| Share-based Compensation |
| 8. | Share-based Compensation |
On March 16, 2023, JATT’s board of directors approved the Zura Bio Limited 2023 Equity Incentive Plan (the “Equity Incentive Plan”) which became effective on the day immediately preceding the Closing Date of the Business Combination. The Equity Incentive Plan allows for the grant of share options, both incentive and nonqualified share options; stock appreciation rights (“SARs”), alone or in conjunction with other awards; restricted shares awards (“RSAs”) and restricted share units (“RSUs”); incentive bonuses, which may be paid in cash, shares, or a combination thereof; and other share-based awards. The Company has granted share options, RSUs and RSAs that generally vest over four years and expire after 10 years. On June 1, 2023, the Company’s board of directors approved an increase to the number of Class A Ordinary Shares that may be issued under the Equity Incentive Plan by an additional 5,564,315 Class A Ordinary Shares. The Class A Ordinary Shares issuable under the Equity Incentive Plan are subject to an annual increase on January 1st of each calendar year beginning on January 1, 2024, and ending on and including January 1, 2029, equal to the lesser of (i) 5.0% of the aggregate number of Class A Ordinary Shares outstanding on the final day of the immediately preceding calendar year, (ii) 8,059,796 Class A Ordinary Shares or (iii) such smaller number of shares as is determined by the board. As of January 1, 2024, the Company’s board of directors decided not to apply an increase to the Class A Ordinary Shares issuable under the Equity Incentive Plan for the 2024 calendar year. On March 16, 2023, JATT’s board of directors approved the Zura Bio Limited 2023 Employee Stock Purchase Plan (the “ESPP”) which became effective on the day immediately preceding the Closing Date of the Business Combination. The maximum number of Class A Ordinary Shares that may be issued under the ESPP is 4,029,898, plus an aggregate number of Class A Ordinary Shares that are automatically added under the Equity Incentive Plan on January 1st of each calendar year unless otherwise determined by the Company’s board of directors, beginning on January 1, 2024, and ending on and including January 1, 2029, as discussed above. The ESPP enables eligible employees of the Company and designated affiliates to purchase Class A Ordinary Shares at a discount of 15%. As of September 30, 2024, the Company has not activated its ESPP. As of September 30, 2024, a maximum of 13,624,111 Class A Ordinary Shares were authorized for issuance under either the Equity Incentive Plan and ESPP, collectively. Equity Incentive Plan Share Options The fair value of Equity Incentive Plan share options are estimated on the date of grant using the Black-Scholes option pricing model. The Company lacks significant company-specific historical and implied volatility information. Therefore, it estimates its expected share volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s share options has been determined using the “simplified” method for awards. 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 zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The following weighted-average assumptions were used to estimate the fair value of the Equity Incentive Plan share options issued during the nine months ended September 30, 2024 and 2023: | | | | | | | | | | Nine Months Ended | | | | September 30, | | | | 2024 | | 2023 | | Share price | | $ | 3.49 | | $ | 6.26 | | Expected volatility | | | 101.2 | % | | 97.1 | % | Risk-free rate | | | 4.2 | % | | 3.6 | % | Expected life | | | 6.1 years | | | 6.1 years | | Expected dividend yield | | | — | % | | — | % |
The following table summarizes the Company’s share option activity for the nine months ended September 30, 2024: | | | | | | | | | | | | | | | | | | Weighted | | | | | | | | Weighted | | Average | | Aggregate | | | | | Average | | Remaining | | Intrinsic | | | Number of | | Exercise Price | | Contractual | | Value | | | Options | | (per share) | | Life (Years) | | (in thousands) | Options outstanding as of December 31, 2023 | | 5,791,065 | | $ | 2.12 | | 9.3 | | $ | 17,752 | Granted | | 5,785,348 | | | 3.61 | | — | | | — | Forfeited | | (267,575) | | | 1.87 | | — | | | — | Options outstanding as of September 30, 2024 | | 11,308,838 | | $ | 2.89 | | 9.1 | | $ | 17,365 | Options vested and exercisable as of September 30, 20241 | | 3,939,960 | | $ | 2.16 | | 8.5 | | $ | 9,984 |
1Of the vested options as of September 30, 2024, 753,334 remain subject to restrictions on exercisability. Included in the table above are 2,280,560 options to purchase Class A Ordinary Shares issued to certain directors, executives, and employees outside of the Equity Incentive Plan. The weighted average grant date fair value of options granted during the nine months ended September 30, 2024 and 2023 was $2.83 and $5.57, respectively. Market-Based Share Options On March 20, 2023, the Company granted 306,373 options to purchase Class A Ordinary Shares (“Market-Based Share Options”) to a certain director of the board. These awards will vest only to the extent that the 20-day volume weighted average trading price (“VWAP”) of the Class A Ordinary Shares is over $30 per Class A Ordinary Share at any time prior to the fifth anniversary of the grant date. These awards have an exercise price of $8.16 and become exercisable when vested and the market condition is satisfied. These awards expire 10 years from the date of grant. The fair value of these Market-Based Share Options was estimated using a Monte Carlo valuation method. The following table sets forth the weighted-average assumptions used at the grant date to determine the fair value of the Market-Based Share Options granted during the nine months ended September 30, 2023. No Market-Based Share Options were granted during the nine months ended September 30, 2024: | | | | | | | For the | | | | Nine Months Ended | | | | September 30, | | | | 2023 | | Expected volatility | | | 80.0 | % | Risk-free rate | | | 3.6 | % | Expected life | | | 2.2 years | | Expected dividend yield | | | — | % | Fair value per Market-Based Share Options | | $ | 4.66 | |
