DEF 14A of Denali Therapeutics Inc.
Filed Apr 18, 2024 · FY20230001714899-24-000110
Nominees for Director
Nominees for Director Jay Flatley has served as a member of our board of directors since April 2015. Mr. Flatley served as the Chairman and Acting Chief Executive Officer of Zymergen Inc. until it was acquired by Gingko Bioworks in 2022. Mr. Flatley previously spent over 20 years serving in various leadership roles at Illumina, Inc., a public company focused on sequencing- and array-based solutions for genetic analysis. His roles included Chairman of the board of directors from January 2020 to May 2021, Executive Chairman from July 2016 to January 2020, Chief Executive Officer from December 2013 to July 2016, and Chief Executive Officer and President from October 1999 to December 2013. Prior to joining Illumina, Mr. Flatley was co-founder, President, Chief Executive Officer, and a director of Molecular Dynamics, a life sciences company focused on genetic discovery and analysis, from July 1994 until its sale to Amersham Pharmacia Biotech in September 1998. Mr. Flatley also serves as Chairman of the Wellcome Trust Leap Fund, is Chairman of the board of Cellanome and Iridia, is on the board of directors at Rivian Automotive, on the board of trustees for The Salk Institute, and is an Advisory Board member for UC San Diego's Moores Cancer Center. Mr. Flatley previously served on the boards of directors of Zymergen, Juno Therapeutics, and Coherent Inc. Mr. Flatley received his B.S. and M.S. in industrial engineering from Stanford University and his B.A. in economics from Claremont McKenna College. We believe Mr. Flatley is qualified to serve on our board of directors because of his extensive background in the life sciences industry and leadership experience as a senior executive of companies in the life sciences industry. Marc Tessier-Lavigne, Ph.D. is one of our co-founders and has served as a member of our board of directors since March 2015. From March 2015 to August 2016, Dr. Tessier-Lavigne served as the Chairman of our board of directors. From September 2016 until August 2023, Dr. Tessier-Lavigne served as President of Stanford University, and currently serves as Professor of Biology at Stanford. From March 2011 to September 2016, he served as President of The Rockefeller University, as well as professor and head of the Laboratory of Brain Development and Repair. From September 2003 to March 2011, Dr. Tessier-Lavigne served in positions of increasing responsibility at Genentech, where in 2009 he was named Executive Vice President for Research and Chief Scientific Officer. Previously, he served on the boards of directors of Regeneron Pharmaceuticals, Pfizer, Juno Therapeutics, and Agios Pharmaceuticals. Dr. Tessier-Lavigne received his Ph.D. in neurophysiology from University College London, his B.A. in philosophy and physiology from Oxford University, and his B.Sc. in physics from McGill University. He conducted postdoctoral work at the MRC Developmental Neurobiology Unit in London and at Columbia University. We believe Dr. Tessier-Lavigne is qualified to serve on our board of directors because of his pioneering research, scientific knowledge, experience as one of our co-founders, service on boards of directors of public companies in the life sciences industry, and leadership in the biotechnology industry. Nancy A. Thornberry has served on our board of directors since January 2021. Ms. Thornberry served as Chief Executive Officer of Kallyope, Inc. from November 2015 until October 2021, and currently serves on its board of directors and as Chair, R&D. Ms. Thornberry also serves on the boards of directors of Vertex Pharmaceuticals and Schrödinger, both of which are public companies, Adimab, a private company, and NY Genome Center, a non-profit institution; she previously served on the boards of Intarcia Therapeutics and Abide Therapeutics. Between August 2013 and October 2015, Ms. Thornberry was self-employed as a consultant to companies in the biotechnology and pharmaceutical industries. Prior to that, Ms. Thornberry spent over 30 years at Merck, a pharmaceutical company, where she held a variety of positions including Senior Vice President and Franchise Head, Diabetes and Endocrinology, from April 2011 to July 2013, Senior Vice President and Franchise Head, Diabetes and Obesity, from September 2009 to April 2011, Vice President, Worldwide Basic Research Head, Diabetes and Obesity, from February 2007 to September 2009, and Executive Director, Metabolic Disorders, from 2004 to February 2007, among other positions. Ms. Thornberry received a B.S. in Chemistry and Biology from Muhlenberg College. We believe Ms. Thornberry is qualified to serve on our board of directors because of her extensive scientific background and experience in the life sciences industry.
Continuing Directors
Continuing Directors Vicki Sato, Ph.D. has served as a member of our board of directors since April 2015 and as Chairperson of our board of directors since August 2016. Currently she is a Venture Partner at ARCH Venture Capital. From September 2006 until July 2017, Dr. Sato served as a Professor of Management Practice at Harvard Business School. From July 2005 until October 2015, she also had an appointment as Professor of the Practice in the Department of Molecular and Cell Biology at Harvard University. From September 2000 to May 2005, Dr. Sato served as the President of Vertex Pharmaceuticals, a pharmaceutical company, with general management responsibility for business and corporate development, commercial operations, legal and finance, in addition to research and development. From 1992 until 2000, she served as the Chief Scientific Officer and Senior Vice President of Research and Development of Vertex Pharmaceuticals. Dr. Sato joined Vertex Pharmaceuticals in 1992, after serving as Vice President of Research at Biogen, a biotechnology company, where she also served as a member of the Scientific Board. Dr. Sato serves on the boards of directors of Allogene Therapeutics and Vir Biotechnology, Inc., each of which is a public company, and on the boards of directors of multiple private companies. She previously served on the boards of directors of Akouos, Inc. until their acquisition in December 2022, Bristol-Myers Squibb Company until May 2021, BorgWarner Corporation until April 2021, Syros Pharmaceuticals until December 2019, and PerkinElmer until April 2017. Dr. Sato received her A.M. and Ph.D. degrees from Harvard University and her A.B. in biology from Radcliffe College. We believe Dr. Sato is qualified to serve on our board of directors because of her extensive industry experience and leadership experience as a senior executive and director of several life sciences companies. Erik Harris has served as a member of our board of directors since February 2022. Erik Harris currently serves as the Chief Commercial Officer and Executive Vice President of Ultragenyx Pharmaceutical Inc., a biopharmaceutical company focused on the development of a diverse portfolio of therapies for patients with rare and ultra-rare genetic diseases. Prior to his appointment as Chief Commercial Officer, Mr. Harris served as the Senior Vice President and Head of North American Commercial Operations at Ultragenyx from July 2017 to June 2019. Mr. Harris’s prior business experience includes six years at Crescendo Bioscience, a molecular diagnostic company, most recently as Vice President of Commercial. Earlier in his career, Mr. Harris served as Vice President of Marketing at Intermune, Inc. and also held positions in the commercial organizations at Elan Pharmaceuticals, Inc., Genentech, Inc., and Bristol-Myers Squibb Company. At the start of his professional career, Mr. Harris served as a Lieutenant Commander in Naval Aviation and Congressional Fellow for the United States Navy. Mr. Harris received his Master of Business Administration at the Wharton School of Business, and Bachelor of Science at the United States Naval Academy. We believe Mr. Harris is qualified to serve on our board of directors because of his extensive industry experience and leadership experience as a chief commercial officer and senior vice president of several life sciences companies. Peter Klein has served as a member of our board of directors since March 2018. Mr. Klein served as Chief Financial Officer of William Morris Endeavor Entertainment, LLC (“WME”), a marketing firm, from January 2014 to June 2014. Prior to joining WME, Mr. Klein served as Chief Financial Officer at Microsoft Corporation from November 2009 until May 2013. Mr. Klein currently serves on the boards of directors of F5 Inc., a software company, and Accolade, Inc., a personalized healthcare company. Mr. Klein previously served on the boards of directors of Apptio, Inc. and Sarcos Technology and Robotics Corporation. Mr. Klein holds a B.A. in history from Yale University and an M.B.A. from the University of Washington. We believe Mr. Klein’s extensive experience as a senior finance executive, including as the