Share-based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Centessa Pharmaceuticals plc (Successor) Stock Option and Incentive Plan

In January 2021, the Company’s board of directors approved the 2021 Stock Option and Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the granting of ordinary shares, incentive stock options, non-qualified stock options, restricted share awards, and/or share appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors. The number of shares authorized under the 2021 Plan was increased in May 2021 at the time of the IPO, whereby the total number of shares authorized under the 2021 Plan was 20,026,816. Beginning on January 1, 2022 and each January 1 thereafter, the number of Shares reserved and available for issuance under the 2021 Plan shall be cumulatively increased by 5% of the number of Shares issued and outstanding on the immediately preceding

December 31, or such lesser number as the board of directors may determine. Remaining shares available for future grants as of December 31, 2022 were 6,010,683.

Share-based Compensation Expense

The Company and the Centessa Predecessor Group recorded share-based compensation expense in the following expense categories in the consolidated and combined statements of operations and comprehensive loss (amounts in thousands):


	Successor				Predecessor
	Twelve Months Ended December 31, 2022		Period from January 30, 2021 through December 31, 2021		Period from January 1, 2021 through January 29, 2021
Research and development	$	11,954	$	5,896	$	—
General and administrative	13,011		8,956		—
	$	24,965	$	14,852	$	—

Centessa Pharmaceuticals plc (Successor) Stock Options

The following table summarizes stock option activity for the period from January 1, 2022 through December 31, 2022:


	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in million)
Balance at January 1, 2022	11,730,382	$	8.07	9.2
Granted	5,553,985	8.02
Exercised	(205,107)	3.89
Forfeited	(2,390,264)	9.44
Balance at December 31, 2022	14,688,996	$	7.88	8.5	—
Exercisable at December 31, 2022	5,002,044	$	7.79	8.2	—
Vested and expected to vest at December 31, 2022	14,688,996	$	7.88	8.5	—

The weighted-average grant date fair value of options granted was $5.38 per share for the period from January 1, 2022 through December 31, 2022. The Company’s stock options vest based on the terms in each award agreement, generally over four-year periods, and have a contractual term of ten years. As of December 31, 2022, the total unrecognized compensation expense related to unvested stock option awards was $46.7 million, which the Company expects to recognize over a weighted-average period of 2.6 years.

Based on the trading price of $3.10 per ADS, which was the closing price as of December 31, 2022, the aggregate intrinsic value of options as of December 31, 2022 was zero.

During the twelve months ended December 31, 2022, the fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:


Expected term (in years)	6.01
Expected stock price volatility	76.4	%
Risk-free interest rate	2.2	%
Expected dividend yield	0%

The Company uses the Black-Scholes option pricing model to value its stock option awards. The expected life of the stock options is estimated using the “simplified method,” as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting period and the contractual term of the option. For share price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected life of the option. Forfeitures of stock options are recognized in the period the forfeiture occurs.

Centessa Pharmaceuticals plc (Successor) Restricted Share Awards and Units

In connection with the acquisition of the Centessa Subsidiaries, the Company issued 379,905 ordinary shares subject to future vesting under its Restricted Stock Awards program. For the period subsequent to the acquisition through December 31, 2022, the Company issued an additional 833,897 ordinary shares subject to future vesting to an employee. The fair value of the awards are based upon the estimated fair value of the Company’s ordinary shares at the time of grant. During the twelve month period ended December 31, 2022, 383,523 share awards vested.

On July 1, 2022, the board of directors of the Company (the “Board”) approved the grant of restricted stock unit awards under the Company’s Amended and Restated 2021 Stock Option and Incentive Plan to certain executive officers and employees of the Company. The grant date fair market value of each award was $5.17. The bulk of the restricted stock unit awards vest in ten equal quarterly installments. The Board, following the recommendations of the Company’s Compensation Committee, approved the restricted stock unit awards as a retention grant to incentivize and encourage retention of certain officers and employees.

The following table summarizes ordinary share activity related to the restricted stock programs for the twelve months ended December 31, 2022:


	Restricted Stock Awards			Restricted Stock Units
	Number of Shares		Weighted-Average Grant Date Fair Value Per Share	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
Unvested at January 1, 2022	982,944			—
Granted	—		n/a	2,458,950		$	5.17
Vested	(383,523)			(469,490)
Forfeited	—			(184,700)
Unvested at December 31, 2022	599,421			1,804,760

Unrecognized compensation expense at December 31, 2022 ($ in thousands)	$	10,221		$	9,331
Expected weighted average recognition period (in years)	2.4			2.0

Centessa Pharmaceuticals plc (Successor) 2021 Employee Share Purchase PlanIn January 2021, the Company’s board of directors approved the 2021 Employee Share Purchase Plan (the “2021 ESPP”). The initial number of shares reserved for issuance under the 2021 ESPP was 860,000. On January 1, 2022 and each January 1 thereafter, the number of Shares reserved and available for issuance under the ESPP shall be cumulatively increased by a number of shares equal to the lesser of: (i) 1% of the number of Shares issued and outstanding on the immediately preceding December 31; (ii) two times the initial number of shares reserved or (iii) such number of Shares as determined by the board of directors. Remaining shares reserved as of December 31, 2022 were 1,759,882.