Stock-Based Awards | 12 Months Ended |
Dec. 31, 2014 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Awards | Stock-Based Awards |
On November 4, 2012, our board of directors adopted the Kindred Biosciences, Inc. 2012 Equity Incentive Plan (the “2012 Plan”). The 2012 Plan provides for our board of directors to grant incentive stock options or non- qualified stock options for the purchase of common stock, to issue or sell shares of restricted common stock and to grant stock appreciation rights (“SARs”) to our employees, directors, consultants and advisers of the Company. Pursuant to the terms of the 2012 Plan, no options or SARs shall be granted under the 2012 Plan after 10 years from the date of adoption of the 2012 Plan. We have reserved 4,000,000 shares of our common stock for issuance under the 2012 Plan. |
Retrospective Reassessment of the Fair Value of Common Stock |
As required by the 2012 Plan, the exercise price for awards granted is not to be less than the fair market value of our common stock as of the date of grant. We value shares of common stock by taking into consideration our most recently available valuation of common stock performed by management and the board of directors, as well as additional factors which may have changed since the date of the most recent contemporaneous valuations through the date of grant. On February 4, 2013, May 9, 2013, August 29, 2013 and September 12, 2013, the board of directors granted stock options for the purchase of 576,525 shares, 154,793 shares, 412,580 shares, and 29,000 shares, respectively, of our common stock with weighted-average exercise prices of $0.35 per share, $0.32 per share, $0.90 per share and $0.90 per share, respectively. On November 11, 2013, our board of directors, with the consent of the affected employee and director option holders, approved an increase from $0.90 per share to $1.37 per share in the exercise price of 285,092 employee and director options granted in August and September 2013. The fair value of our common stock on the February 4, 2013 and May 9, 2013 grant dates was $0.32 per share, and on the August 29, 2013 and September 12, 2013 grant dates was $1.37 per share, as determined by our board of directors. In connection with the December 2013 initial public offering of our common stock, we reexamined, for financial reporting purposes only, the fair value of our common stock. In connection with the reexamination, we determined that retrospective valuations of the fair value of common stock as of February 4, 2013, May 9, 2013, August 29, 2013 and September 12, 2013 were appropriate due to acceleration of the timeframe to a potential liquidity event and the proposed initial public offering, which had not been contemplated in the determination of the original fair values on these dates. Based on this analysis, the fair value of common stock remained unchanged for the February 4, 2013 and May 9, 2013 grant dates. Based on this analysis, the fair value of the common stock on the August 29, 2013 and September 12, 2013 grant dates was determined to be $2.27 per share, which we used to value the stock-based compensation expense for these awards. |
Stock Options |
Our board of directors determines the exercise price and vesting period of all stock options. The exercise price of the stock options will be no less than 100% of the fair value per share of our common stock on the grant date. If a person owns capital stock representing more than 10% of all classes of our stock, the exercise price will be not less than 110% of the fair market value on the date of grant. Options are vested over variable periods, generally ranging from one to four years, and expire not more than 10 years after the date of grant. As of December 31, 2014, there were 2,329,415 option shares outstanding and 1,571,298 shares available for future grants under the 2012 Plan. |
During the years ended December 31, 2014 and 2013, we granted under the 2012 Plan stock options for the purchase of 1,127,113 and 1,410,139 shares of common stock, respectively, to employees, non-employee consultants and directors. No stock options were granted in 2012. |
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2014 Employee Stock Purchase Plan |
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In December 2014, our board of directors adopted the Kindred Biosciences, Inc. 2014 Employee Stock Purchase Plan (the “Purchase Plan”). We reserved a total of 200,000 shares of our common stock for issuance under the Purchase Plan. The Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined six-month consecutive offering periods beginning on December 1. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. As of December 31, 2014, there were no issuances under the Purchase Plan. |
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Reserved Shares |
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At December 31, 2014, shares of common stock reserved for future issuance inclusive of outstanding option shares are as follows: |
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2012 Equity Incentive Plan | 3,900,713 | | | | | | | | | | | | | | |
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2014 Employee Stock Purchase Plan | 200,000 | | | | | | | | | | | | | | |
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| 4,100,713 | | | | | | | | | | | | | | |
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Stock Option Plan Activity Summary |
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A summary of activity under our stock option plans is as follows: |
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| Shares Available For Grant | | Shares Issuable Under Options | | Weighted Average Exercise Price | | Weighted Average Remaining ContractualTerm (In Years) | | Aggregate Intrinsic Value |