chief financial officer of one of the world’s largest companies, qualifies him to serve on our board. Steve E. Krognes served as Chief Financial Officer and Treasurer of Denali Therapeutics from October 2015 until April 30, 2022; on May 1, 2022 he was appointed to the board of directors. Mr. Krognes joined Denali from Genentech, where he served as Chief Financial Officer and a member of the Executive Committee from April 2009 to September 2015. Mr. Krognes also oversaw Genentech’s Site Services organization between 2011 and 2015, and Genentech’s IT organization between 2009 and 2011. He chaired the Genentech Access to Care Foundation between 2009 and 2015. From January 2004 to April 2009, Mr. Krognes served as Head of Mergers & Acquisitions and a member of the Finance Executive Committee at Roche, a Swiss biotechnology company. From July 2002 to December 2003, Mr. Krognes served as Director of M&A at Danske Bank based in Norway. Mr. Krognes currently serves on the boards of directors of public companies Guardant Health, Gritstone bio, Inc. and Argenx SE, and previously served on the boards of Corvus Pharmaceuticals, Inc and RLS Global AB. Mr. Krognes also served as a board member of the California Life Science Association from 2010 to 2015 and California Academy of Sciences from 2014 to 2018. He received his M.B.A. from Harvard Business School and his B.S. in Economics from The Wharton School of the University of Pennsylvania. We believe Mr. Krognes' extensive experience as a senior finance executive, including as the chief financial officer of both Genentech and Denali, qualifies him to serve on our board. Jennifer Cook has served on our board of directors since November 2018. Ms. Cook currently is the owner of Jennifer Cook Consulting and serves as an advisor at Google Ventures. Ms. Cook served as the Chief Executive Officer of GRAIL from January 2018 to June 2019. Previously, Ms. Cook was at Roche Pharmaceuticals and Genentech, where she held a number of senior management positions; from January 2017 to December 2017, Ms. Cook served as Senior Vice President, Global Head of Clinical Operations for Roche Pharmaceuticals; from September 2013 to December 2016, Ms. Cook served as Head of Region Europe Pharma for Roche Pharmaceuticals; and from July 2010 to September 2013, Ms. Cook served as the Senior Vice President, Business Unit Head Immunology and Ophthalmology for Genentech. Ms. Cook currently also serves on the boards of directors of BridgeBio Pharma, Inc. and Jazz Pharmaceuticals. Ms. Cook holds a B.A. in human biology and an M.S. in biology from Stanford University, as well as an M.B.A. from the Haas School of Business at University of California, Berkeley. We believe Ms. Cook’s extensive experience as a senior management executive of healthcare and biotechnology companies, including as the senior vice president of one of the world’s largest healthcare companies, qualifies her to serve on our board of directors.
Continuing Directors
David Schenkein, M.D. has served as a member of our board of directors since April 2015. Dr. Schenkein currently is a general partner in GV (Google Ventures). Previously, Dr. Schenkein served as President and Chief Executive Officer of Agios Pharmaceuticals from August 2009 to January 2019. From March 2006 to July 2009, Dr. Schenkein served as a Senior Vice President of Oncology Development at Genentech. Dr. Schenkein currently serves on the boards of directors of Agios Pharmaceuticals, Regeneron Pharmaceuticals, and Prime Medicine, each of which is a public company, and on the boards of directors of a number of private companies. Previously, Dr. Schenkein served on the boards of directors of Bluebird Bio and Foundation Medicine. He also currently serves as an adjunct attending physician in hematology at Tufts Medical Center. Dr. Schenkein received his M.D. from the State University of New York Upstate Medical School and his B.A. in chemistry from Wesleyan University. We believe that Dr. Schenkein is qualified to serve on our board of directors because of his extensive background in the biotechnology industry and leadership experience as a senior executive and director of biotechnology companies. Ryan J. Watts, Ph.D. is one of our co-founders and has served as a member of our board of directors since March 2015 and as our President and Chief Executive Officer since August 2015. Previously, Dr. Watts was at Genentech, a biotechnology company, where he held various research and leadership roles of increasing responsibility between 2004 and 2015; including his time served as Director of the Department of Neuroscience from 2013 to February 2015. In addition, Dr. Watts led Genentech’s blood-brain barrier team between 2009 and 2015. Dr. Watts has authored and co-authored more than 60 scientific papers and has been an inventor on a number of patents in the blood-brain barrier and neurodegeneration fields. Dr. Watts currently serves on the boards of two privately held healthcare and biopharmaceutical companies, Rippl Care and Peel Therapeutics. Dr Watts is an Adjunct Professor in the Chemical and System Biology Department at Stanford University and an Adjunct Professor in the School of Biological Sciences at University of Utah. Dr. Watts received his Ph.D. in biological sciences from Stanford University and his B.S. in biology from the University of Utah. We believe Dr. Watts is qualified to serve on our board of directors because of the perspective and experience he provides as one of our co-founders and as our President and Chief Executive Officer, as well as his broad experience within the pharmaceutical industry, particularly in the area of neuroscience and drug discovery and development.
Considerations in Evaluating Director Nominees
Considerations in Evaluating Director Nominees It is the policy of the corporate governance and nominating committee of our board of directors to consider recommendations for candidates to our board of directors from stockholders holding no less than one percent (1%) of the outstanding shares of the Company’s common stock continuously for at least 12 months prior to the date of the submission of the recommendation or nomination. The corporate governance and nominating committee will use the following procedures to identify and evaluate any individual recommended or offered for nomination to our board of directors: •The corporate governance and nominating committee will consider candidates recommended by stockholders in the same manner as candidates recommended to the corporate governance and nominating committee from other sources. •In its evaluation of director candidates, including the members of our board of directors eligible for re-election, the corporate governance and nominating committee will consider the following: ◦The current size and composition of our board of directors and the needs of our board of directors and the respective committees of our board of directors. ◦Such factors as character, integrity, judgment, diversity of experience, independence, area of expertise, corporate experience, length of service, potential conflicts of interest, other commitments and the like. The corporate governance and nominating committee evaluates these factors, among others, and does not assign any particular weighting or priority to any of these factors. ◦Other factors that the corporate governance and nominating committee deems appropriate. •The corporate governance and nominating committee requires the following minimum qualifications to be satisfied by any nominee for a position on our board of directors: ◦The highest personal and professional ethics and integrity. ◦Proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment. ◦Skills that are complementary to those of the existing board of directors. ◦The ability to assist and support management and make significant contributions to the Company’s success. ◦An understanding of the fiduciary responsibilities that is required of a member of our board of directors and the commitment of time and energy necessary to diligently carry out those responsibilities. ◦If the corporate governance and nominating committee determines that an additional or replacement director is required, the corporate governance and nominating committee may take such measures that it considers appropriate in connection with its evaluation of a director candidate, including candidate interviews, inquiry of the person or persons making the recommendation or nomination, engagement of an outside search firm to gather additional information, or reliance on the knowledge of the members of the corporate governance and nominating committee, our board of directors or management. The corporate governance and nominating committee may propose to our board of directors a candidate recommended or offered for nomination by a stockholder as a nominee for election to our board of directors. In the future, the corporate governance and nominating committee may pay fees to third parties to assist in identifying or evaluating director candidates.