The expense recognized related to Market-Based Share Options was $0.2 million for each of the three months ended September 30, 2024 and 2023, and $0.5 million and $0.4 million for the nine months ended September 30, 2024 and 2023, respectively. Restricted Share Units The Company issued RSUs to certain employees, executives, and directors pursuant to the Equity Incentive Plan. The fair value has been estimated based on the closing price of the stock on the grant date. | | | | | | | | | | Weighted | | | | | Average | | | Number of | | Grant Date | | | RSUs | | Fair Value | Unvested RSUs as of December 31, 2023 | | 1,563,018 | | $ | 5.93 | Granted | | 5,000 | | | 3.59 | Forfeited | | (121,545) | | | 5.24 | Vested | | (390,753) | | | 5.80 | Vested and unissued | | (5,000) | | | 3.59 | Unvested RSUs as of September 30, 2024 | | 1,050,720 | | $ | 6.01 |
The expense recognized related to RSUs during the three and nine months ended September 30, 2024 was approximately $0.5 million and $1.6 million, respectively. Restricted Share Awards The Company converted RSU’s granted to a certain director pursuant to the Equity Incentive Plan into RSAs during the year ended December 31, 2023. The fair value was estimated based on the closing price of the shares on the original grant date. | | | | | | | | | | Weighted | | | | | Average | | | Number of | | Grant Date | | | RSAs | | Fair Value | Unvested RSAs as of December 31, 2023 | | 499,993 | | $ | 8.16 | Granted | | — | | | — | Vested | | (124,998) | | | 8.16 | Unvested RSAs as of September 30, 2024 | | 374,995 | | $ | 8.16 |
The expense recognized related to RSAs during the three and nine months ended September 30, 2024 was $0.3 million and $0.8, respectively. Equity Award Modification On July 24, 2024, the Company entered into a settlement agreement with Someit Sidhu (“Settlement Agreement”) in connection with the Chief Executive Officer (“CEO”) transition. Pursuant to the Settlement Agreement, 1,700,000 share options became fully vested and immediately exercisable and the remaining 250,000 share options will vest annually over three years on the anniversary of the Settlement Agreement. Accordingly, the Company recorded $5.9 million of compensation expense for the remaining grant date fair value of the 1,700,000 share options for the three and nine months ended September 30, 2024, and the grant date fair value of the 250,000 share options is being recorded to compensation expense over the revised vesting period. The Company determined that the Settlement Agreement did not result in any incremental expense. On January 10, 2024, the Company and its Chief Medical Officer (the “CMO”) entered into an agreement regarding the CMO’s departure from the Company (the “Severance Agreement”). In connection with the Severance Agreement, 67,525 of the share options previously granted to the CMO became fully vested and exercisable and 40,515 of the RSUs previously granted to the CMO became fully vested. All remaining share options and RSUs not vested were forfeited and cancelled. During the nine months ended September 30, 2024, the Company recognized a reversal of approximately $0.1 million of share-based compensation expense related to this modification within research and development expense in the condensed consolidated statement of operations. Share-based Compensation Expense Share-based compensation expense for all equity arrangements for the three and nine months ended September 30, 2024 and 2023 was as follows: | | | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended | | | September 30, | | September 30, | | | 2024 | | 2023 | | 2024 | | 2023 | Research and development | | $ | 772 | | $ | — | | $ | 1,841 | | $ | 2,186 | General and administrative | | | 7,874 | | | 2,577 | | | 12,140 | | | 5,075 | Total share-based compensation expense | | $ | 8,646 | | $ | 2,577 | | $ | 13,981 | | $ | 7,261 |
As of September 30, 2024, there was approximately $22.2 million of total unrecognized share-based compensation expense related to options granted to employees, executives, and directors that is expected to be recognized over a weighted average period of 3.2 years. As of September 30, 2024, there was approximately $5.6 million of total unrecognized share-based compensation expense related to RSUs granted to certain employees, executives, and directors under the Company’s Equity Incentive Plan that is expected to be recognized over a weighted average period of 2.7 years. As of September 30, 2024, there was approximately $2.5 million of total unrecognized share-based compensation expense related to RSAs granted to a certain director under the Company’s Equity Incentive Plan that is expected to be recognized over a weighted average period of 2.5 years.
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