Balance, December 31, 2012 | 4,000,000 | | | — | | | | | | | |
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Granted | -1,410,139 | | | 1,410,139 | | | $ | 1.31 | | | | | |
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Exercised | | | -34,225 | | | $ | 0.32 | | | | | |
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Restricted stock grants | (10,200 | ) | | — | | | | | | | | |
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Balance, December 31, 2013 | 2,579,661 | | | 1,375,914 | | | $ | 1.33 | | | | | | |
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Granted | (1,127,113 | ) | | 1,127,113 | | | $ | 16.23 | | | | | |
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Exercised | | | (56,112 | ) | | $ | 2.17 | | | | | |
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Forfeited - restricted stock and options | 118,750 | | | (117,500 | ) | | $ | 19.57 | | | | | |
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Balance, December 31, 2014 | 1,571,298 | | 2,329,415 | | | $ | 7.6 | | | 8.8 | | $ | 8,100,000 | |
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Options vested and expected to vest, December 31, 2014 | | | 2,329,415 | | | $ | 7.6 | | | 8.8 | | $ | 8,100,000 | |
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Options exercisable, December 31, 2014 | | | 953,327 | | | $ | 3.8 | | | 8.6 | | $ | 4,930,000 | |
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The aggregate intrinsic value of options is calculated as the difference between the exercise price of options and the fair value of our common stock for those options that had exercise prices lower than the fair value of our common stock on December 31, 2014. |
The aggregate intrinsic value of stock options exercised during the years ended December 31, 2014 and 2013 was $774,000 and $108,000, respectively. No options were exercised during the period ended December 31, 2012. |
We received proceeds of $121,000 and $11,000 from the exercise of common stock options during the years ended December 31, 2014 and 2013, respectively. |
The weighted-average grant date fair value of options granted during the years ended December 31, 2014 and 2013 was $12.09 and $1.50 per share, respectively. |
Restricted Stock |
During the year ended December 31, 2013, we granted 10,200 shares of restricted common stock to consultants. The weighted average fair value of the restricted shares was $6.63. As of December 31, 2014, there were no unvested shares of restricted common stock. |
Stock-Based Compensation |
We recognize stock-based compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, we have considered our historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from our estimate, we may be required to record adjustments to stock-based compensation expense in future periods. |
We value our common stock by taking into consideration its most recently available valuation of common stock performed by management and the board of directors, as well as additional factors which may have changed from the date of the most recent contemporaneous valuation through the grant date. |
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. We historically have been a private company that lacks company-specific historical and implied volatility information. Therefore, we estimate the expected stock volatility based on the historical volatility of publicly traded peer companies and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded stock price. The expected term of our common stock options has been determined utilizing the “simplified” method as we have insufficient historical experience for options grants overall, rendering existing historical experience irrelevant to expectations for current grants. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that we have never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. |
Total stock-based compensation expense, related to all of our share-based payment awards, is comprised of the following: |
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(In thousands) | Years Ended December 31, | | | | |
| 2014 | | 2013 | | 2012 | | | | |
Research and development | $ | 1,453 | | | $ | 827 | | | $ | 11 | | | | | |
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General and administrative | 2,969 | | | 95 | | | — | | | | | |
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| $ | 4,422 | | | $ | 922 | | | $ | 11 | | | | | |
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Total stock-based compensation expense included stock options and restricted stock for the years ended December 31, 2014, 2013 and 2012. We recorded accrued expenses of $303,000 and $11,000 at December 31, 2013 and 2012, respectively, for those options that have been earned but not granted and approved by the board of directors as of these dates. There were no such accruals in 2014. |
We had an aggregate of approximately $8,693,000 of unrecognized stock-based compensation expense for options outstanding as of December 31, 2014, which is expected to be recognized over a weighted average period of 3.1 years. |
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Valuation assumptions |
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The relevant data used to determine the value of stock options earned or granted is as follows: |
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| Years Ended December 31, | | | | | | | | | | |
| 2014 | | 2013 | | 2012 | | | | | | | | | | |
Weighted average risk-free interest rate | 1.70% | | 1.33% | | 0.62%-0.72% | | | | | | | | | | |
Weighted average expected term (in years) | 6.4 | | 6.6 | | 10 | | | | | | | | | | |
Weighted average expected volatility | 91.30% | | 85.20% | | 90% | | | | | | | | | | |
Weighted average expected dividend yield | — | | — | | — | | | | | | | | | | |