ELECTION OF DIRECTORS
ELECTION OF DIRECTORS Our board of directors is currently composed of 10 members. In accordance with our certificate of incorporation, our board of directors is divided into three classes with staggered three-year terms. At the Annual Meeting, three Class I directors will be elected for a three-year term to succeed the same class whose term is then expiring. Each director’s term continues until the election and qualification of such director’s successor, or such director’s earlier death, resignation, or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our Company.
Executive Summary
•Base salaries – We made moderate adjustments to 2023 base salaries of our executives based on our review of roles, responsibilities and market practices; •Annual bonuses – Our annual bonus incentives were based on metrics and milestones pertaining to critical measures of our corporate strategy as well as drivers of our long-term goal of creating stockholder value. In 2023 we met 17 of our 21 objective goals, resulting in an annual bonus paid out at 115% of target; and •Equity grants – Consistent with our granting practices of recent years, we granted stock options and restricted stock units ("RSUs") to our executive officers in 2023 to motivate and retain our executives, while aligning their interests with those of our long-term stockholders. How We Pay For Performance Our pay program focuses on rewarding executives while keeping a significant portion of compensation at-risk. We consider the compensation mix, including the mix of variable and fixed pay as well as how much compensation is long-term oriented. Target Pay The compensation committee uses its discretion in determining the appropriate mix of fixed and variable compensation for each NEO. The chosen compensation vehicles include short-term and long-term incentives, and cash and equity compensation. The balance between these components may change from year to year based on corporate strategy and objectives, among other considerations. Our target total compensation mix shown below is as reported in the summary compensation table and consists of base salary, actual bonus paid and the grant date fair value of equity awards, which includes stock options and RSUs. For 2023, our CEO and NEOs had the following target pay mix: Note: NEO Target Pay Mix only includes executives who served for the entirety of the past fiscal year. Compensation Aligned with Performance The magnitude of CEO compensation is directly aligned with our Company performance through the relationship between stock price and the grant date fair value of equity awards. Consideration of Say-on-Pay Results and Stockholder Engagement At our 2023 annual meeting, our advisory vote on executive compensation (commonly referred to as a “say-on-pay” vote), received the support of approximately 93.7% of the shares voted. The compensation committee believes this vote demonstrated our stockholders’ positive view of our pay-for-performance philosophy and the appropriateness of our executive compensation structure. Therefore, the compensation committee did not make any changes to our compensation program directly as a result of the say-on-pay vote result. While pleased with the vote result, the Company continues to be committed to engaging with stockholders. We review any feedback we receive from our stockholders about our executive compensation program to ensure that we understand key matters of interest to them, and to enable us to take that feedback into consideration for our compensation decisions. Compensation Philosophy Our compensation committee believes a well-designed compensation program should align executive interests with the drivers of growth and stockholder returns by supporting the Company’s achievement of its primary business goals, and the Company’s ability to attract and retain employees whose talents, expertise, leadership, and contributions are expected to sustain growth in long-term stockholder value. Consequently, we maintain an ongoing commitment to corporate governance principles and strong performance orientation in our compensation program. Our compensation committee regularly reviews our compensation policies and program design overall, to ensure that they are aligned with the interests of our stockholders and our business goals, and that the total compensation paid to our employees and directors is fair, reasonable and competitive. Over time, we have made gradual changes to our executive compensation program to adopt practices that are appropriate for the Company given our business, industry, growth and other factors. Our compensation committee and board of directors believe it appropriate to continue to fine tune our executive compensation program but generally have avoided dramatic changes since we became a publicly traded Company. We engaged an independent compensation consultant prior to our initial public offering to assist our compensation committee in determining executive compensation and have continued to work with an independent compensation consultant to review and update our executive compensation program.
Compensation Determination Process
Compensation Determination Process Role of the Compensation Committee and Board of Directors Our compensation committee is responsible for overseeing the total compensation of our executive officers. In this capacity, our compensation committee designs, implements, reviews and approves all compensation for our Chief Executive Officer and our other executive officers. The compensation committee formally met four times during fiscal year 2023, and also met informally on several occasions, to review and discuss matters related to compensation of our employees and executive officers. Some of these meetings (or portions of these meetings) were held with members of management in attendance and some (or portions of these meetings) were held in closed session. Most of the meetings also included representatives from our compensation consultant (as described below). Typically, the compensation committee reports to the Board on its discussions and on occasion recommends to the Board, or seeks input from the Board regarding, the decisions to be made and other actions to be taken with regard to our executive officers’ compensation. Our compensation committee’s recommendations regarding executive compensation are based on the compensation committee’s assessment of the performance of the Company and each individual executive officer, as well as other factors, such as prevailing industry trends and the competitive market for executive talent. The compensation committee typically makes the final decisions regarding executive compensation. Role of Management Our CEO, Chief Operating and Financial Officer (“COFO”), and Chief People Officer (“CPO”) typically make recommendations to our compensation committee, attend certain compensation committee meetings and are involved in the process for determining our executive officers’ compensation, provided that none of our CEO, COFO or CPO makes recommendations as to their own compensation or participates in compensation committee discussion of their own compensation. Our compensation committee considers management’s recommendations but is not required to follow any recommendations and may adjust compensation up or down at its discretion. Our compensation committee reviews the recommendations and other data and makes recommendations to the Board as to each executive officer’s total compensation, as well as each individual pay component. Use of Independent Compensation Consultant The compensation committee has authority to appoint and retain a compensation consultant. The fees for services rendered by the compensation consultant are paid by the Company. Beginning in September 2022, the compensation committee engaged Alpine Rewards (“Alpine”) as its independent compensation consultant. Alpine has helped to further develop our compensation programs and has advised the compensation committee on all of the principal aspects of executive compensation. Alpine reports directly to our compensation committee and not to management, although Alpine meets with management for purposes of gathering information for its analyses and recommendations. Our compensation committee assessed the independence of Alpine consistent with Nasdaq listing standards and concluded that neither engagement raised or raises any conflict of interest. Use of a Peer Group The compensation committee approves a peer group of companies as a reference group to provide a broad perspective on competitive pay levels and practices. The peers are reviewed on an annual basis in light of the fast-moving changes at Denali and our industry. In September 2022, we undertook this review with the assistance and recommendations of Alpine, the compensation committee’s compensation consultant. The compensation committee used the following criteria in determining the appropriate peers: •Industry Sector and Stage – Publicly traded pre-commercial biopharmaceutical companies with a focus on companies with programs in Phase 1 or 2 of clinical development, while also incorporating more mature, commercially oriented biopharma companies. •Market Capitalization – Range of $3.0 billion to $15.0 billion •Location – Biotechnology hub markets (San Francisco Bay Area, San Diego, Boston, etc.) •Headcount – Companies with above 100 employees 2023 Peer Group Based on these criteria and considerations, our 2023 peer group was determined to consist of the following companies:
Compensation Determination Process
As a result of the determination of the 2023 peer group based on the revised criteria, seven companies that had been included in the 2022 peer group were removed as they no longer met the criteria listed above: Allakos, Atara Biotherapeutics, Biohaven Pharmaceutical, Editas Medicine, Sangamo Therapeutics, and Zogenix. The Committee added the following companies to the 2023 peer group: Beam Therapeutics, Cerevel Therapeutics, Cytokinetics, Intellia Therapeutics, Karuna Therapeutics, Legend Biotech, and Verve Therapeutics. 2024 Peer Group In August 2023, the compensation committee approved the peer group for use in making 2024 compensation decisions. Due to changes in the Company’s profile, the Committee made updates to the peer selection criteria related to market capitalization, headcount, sector and stage, as well as consideration for recent acquisitions. The Committee determined that the following companies should be removed as they no longer met the criteria: Allogene Therapeutics, Arvinas, Fate Therapeutics, Global Blood Therapeutics, NGM Biopharmaceuticals, Reata Pharmaceuticals, and Verve Therapeutics. The Committee added the following companies to the 2024 peer group: Amylyx Pharmaceuticals, Axsome Therapeutics, BridgeBio Pharma, Intra-Cellular Therapies, Prothena Corp, and Vaxcyte. In setting compensation for our executive officers, including our NEOs, the compensation committee uses competitive compensation data from an annual total compensation study of selected peer companies and relevant survey sources to inform its decisions about overall compensation opportunities and specific compensation elements. However, the compensation committee uses our compensation peer group as one data point when setting executive pay packages. The compensation philosophy focuses at or near a target percentile for base salary, particularly in respect to target cash compensation and equity grants. In addition, our compensation decisions are based on the consideration of many factors, including, but not limited to, individual and Company performance, market data, internal equity, experience, and strategic needs. As a result of evaluating compensation based on the criteria described above, total target compensation for our NEOs may in certain circumstances be above or below the median levels of the peer group.
