Ocuphire Pharma, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-based Compensation

Stock-based Compensation

12 Months Ended

Dec. 31, 2023

6.	Stock-based Compensation

Stock-based compensation expense was included in general and administrative and research and development costs as follows in the accompanying statements of comprehensive (loss) income for the periods indicated below (in thousands):

	December 31,
	2023		2022
General and administrative	$	2,435	$	1,060
Research and development		1,075		747
Total stock-based compensation	$	3,510	$	1,807

Inducement Plan

On February 22, 2021, the Company adopted the Ocuphire Pharma, Inc. 2021 Inducement Plan (the “Inducement Plan”) which was amended on November 1, 2023, pursuant to which the Company reserved 2,325,258 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

2020 Equity Incentive Plan

In November 2020, the stockholders of the Company approved the 2020 Equity Incentive Plan (the “2020 Plan”) for stock-based awards. Under the 2020 Plan, (i) 1,000,000 new shares of common stock were reserved for issuance and (ii) up to 70,325 additional shares of common stock may be issued, consisting of (A) shares that remain available for the issuance of awards under prior equity plans and (B) shares of common stock subject to outstanding stock options or other awards covered by prior equity plans that have been cancelled or expire on or after the date that the 2020 Plan became effective. Under the 2020 Plan, the shares reserved automatically increase on January 1 of each year, for a period of not more than ten years from the date the 2020 Plan is approved by the stockholders of the Company, commencing on January 1, 2021 and ending on (and including) January 1, 2030, by an amount equal to 5% of the shares of common stock outstanding as of December 31st of the preceding calendar year. The 2020 Plan permits the grant of incentive and nonstatutory stock options, appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other stock-based awards.

2018 Equity Incentive Plan

Prior to the 2020 Plan, the Company had adopted a 2018 Equity Incentive Plan (the “2018 Plan”) in April 2018 under which 1,175,000 shares of the Company’s common stock were reserved for issuance to employees, directors and consultants. Upon the effective date of the 2020 Plan, no additional shares were available for issuance under the 2018 Plan.

Stock Options

During the years ended December 31, 2023 and 2022, 1,768,116 and 893,305 stock options were granted to officers, directors, employees and consultants, respectively, generally vesting over a five (5) to forty-eight (48) month period. The Company recognized $2.5 million and $1.7 million in stock-based compensation expense related to stock options during the years ended December 31, 2023 and 2022, respectively. Stock-based compensation expense during the year ended December 31, 2023 included a one-time charge of $0.4 million attributed to the modification of the Company’s former Chief Executive Officer’s stock options with respect to their exercisability provisions.

During the years ended December 31, 2023 and 2022, 27,469 and 24,309 stock options were exercised, respectively, with an intrinsic value of $70,000 and $59,000, respectively. The following table summarizes the Company’s stock option plan activity:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value⁽¹⁾ (in thousands)

Outstanding at December 31, 2021		2,096,836		$	2.97		8.20	$	2,795
Granted		893,305		$	2.64
Exercised		(24,309	)	$	1.09
Forfeited/Cancelled		(29,788	)	$	6.21
Outstanding at December 31, 2022		2,936,044		$	2.87		7.82	$	3,314
Granted		1,768,116		$	3.20
Exercised		(27,469	)	$	1.09
Forfeited/Cancelled		(266,433	)	$	3.66
Outstanding at December 31, 2023		4,410,258		$	2.98		7.81	$	2,385
Vested and expected to vest at December 31, 2023		4,410,258		$	2.98		7.81	$	2,385
Vested and exercisable at December 31, 2023		2,519,673		$	2.77		6.72	$	607

⁽¹⁾	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of our common stock as of December 31, 2023 and 2022 of $3.01 and $3.53 per share, respectively.

The weighted average fair value per share of options granted during the years ended December 31, 2023 and 2022 was $2.53 and $2.06, respectively. The Company measures the fair value of stock options with service-based vesting criteria to employees, directors and consultants on the date of grant using the Black-Scholes option pricing model. The Company does not have adequate history to support an internal calculation of volatility and expected term. As such, the Company has used a weighted average volatility considering the volatilities of several guideline companies.

For purposes of identifying similar entities (guideline companies), the Company considered characteristics such as industry, length of trading history, and stage of life cycle. The average expected life of the options was based on the contractual term for agreements that allow for exercise of vested options through the end of the contractual term upon termination of continuous service, and for all other agreements, was based on the mid‑point between the vesting date and the end of the contractual term according to the “simplified method” as described in Staff Accounting Bulletin 110. The risk‑free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. The Company records forfeitures when they occur. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future.

The weighted average assumptions used in the Black-Scholes option pricing model are as follows during the years ended December 31, 2023 and 2022:

	2023			2022

Expected stock price volatility		96.0	%		97.4	%
Expected life of options (years)		6.1			5.8
Expected dividend yield		0	%		0	%
Risk free interest rate		4.2	%		2.3	%

During the years ended December 31, 2023 and 2022, 834,818 and 488,621 stock options vested, respectively. The weighted average fair value per share of options vesting during the years ended December 31, 2023 and 2022 was $2.41 and $3.29, respectively. During the years ended December 31, 2023 and 2022, 266,433 and 29,788 stock options were forfeited, respectively.

Restricted Stock Units

During the year ended December 31, 2023, the Company granted an aggregate of 936,156 restricted stock units (“RSUs”), respectively, to certain officers and employees under the 2020 Plan. The weighted average grant date per unit fair value of the RSUs granted during the year ended December 31, 2023 was $3.37. The vesting period of the RSUs range from a six month to four year period with vesting tranches on a quarterly, semi-annual and annual basis, subject to the recipient’s continued service on such dates. There were no RSUs granted during the year ended December 31, 2022.

During the year ended December 31, 2023, 33,614 RSUs vested and 100,842 RSUs were forfeited, attributed solely to the departure of the Company’s former Chief Executive Officer. The total expense for the year ended December 31, 2023 related to the RSUs was $0.7 million.

A summary of RSU activity is as follows for the year ended December 31, 2023:

	Number of Shares
Non-vested at December 31, 2022		—
Granted		936,156
Forfeited		(100,842	)
Vested		(33,614	)
Non-vested at December 31, 2023		801,700

Common Stock Issued for Services

The Company granted common stock for services in the amount of 72,986 and 74,396 shares of common stock during the years ended December 31, 2023 and 2022, respectively, with a weighted grant date fair value of $3.77 and $2.04 per share, respectively, to board members during those periods, respectively, who elected to receive their board retainers in the form of stock for services. The stock-based compensation related to these services amounted to $275,000 and $154,000 during the years ended December 31, 2023 and 2022, respectively.

General

Unrecognized stock-based compensation cost was $6.4 million as of December 31, 2023. The unrecognized stock-based compensation cost is expected to be recognized over a weighted average period of 1.8 years. As of December 31, 2023, 1,528,003 shares in the aggregate were available for future issuance under the 2020 Plan and Inducement Plan.