, 2022.

Stock-Based Compensation Expense
The following is a summary of stock-based compensation expense by function recognized (in thousands):

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Sales and marketing$549 $812 $2,882 $1,959 
General and administrative2,664 1,818 7,605 5,573 
Research and development557 485 1,825 1,311 
Total stock-based compensation expense $3,770 $3,115 $12,312 $8,843