Pay Components
| Element | Purpose | Features | | Base Salary | To attract and retain highly skilled executives | Fixed component of pay to provide financial stability, based on responsibilities, experience, individual contributions and peer company data | | Annual Cash Incentives | To promote and reward the achievement of key short-term strategic and business goals of the Company as well as individual performance; to motivate and attract executives | Variable component of pay based on annual quantitative and qualitative performance assessment against objectives related to clinical testing, pipeline and functional goals | | Equity Incentive Compensation | To encourage executives and other employees to focus on long-term company performance; to promote retention; to reward outstanding company and individual performance | Delivered in the form of stock options and RSUs, subject to multi-year vesting based on continued service. The value of these awards depends on the performance of our common stock price, which aligns employee and executive interests with those of our stockholders over the longer term |
Pay Components
| What We Do | | | | •Align compensation with stockholder interests | | | •Balance pay mix of fixed and variable pay | | | •Align pay with performance | | | •Adopt robust anti-hedging and pledging policies | | | •Use a peer group to benchmark pay | | | •Employ a clawback policy | | | •Retain a compensation consultant |
Pay Components
| What We Don't Do | | | | •Guarantee bonuses | | | •Provide excessive perquisites | | | •Provide excessive severance payments | | | •Provide excise tax gross ups |
Pay Components
Annual Cash Incentives The Annual Cash Incentive Program (Bonus Plan) is designed to provide a financial incentive to reward executives for the achievement of a series of program specific, pipeline and functional corporate goals. Payments under the plan are ultimately based on achievement of these pre-established corporate goals. Actual performance against targets, as measured by these pre-established corporate goals, funds the incentive payouts. The bonus pool can be funded between 0% to a maximum of 175% of target funding levels, but the compensation committee has the discretion to go beyond the expected high end of the range to 200%. The total bonus payout cannot exceed the total amount of funding in the pool. Bonuses are typically paid in the quarter following the end of the performance period and bonuses to our NEOs are subject to the terms of our Executive Incentive Compensation Plan, under which our compensation committee has broad discretion to increase, decrease or eliminate the funding of the bonus pool and the amounts payable as individual bonuses. Bonuses for all employees, including our NEOs, for the fiscal year ended December 31, 2023, were allocated from a bonus pool funded based on performance against a number of high impact, stretch project and cross-function goals. The project goals related to specific programs, trials and pipeline progress, including goals for clinical stage programs as well as seed, pathway, platform, and preclinical goals. The cross-function goals included goals related to major strategic collaborations, data collection, interpretation and sharing, growing core skills, and building key capabilities in a way that reflects Denali’s values and supports our portfolio, establishing capabilities for successful commercialization, raising funds through equity issuances and/or new partnerships, intellectual property and invention, work environment, and other functional goals. Most of the cross-functional goals involved multiple steps geared toward driving advancement of key Company initiatives. The combination of the project and cross-function goals was intended to drive both specific technical achievement and continue to build the foundation for future Company growth and advancements. Based on the diversity and difficulty of these goals, in structuring the funding expectations at the beginning of the year, the Company believed that achievement of 70% of these challenging goals would be difficult, requiring focused effort and diligence, and would represent strong alignment with the Company’s business objectives that would make bonus pool funding at 100% levels appropriate. In addition, in determining the CEO's 2023 bonus, the compensation committee considered specific areas of focus for the CEO related to the broader project and cross-function goals as well as leadership and development and the CEO’s key accomplishments for the year. Each goal is measured individually, and the percent of goals achieved determines the bonus payout, subject to the compensation committee's discretion to alter bonus funding and payouts:
Pay Components
| Executive | 2023 Base Salary | Annual Target Bonus (% of base) | Funding Percentage | 2023 Earned Award | | Ryan J. Watts, Ph.D. | $670,000 | 60% | 115% | $462,289 | | Alexander O. Schuth, M.D. | $520,000 | 45% | 115% | $269,093 | | Carole Ho, M.D. | $520,000 | 45% | 115% | $269,093 |
Pay Components
Long-Term Incentives In 2023 we granted our executives’ target equity compensation in the form of time-vesting RSUs and stock options. In determining the awards vehicles, the compensation committee considers the appropriate split of such equity awards, including the balancing of incentives and retention needs, stockholder dilution and equity plan share reserve management. Equity granted to our executives in 2023 are detailed below and in the section "Grants of Plan-Based Awards":
Pay Components
| | RSUs | | Options | | | Executive | Number Granted | Grant Date Fair Value | Number Granted | Grant Date Fair Value | | Ryan J. Watts, Ph. D. | 82,240 | $2,272,291 | 246,720 | $4,461,487 | | Alexander O. Schuth, M.D. | 41,120 | $1,136,146 | 123,360 | $2,230,744 | | Carole Ho, M.D. | 41,120 | $1,136,146 | 123,360 | $2,230,744 |
Severance and Change in Control Protections
Severance and Change in Control Protections We maintain a Key Executive Change in Control and Severance Plan (the “Severance Plan”) in which our NEOs participate. The Severance Plan provides participants with severance in the event of certain qualifying terminations, including following a change in control of our Company, and certain change in control benefits. We believe that these protections are necessary to provide our valuable executives with incentives to forego other employment opportunities and remain employed with us and to maintain continued focus and dedication to their responsibilities to maximize stockholder value, including if there is a potential transaction that could involve a change in control. In addition, these protections are available only if a named executive officer executes and does not revoke a general release of claims in favor of us. The terms and levels of benefits provided to our NEOs under the Severance Plan were determined by our compensation committee, with input from our management team, and approved by our board following a review of analysis prepared by Aon of relevant market data for other companies with whom we compete for executive talent, and are reviewed, and the analysis refreshed, from time to time. For a summary of the material terms of the benefits provided to our NEOs under the Severance Plan, and an estimate of the payments and benefits that may be received by our NEOs under the Severance Plan, see “Potential Payments on Termination or Change in Control” below.
