Annual report pursuant to Section 13 and 15(d)

Share-Based Compensation

Share-Based Compensation
12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Share-Based Compensation Shared-Based Compensation
The Company's Amended and Restated Equity Incentive Plan (the Plan), which was adopted and approved by the Company's shareholders in June 2021, allows for an issuance of up to an aggregate of 23.8 million shares (inclusive of then outstanding awards) and provides for grants of stock options, performance awards (PAs) and restricted stock units (RSUs) that may be settled in cash and common shares. Also in June 2021, the Company's shareholders adopted and approved the Company's Employee Stock Purchase Plan (2021 ESPP), which allows for the issuance of up to 2.5 million shares of which 286 thousand and 37 thousand were purchased during 2022 and 2021. The 2021 ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code (the Code) but also permits the Company to include the employees, including non-United States employees, in offerings not intended to qualify under Section 423. The purpose of the 2021 ESPP is to provide eligible employees with opportunities to purchase the Company’s common shares at a discounted price.
During 2022, the Company modified the 2021 ESPP for the current and future offerings. The new ESPP terms shortened the plan from four (4) purchases over a 24 month offering period to two (2) purchases over a 12 month offering period. Additionally, the ESPP now contains a rollover mechanism; that is, if the stock price on the purchase date is less than the offering price (as that is determined under the 2021 ESPP), that offering is then canceled and any participants are rolled into the new 12 month offering period at the lower price. As a result of the modification, we recorded incremental expense during 2022 which was immaterial to the consolidated statements of operations.

In addition to stock options, PAs and RSUs granted under the Plan, the Company has granted certain stock options and RSUs as inducements material to new employees entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). The inducements were granted outside of the Plan during 2022.
Stock Options
The Plan requires the exercise price of each option not to be less than the closing market price of the Company’s common shares on the day immediately prior to the date of grant. The board of directors approves the vesting criteria and periods at its discretion. The options issued under the plan are accounted for as equity-settled share-based payments. The stock options and inducement stock options have a ten-year term and vest over three years with one-third of the shares vesting on the twelve month anniversary from the grant date, and the remaining options vesting in twenty-four equal monthly installments thereafter.
The following table summarizes the number of stock options outstanding under the Plan for the years ended December 31, 2022.
Number of Shares
(in thousands)
Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (in years) Aggregate Intrinsic Value
 (in thousands)
Outstanding at December 31, 2021 12,074  $ 12.84  7.86 $ 121,141 
Granted 3,913  $ 11.14 
Exercised/released (77) $ 6.55 
Cancelled/forfeited (2,615) $ 14.32 
Outstanding at December 31, 2022 13,295  $ 12.09  7.74 $ 21 
Options exercisable, December 31, 2022 8,345  $ 11.94 
Vested and expected to vest, December 31, 2022 12,884  $ 11.98 
The weighted average grant date fair value of stock options granted during the years ended December 31, 2022, 2021 and 2020 was $6.52, $7.34 and $5.58, respectively. The total fair value of options vested during the years ended December 31, 2022, 2021 and 2020 was $49.2 million, $24.9 million and $14.9 million, respectively.
Total intrinsic value of options exercised was $0.9 million, $50.3 million and $13.1 million for years ended December 31, 2022, 2021 and 2020, respectively.
In determining the fair value of the options granted, the Company uses the Black-Scholes option pricing model and reviews the following assumptions each reporting period:

Expected Term - Expected term (in years) is based upon the contractual term, taking into account expected employee exercise and expected post-vesting employment termination behavior. Based on the Company's historical expected lives data and the growth during 2022 and 2021, the expected life extends further into the contractual life increasing the expected life. The increase of the expected life in 2022 is in line with historic data and what management expects in the future.

Volatility - The Company considers historical volatility of its common shares in estimating its future stock price volatility. The expected life is used to determine market volatility of the underlying stock. The change in the volatility from in 2022 and 2021 was due to the Company's stock being more volatile. Given the growth of the Company, the expected life used to determine previous market volatility and comparable peer group reflects an appropriate estimate of future volatility.

Risk-free interest rate - The risk-free interest rate for the expected life of the options was based on the yield available on government benchmark bonds with an approximate equivalent remaining term at the time of the grant.

Dividend yield - The Company has never paid dividends on its common shares and has no plans to pay dividends on our common shares in the near future. Therefore, the Company dividend yield is zero.
The following weighted average assumptions were used to estimate the fair value of the options granted during the years ended December 31, 2022, 2021 and 2020:
2022 2021 2020
Expected term (in years) 5 years 4 years 3 years
Volatility 70  % 66  % 52  %
Risk-free interest rate 2.06  % 0.46  % 0.55  %
Dividend yield 0.0  % 0.0  % 0.0  %

Performance Awards and Restricted Stock Units
On October 23, 2020, the Company issued 439,000 PAs to executive management of the Company whose vesting was contingent upon meeting specific performance metrics based on the results for the year ended December 31, 2021. Each PA which vested entitled the participant to receive common shares on the basis of the performance metrics set. On March 18, 2021
performance metrics were set and formally communicated. Therefore, March 18, 2021 was the grant date and the fair value on the grant date was $13.56. The PAs vested in 2022 and the participant was required to achieve at least one of the performance metrics to obtain the portion of the award associated with the metric.

On August 6, 2021, the Company granted approximately 619,000 PAs and RSUs. The grant date for the PAs and RSUs was August 6, 2021 and the fair value on the grant date was $14.42 as this was the date performance measures were set and communicated to employees. The PAs vested on the employee's first anniversary of the grant date and the employee was required to achieve at least one of the performance metrics to obtain the portion of the award associated with the metric. The RSUs had no performance metrics and vested on the one year anniversary of the grant.

During 2022, the Company has granted RSUs and intends to grant RSUs under the Plan, as well as inducements for certain new hires as discussed above. The RSUs are fair valued based on the market price of our common shares on the date of the grant. The RSUs and inducement RSUs shall vest in three equal annual installments on the first, second and third anniversary of the grant date.

The following table summarizes the PA and RSU activity for the year ended December 31, 2022:

Number of Shares
(in thousands)
Weighted-Average Grant Date Fair Value
Unvested balance, December 31, 2021 347  $ 13.33 
Granted 2,374  $ 11.16 
Vested (305) $ 14.17 
Forfeited (436) $ 12.21 
Unvested balance, December 31, 2022 1,980  $ 10.84 
Compensation Expense
Share-based compensation expense for the years ended December 31, 2022, 2021 and 2020 totaled approximately $32.3 million, $31.2 million and $17.5 million, respectively, as shown in the table below.
(in thousands) 2022 2021 2020
Research and development $ 3,271  $ 4,442  $ 3,730 
Selling, general and administrative 28,438  26,432  13,615 
Capitalized under inventories 591  369  109 
Share-based compensation expense $ 32,300  $ 31,243  $ 17,454 
The Company recorded approximately $11.4 million of share-based compensation expense related to PAs and RSUs during the year ended December 31, 2022.
Unrecognized Share-Based Compensation Expense and Weighted Average Remaining Amortization Period
As of December 31, 2022, the unrecognized share-based cost, and the estimated weighted-average amortization period, using the straight-line attribution method, was as follows (in thousands, except amortization period):
Unrecognized share-based compensation expense Weighted average remaining amortization period (in years)
Stock Options $ 10,869  1.12
Restricted Stock Units 10,584  1.52
ESPP 1,327  0.52
Total unrecognized share-based compensation expense $ 22,780  1.30