Summary Compensation Table For Fiscal Years 2021, 2022 and 2023
Summary Compensation Table For Fiscal Years 2021, 2022 and 2023 The following table provides information regarding the compensation of our named executive officers during the years ended December 31, 2021, 2022 and 2023.
Summary Compensation Table For Fiscal Years 2021, 2022 and 2023
| Name and Principal Position | Year | Salary | Bonus(1) | Stock Awards(2) | Option Awards(3) | All Other Compensation(4) | Total | | Ryan J. Watts, Ph.D. | 2023 | $670,000 | $462,289 | $2,272,291 | $4,461,487 | $13,200 | $7,879,267 | | President and Chief Executive Officer | 2022 | $645,000 | $387,000 | $2,930,740 | $5,309,748 | $12,200 | $9,284,688 | | | 2021 | $610,104 | $503,335 | $4,251,600 | $7,296,840 | $11,600 | $12,673,479 | | Alexander O. Schuth, M.D. | 2023 | $520,000 | $269,093 | $1,136,146 | $2,230,744 | $13,200 | $4,169,183 | | Chief Operating and Financial Officer and Secretary | 2022 | $500,000 | $225,000 | $2,307,095 | $2,647,757 | $12,200 | $5,692,052 | | | 2021 | $465,129 | $279,077 | $2,125,800 | $3,648,420 | $11,600 | $6,530,026 | | Carole Ho, M.D. | 2023 | $520,000 | $269,093 | $1,136,146 | $2,230,744 | $13,200 | $4,169,183 | | Chief Medical Officer | 2022 | $500,000 | $225,000 | $2,307,095 | $2,647,757 | $12,200 | $5,692,052 | | | 2021 | $473,616 | $284,170 | $2,125,800 | $3,648,420 | $11,600 | $6,543,606 |
Summary Compensation Table For Fiscal Years 2021, 2022 and 2023
(1)The amounts included in this column reflect bonus payments earned in 2021, 2022 and 2023. (2)The amounts included in this column reflect the aggregate grant date fair value of RSUs granted during 2021, 2022 and 2023 based on the closing market price of the Company’s common stock on the date of grant. (3)The amounts included in this column reflect the aggregate grant date fair value of stock options granted during 2021, 2022 and 2023 computed in accordance with the provisions of Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation. The assumptions that we used to calculate these amounts are discussed in Note 9 to our audited Consolidated Financial Statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023. These amounts do not reflect the actual economic value that will be realized by the NEO upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. (4)The amounts included in this column reflect the dollar value of employer 401(k) matching contributions paid to each named executive officer.
Grants of Plan-Based Awards for Fiscal Year 2023
Grants of Plan-Based Awards for Fiscal Year 2023 The following table provides information regarding grants of plan-based awards to our named executive officers during the fiscal year ended December 31, 2023.
Grants of Plan-Based Awards for Fiscal Year 2023
| Name | Grant Date | All other stock awards: Number of shares of stock or units(1) | All other option awards: Number of securities underlying options(2) | Exercise or base price of stock and option awards($/share)(3) | Grant Date fair value of stock and option awards(4) | | Ryan J. Watts, Ph.D. | 01/03/2023 | — | 246,720 | $27.63 | $4,461,487 | | | 01/03/2023 | 82,240 | — | $27.63 | $2,272,291 | | Alexander O. Schuth, M.D. | 01/03/2023 | — | 123,360 | $27.63 | $2,230,744 | | | 01/03/2023 | 41,120 | — | $27.63 | $1,136,146 | | Carole Ho, M.D. | 01/03/2023 | — | 123,360 | $27.63 | $2,230,744 | | | 01/03/2023 | 41,120 | — | $27.63 | $1,136,146 |
Grants of Plan-Based Awards for Fiscal Year 2023
(1)RSUs subject to time-based vesting criteria established by the Compensation Committee and described in the footnotes to the Outstanding Equity Awards at December 31, 2023 table below. (2)Options subject to time-based vesting criteria established by the Compensation Committee and described in the footnotes to the Outstanding Equity Awards at December 31, 2023 table below. (3)The exercise price of these stock options is equal to the closing price of our common stock on the NASDAQ Global Select Market on the grant date. (4)Amounts represent the grant date fair value of the named executive officer’s stock options and RSUs, calculated in accordance with the provisions of Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation. The grant date fair value of our RSUs is based on the closing market price of the Company’s common stock on the date of grant. The grant date fair value of our stock options is calculated using a Black-Scholes valuation model. The assumptions that we used to calculate these amounts are discussed in Note 9 to our audited Consolidated Financial Statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023. These amounts do not reflect the actual economic value that will be realized by the named executive officer upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options.
Option Exercises and Stock Vested in Fiscal Year 2023
Option Exercises and Stock Vested in Fiscal Year 2023 The following table shows certain information concerning option exercises and value realized upon the exercise of stock options and the vesting of RSU grants by our named executive officers during the fiscal year ended December 31, 2023.
Option Exercises and Stock Vested in Fiscal Year 2023
| | Option Awards | | Stock Awards | | | Name | Number of shares acquired on exercise | Value realized on exercise(1) | Number of shares acquired on vesting | Value realized on vesting(2) | | Ryan J. Watts, Ph.D. | 127,526 | $3,654,728 | 63,997 | $1,816,751 | | Alexander O. Schuth, M.D. | 65,000 | $1,654,350 | 37,411 | $1,030,960 | | Carole Ho, M.D. | — | $— | 37,593 | $1,036,262 |
Option Exercises and Stock Vested in Fiscal Year 2023
(1)The value realized upon the exercise of stock options is calculated by (a) subtracting the stock option exercise price from the market price on the date of exercise to get the realized value per share, and (b) multiplying the realized value per share by the number of shares underlying the stock options exercised. (2)The value realized upon vesting of restricted stock and RSUs is calculated by multiplying the number of shares of restricted stock and RSUs vested by the market price on the vest date.
Outstanding Equity Awards as of 2023 Fiscal Year End
Outstanding Equity Awards as of 2023 Fiscal Year End The following table provides information regarding equity awards held by our named executive officers as of December 31, 2023.
Outstanding Equity Awards as of 2023 Fiscal Year End
| | | | Option Awards | | | | | Stock Awards | | | Name | Grant Date(1) | Notes | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity incentive awards: number of securities underlying unexercised unearned options (#) | Option Exercise Price (per share)(2) | Option Expiration Date | Number of Shares of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested(3) | | Ryan J. Watts, Ph.D. | 08/21/2015 | (4) | 495,282 | — | 622,809 | $0.68 | 08/20/2025 | — | $— | | | 03/08/2017 | (5) | 60,369 | — | — | $5.28 | 03/08/2027 | — | $— | | | 08/22/2017 | (5) | 56,382 | — | — | $9.60 | 08/22/2027 | — | $— | | | 02/26/2018 | (5) | 300,000 | — | — | $22.16 | 02/26/2028 | — | $— | | | 02/08/2019 | (5) | 281,600 | — | — | $18.13 | 02/08/2029 | — | $— | | | 02/10/2020 | (5) | 352,351 | 15,324 | — | $24.81 | 02/10/2030 | — | $— | | | 02/10/2020 | (6) | — | — | — | $— | — | 19,697 | $422,698 | | | 08/18/2020 | (6) | — | — | — | $— | — | 5,000 | $107,300 | | | 01/04/2021 | (5) | 131,248 | 48,752 | — | $70.86 | 01/04/2031 | — | $— | | | 01/04/2021 | (6) | — | — | — | $— | — | 30,000 | $643,800 | | | 01/03/2022 | (5) | 89,363 | 97,137 | — | $47.27 | 01/03/2032 | — | $— | | | 01/03/2022 | (6) | — | — | — | $— | — | 46,500 | $997,890 | | | 01/03/2023 | (5) | — | 246,720 | — | $27.63 | 01/03/2033 | — | $— | | | 01/03/2023 | (6) | — | — | — | $— | — | 82,240 | $1,764,870 | | Alexander O. Schuth, M.D. | 08/21/2015 | (4) | 70,516 | 22,497 | 102,065 | $0.68 | 08/20/2025 | — | $— | | | 03/08/2017 | (5) | 68,937 | — | — | $5.28 | 03/08/2027 | — | $— | | | 08/22/2017 | (5) | 56,641 | — | — | $9.60 | 08/22/2027 | — | $— | | | 02/26/2018 | (5) | 180,000 | — | — | $22.16 | 02/26/2028 | — | $— | | | 02/07/2019 | (5) | 136,000 | — | — | $17.99 | 02/07/2029 | — | $— | | | 02/10/2020 | (5) | 130,331 | 5,669 | — | $24.81 | 02/10/2030 | — | $— | | | 02/10/2020 | (6) | — | — | — | $— | — | 7,286 | $156,358 | | | 08/18/2020 | (6) | — | — | — | $— | — | 5,000 | $107,300 | | | 01/04/2021 | (5) | 65,624 | 24,376 | — | $70.86 | 01/04/2031 | — | $— | | | 01/04/2021 | (6) | — | — | — | $— | — | 15,000 | $321,900 | | | 01/03/2022 | (5) | 44,562 | 48,438 | — | $47.27 | 01/03/2032 | — | $— | | | 01/03/2022 | (6) | — | — | — | $— | — | 23,250 | $498,945 | | | 08/09/2022 | (6) | — | — | — | $— | — | 16,875 | $362,138 | | | 01/03/2023 | (5) | — | 123,360 | — | $27.63 | 01/03/2033 | — | $— | | | 01/03/2023 | (6) | — | — | — | $— | — | 41,120 | $882,435 | | Carole Ho, M.D. | 08/21/2015 | (4) | 62,500 | — | 62,500 | $0.68 | 08/20/2025 | — | $— | | | 07/02/2016 | (5) | 44,035 | — | — | $5.28 | 07/02/2026 | — | $— | | | 03/08/2017 | (5) | 38,240 | — | — | $5.28 | 03/08/2027 | — | $— | | | 02/26/2018 | (5) | 180,000 | — | — | $22.16 | 02/26/2028 | — | $— | | | 02/07/2019 | (5) | 136,000 | — | — | $17.99 | 02/07/2029 | — | $— | | | 02/10/2020 | (5) | 136,081 | 5,919 | — | $24.81 | 02/10/2030 | — | $— | | | 02/10/2020 | (6) | — | — | — | $— | — | 7,469 | $160,285 | | | 08/18/2020 | (6) | — | — | — | $— | — | 5,000 | $107,300 | | | 01/04/2021 | (5) | 65,624 | 24,376 | — | $70.86 | 01/04/2031 | — | $— | | | 01/04/2021 | (6) | — | — | — | $— | — | 15,000 | $321,900 | | | 01/03/2022 | (5) | 44,562 | 48,438 | — | $47.27 | 01/03/2032 | — | $— | | | 01/03/2022 | (6) | — | — | — | $— | — | 23,250 | $498,945 | | | 08/09/2022 | (6) | — | — | — | $— | — | 16,875 | $362,138 | | | 01/03/2023 | (5) | — | 123,360 | — | $27.63 | 01/03/2033 | — | $— | | | 01/03/2023 | (6) | — | — | — | $— | — | 41,120 | $882,435 |
Outstanding Equity Awards as of 2023 Fiscal Year End
(1)Each of the outstanding equity awards was granted pursuant to the 2015 Stock Incentive Plan (the “2015 Plan”) or the 2017 Equity Incentive Plan (the "2017 Plan"). (2)This column represents the fair value of a share of our common stock on the date of grant, as determined by our board of directors. (3)This column represents the fair market value of the shares of our common stock as of December 31, 2023, based on the closing price of our common stock, as reported on the NASDAQ Global Select Market, of $21.46 per share on December 31, 2023. (4)The shares subject to the unearned option will vest upon (i) the date on which the reported closing price of our common stock on Nasdaq or the New York Stock Exchange (or other national securities exchange) has, for 90 consecutive trading days, equaled or exceeded $80.00 per share (subject to adjustments for any stock split, reverse stock split or certain other changes in capitalization), with the first day of the 90-day measurement period no earlier than June 6, 2018, or (ii) the date on which we close a change of control transaction in which the stockholders receive consideration equal to no less than $80.00 per share (subject to adjustments for any stock split, reverse stock split or certain other changes in capitalization) in exchange for the sale of their capital stock. (5)One-fourth of the total number of shares subject to the option vest on the one year anniversary of the grant date, and one forty-eighth of the total number of shares subject to the option vest monthly thereafter, subject to continued service to us through each such vesting date. (6)Represents restricted stock units providing a contingent right to receive the listed number of shares of our common stock upon settlement. One-fourth of the total number of shares subject to the award vest on the one year anniversary of the grant date, and one-fourth of the total number of shares subject to the award vest each year thereafter, subject to continued service to us through each such vesting date.
Potential Payments and Benefits upon Termination or Change in Control
Potential Payments and Benefits upon Termination or Change in Control Dr. Watts, Dr. Schuth, and Dr. Ho are entitled to certain change of control and severance benefits pursuant to our Key Executive Change in Control and Severance Plan (the “Severance Plan”), which was adopted in November 2017 and subsequently modified in October 2020. If we terminate a named executive officer’s employment other than for “cause,” death, or “disability” or such participant resigns for “good reason” during the period beginning on a “change in control” (as such terms are defined in the Severance Plan) and ending 12 months following a change in control (the “change in control period”), such named executive officer will be eligible to receive the following severance benefits (less applicable tax withholdings): •100% (200% for Dr. Watts) of the named executive officer’s annual base salary as in effect immediately prior to the termination (or if the termination is due to a resignation for good reason based on a material reduction in base salary, then the named executive officer’s annual base salary in effect immediately prior to such reduction) paid over 12 months (24 months for Dr. Watts); •A lump sum payment equal to 100% (200% for Dr. Watts) of the annual target bonus the named executive officer would otherwise be eligible to receive for the fiscal year in which the termination occurs, assuming achievement of all target levels at 100%; •A lump sum cash payment in an aggregate amount equal to 12 months (24 months for Dr. Watts) of the applicable monthly premium cost that the named otherwise would be required to pay to continue qualifying health coverage under COBRA (provided that if the Company determines in its sole discretion that these payments cannot be provided without violating applicable law, these payments will not be made); and •100% of the named executive officer’s then-outstanding and unvested equity awards that are subject to vest solely on the named executive officer’s continued service through the scheduled vesting dates will become vested in full and, if applicable, exercisable. If we terminate a named executive officer’s employment other than for cause, death, or disability or such participant resigns for good reason outside of the change in control period, such named executive officer will be eligible to receive the following severance benefits (less applicable tax withholdings): •75% (100% for Dr. Watts) of the named executive officer’s annual base salary as in effect immediately prior to the termination (or if the termination is due to a resignation for good reason based on a material reduction in base salary, then the named executive officer’s annual base salary in effect immediately prior to such reduction) paid over 9 months (12 months for Dr. Watts); •A lump sum payment equal to the annual target bonus the named executive officer would otherwise be eligible to receive for the fiscal year in which the termination occurs, assuming achievement of all annual targets at 100%, prorated for the portion of the year during which the named executive officer was employed; and •A lump sum cash payment in an aggregate amount equal to 9 months (12 months for Dr. Watts) of the applicable monthly premium cost that the named executive officer otherwise would be required to pay to continue qualifying health coverage under COBRA (provided that if the Company determines in its sole discretion that these payments cannot be provided without violating applicable law, these payments will not be made). To receive the severance benefits upon a qualifying termination, a named executive officer must sign and not revoke a form of separation agreement and release of claims in a form reasonably satisfactory to us within the time frame set forth in the Severance Plan and must continue to comply with the provisions of such release and the terms of any proprietary information and inventions agreement and any other written agreement or agreements between the named executive officer and us under which the named executive officer has a material duty or obligation to us. In addition, in the event of a change in control, the vesting schedule of any then-outstanding and unvested equity awards that are subject to time-based vesting and were granted to a named executive officer prior to the effective date of the Severance Plan will be accelerated in part so that the number of shares, if any, subject to each such award that would otherwise have first become vested in the period between the date of the consummation of the change in control and the date on which all but the final 12 months of the vesting period will have first become vested will immediately become vested and exercisable, as applicable. The remaining shares subject to each such award will continue to be eligible to vest in accordance with the original vesting schedule within the next 12 months as set forth in the applicable award agreement, and may accelerate in connection with certain terminations of employment, as described above. If any of the payments provided for under the Severance Plan or otherwise payable to a named executive officer would constitute “parachute payments” within the meaning of Section 280G of the Code and would be subject to the related excise tax under Section 4999 of the Code, then the named executive officer will be entitled to receive either full payment of benefits or such lesser amount which would result in no portion of the benefits being subject to the excise tax, whichever results in the greater amount of after-tax benefits to him or her. The Severance Plan does not require us to provide any tax gross-up payments to any named executive officer.
2017 Equity Incentive Plan and 2015 Stock Incentive Plan
| Name | Executive Benefits and Payments Upon Termination or Change in Control | Change in Control | Change in Control with Qualifying Termination | Termination Without Cause | | Ryan J. Watts, Ph.D. | Base Salary | $— | $1,340,000 | $670,000 | | | Target Bonus | — | 804,000 | 402,000 | | | Welfare(1) | — | 99,124 | 49,562 | | | Restricted Stock Units(2) | — | 3,936,558 | — | | | Stock Options(3) | — | — | — | | | TOTAL | $— | $6,179,682 | $1,121,562 | | Alexander O. Schuth, M.D. | Base Salary | $— | $520,000 | $390,000 | | | Target Bonus | — | 234,000 | 234,000 | | | Welfare(1) | — | 39,946 | 29,959 | | | Restricted Stock Units(2) | — | 2,329,075 | — | | | Stock Options(3) | — | — | — | | | TOTAL | $— | $3,123,021 | $653,959 | | Carole Ho, M.D. | Base Salary | $— | $520,000 | $390,000 | | | Target Bonus | — | 234,000 | 234,000 | | | Welfare(1) | — | 46,938 | 35,204 | | | Restricted Stock Units(2) | — | 2,333,002 | — | | | Stock Options(3) | — | — | — | | | TOTAL | $— | $3,133,940 | $659,204 |
CEO Pay Ratio - 2023
CEO Pay Ratio - 2023 Under rules adopted pursuant to the Dodd-Frank Act, we are required to calculate and disclose the 2023 annual total compensation paid to our median paid employee and to our Chief Executive Officer, as well as the ratio of the total compensation paid to the median employee as compared to the total compensation paid to our Chief Executive Officer (the "CEO Pay Ratio"). The paragraphs that follow describe our methodology and the resulting CEO Pay Ratio.
Methodology and Pay Ratio
Methodology and Pay Ratio Once the median employee was identified, we calculated the median employee's 2023 annual target total direct compensation in accordance with the requirements of the Summary Compensation Table. Our median employee compensation in 2023 as calculated using Summary Compensation Table requirements was $345,658. Our Chief Executive Officer's compensation in 2023 as reported in the Summary Compensation Table was $7,879,267. Therefore, our CEO Pay Ratio for 2023 is approximately 23:1. This information is being provided for compliance purposes and is a reasonable estimate calculated in a manner consistent with the SEC rules, based on our internal records and the methodology described above. The SEC rules for identifying the median compensated employee allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their employee populations and compensation practices. Accordingly, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. Neither the Compensation Committee nor management of the Company used the CEO Pay Ratio measure in making compensation decisions.
Pay vs. Performance
Pay vs. Performance Under rules adopted pursuant to the Dodd-Frank Act, we are required to calculate and disclose the correlation between executive pay and Company performance for the years ended December 31, 2023, 2022, 2021, and 2020. The disclosure includes an analysis of compensation for our Principal Executive Officer ("PEO"), Dr. Watts, and the average of total compensation for the non-PEO NEOs. The Non-PEO NEOs included for purposes of calculating the average amounts in each of 2020, 2021 and 2022 are Mr. Krognes, and Drs. Schuth and Ho and in 2023 are Drs. Schuth and Ho.
Pay vs. Performance Table
Pay vs. Performance Table
Pay vs. Performance Table
| Fiscal Year | Summary Compensation Table Total for PEO(1) | Compensation Actually Paid to PEO(2) | Average Summary Compensation Table Total for Non-PEO NEOs(3) | Average Compensation Actually Paid to Non-PEO NEOs(4) | Value of initial fixed $100 investment based on: | | Net Income (loss) (in thousands)(7) | Company- Selected Measure(8) | | | | | | | Total Share- holder Return(5) | Peer Group Total Share- holder Return(6) | | | | 2023 | $7,879,267 | $(813,455) | $4,169,183 | $1,657,599 | 123.19 | 118.87 | $(145,224) | N/A | | 2022 | $9,284,688 | $(12,121,657) | $5,223,660 | $(2,101,277) | 159.64 | 113.65 | $(325,991) | N/A | | 2021 | $12,673,479 | $(58,240,593) | $6,553,764 | $(11,781,409) | 256.03 | 126.45 | $(290,581) | N/A | | 2020 | $9,302,445 | $140,704,504 | $4,264,931 | $36,695,336 | 480.83 | 126.42 | $71,136 | N/A |
Pay vs. Performance Table
(1)The dollar amounts reported in this column are the amounts of total compensation reported for our PEO for each corresponding year in the “Total” column of the Summary Compensation Table. (2)The dollar amounts reported in this column represent the amount of “compensation actually paid” to our PEO, but compensation actually paid does not mean that Dr. Watts was actually paid those amounts in the listed year—this is a dollar amount derived from the starting point of Summary Compensation Table total compensation under the methodology prescribed under the relevant rules as follows and as shown in the adjustment table below. The Company has not paid dividends historically and does not sponsor any pension arrangements; thus no adjustments are made for these items.
Pay vs. Performance Table
| Fiscal Year | Summary Compensation Table Total for PEO | Less: Reported Value of Equity Awards to PEO(a) | Add: Equity Award Adjustments to PEO(b) | Compensation Actually Paid to PEO | | 2023 | $7,879,267 | $(6,733,778) | $(1,958,944) | $(813,455) | | 2022 | $9,284,688 | $(8,240,488) | $(13,165,857) | $(12,121,657) | | 2021 | $12,673,479 | $(11,548,440) | $(59,365,632) | $(58,240,593) | | 2020 | $9,302,445 | $(8,053,154) | $139,455,213 | $140,704,504 |
Pay vs. Performance Table
(a) The amounts in this column reflect the aggregate grant-date fair value reported in the “Stock Awards” and “Option Awards” columns in the Summary Compensation Table for the applicable year for Dr. Watts. (b) The amounts deducted or added in calculating the total equity award adjustments in the above table are as follows:
Pay vs. Performance Table
| Fiscal Year | Year End Fair Value of Equity Awards Granted in the Year | Year over Year Change in Fair Value of Outstanding and Unvested Equity Awards Granted in Prior Years | Fair Value as of Vesting Date of Equity Awards Granted and Vested in the Year | Year over Year Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year | Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Year | Total Equity Award Adjustments | | 2023 | $4,698,258 | $(6,495,950) | $— | $(161,252) | $— | $(1,958,944) | | 2022 | $4,292,254 | $(15,184,024) | $— | $(2,274,087) | $— | $(13,165,857) | | 2021 | $6,142,063 | $(46,889,675) | $— | $(18,618,020) | $— | $(59,365,632) | | 2020 | $32,742,847 | $103,131,232 | $— | $3,581,134 | $— | $139,455,213 |
Pay vs. Performance Table
In accordance with the relevant rules, the fair values of unvested and outstanding equity awards to our PEO were remeasured as of the end of each fiscal year, and as of each vesting date, during the years displayed in the table above. RSUs were valued at fair value, determined as the closing price of the Company's common stock on each measurement date. To value the performance and market contingent stock options as of each measurement date, the Company used a lattice model with a Monte Carlo simulation. This valuation methodology utilized the estimated fair value of the Company’s common stock on grant date and several key assumptions, including expected volatility of the Company’s stock price based on comparable public companies, risk-free rates of return and expected dividend yield. For all other stock options, the fair values as of each measurement date were determined using the Black-Scholes model, with assumptions and methodologies regarding volatility, dividend yield, and risk-free rates as outlined in the table below. The expected life of options as of each measurement date is estimated based on consideration of consistency with the original valuation assumptions for the grant, the circumstances of the grant at the measurement date, and other relevant factors under US GAAP.
Pay vs. Performance Table
| | Year Ended December 31, | | | | | | 2023 | 2022 | 2021 | 2020 | | Expected term (in years) | 3.65 - 5.47 | 3.65 - 5.47 | 3.65 - 5.47 | 3.77 - 5.53 | | Volatility | 66.22% - 70.75% | 63.50% - 67.73% | 57.46% - 63.34% | 63.35% - 78.04% | | Risk-free interest rate | 3.32% - 4.80% | 1.49% - 4.45% | 0.30% - 1.45% | 0.19% - 1.65% | | Dividend yield | — | — | — | — |
Pay vs. Performance Table
(3)The dollar amounts reported in this column represent the average of the amounts reported for the Company’s Non-PEO NEOs as a group (this group excludes Dr. Watts) in the “Total” column of the Summary Compensation Table in each corresponding year. (4)The dollar amounts reported represent the average amount of “compensation actually paid” for our Non-PEO NEOs as a group (this group excludes Dr. Watts). The dollar amounts do not reflect the actual amounts of compensation paid to the non-PEO NEOs during the applicable year, but are dollar amounts derived from the starting point of the Summary Compensation Table total compensation under the methodology prescribed under SEC rules as described in (2) above and shown in the adjustment table below.
Pay vs. Performance Table
| Fiscal Year | Average Summary Compensation Table Total for non-PEO NEOs | Less: Average Reported Value of Equity Awards to non-PEO NEOs(a) | Add: Average Equity Award Adjustments to non-PEO NEOs(b) | Average Compensation Actually Paid to non-PEO NEOs | | 2023 | $4,169,183 | $(3,366,890) | $855,306 | $1,657,599 | | 2022 | $5,223,660 | $(4,674,277) | $(2,650,660) | $(2,101,277) | | 2021 | $6,553,764 | $(5,774,220) | $(12,560,953) | $(11,781,409) | | 2020 | $4,264,931 | $(3,418,810) | $35,849,215 | $36,695,336 |
Pay vs. Performance Table
(a) The amounts in this column reflect the average aggregate grant-date fair value reported in the “Stock Awards” and “Option Awards” columns in the Summary Compensation Table for the applicable year for the Company’s non-PEO NEOs as a group (this group excludes Dr. Watts). (b) The amounts deducted or added in calculating the total equity award adjustments in the above table are as follows:
Pay vs. Performance Table
| Fiscal Year | Average Year End Fair Value of Equity Awards Granted in the Year | Average Year over Year Change in Fair Value of Outstanding and Unvested Equity Awards Granted in Prior Years | Average Fair Value as of Vesting Date of Equity Awards Granted and Vested in the Year | Average Year over Year Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Year | Average Fair Value at the End of the Prior Year of Equity Awards that Failed to Meet Vesting Conditions in the Year | Total Average Equity Award Adjustments | | 2023 | $2,349,129 | $(1,469,617) | $— | $(24,206) | $— | $855,306 | | 2022 | $1,868,705 | $(2,967,213) | $— | $(960,069) | $(592,083) | $(2,650,660) | | 2021 | $3,071,031 | $(10,579,485) | $— | $(5,052,499) | $— | $(12,560,953) | | 2020 | $13,320,406 | $20,605,545 | $— | $1,923,264 | $— | $35,849,215 |
Pay vs. Performance Table
In accordance with the relevant rules, the fair values of unvested and outstanding equity awards to our non-PEO NEOs were remeasured as of the end of each fiscal year, and as of each vesting date, during the years displayed in the table above. The valuation methodology and assumptions used consistent with those used for the PEO as described in (2) above. (5)Total shareholder return is calculated by assuming that a $100 investment was made on the day prior to the first fiscal year reported in the Pay versus Performance Table and reinvesting all dividends until the last day of each reported fiscal year. The Company has not paid dividends historically. (6)The peer group used is the NASDAQ Biotechnology Index, as used in the Company’s stock performance graph required by Item 201(e) of Regulation S-K included in our Annual Report on Form 10-K for the year ended December 31, 2023. (7)The dollar amounts reported in this column represent the amount of net income (loss) for the financial year as presented in the audited Consolidated Statements of Operations and Comprehensive Income (Loss) included in our Annual Report on Form 10-K. (8)Guidance issued under the relevant rules states that we cannot use stock price as our company-selected measure and we did not use any other financial performance measure for the most recently completed fiscal year to link CAP to Company performance. Our stock price has a significant impact on the value of equity-based awards granted to our NEOs, including stock options and restricted stock units. We therefore believe that, due to our use and focus on equity compensation, our stock price strongly links 2022 compensation paid to our NEOs to our performance. However, because we cannot use stock price as our company-selected measure, we have not listed a company selected measure in the Pay versus Performance Table.
Description of Relationship Between the Information Presented in the Pay versus Performance Table
Description of Relationship Between the Information Presented in the Pay versus Performance Table In accordance with Item 402(v) of Regulation S-K, the Company is providing the following description of the relationships between information presented in the Pay versus Performance Table. The analysis below demonstrates the relationship of “compensation actually paid” (“CAP”) to our PEO and average CAP to our non-PEO NEOs to the Company's total shareholder return (“TSR”), and the relationship of the Company's TSR to that of its peer group, the NASDAQ Biotechnology Index, in each case, during the past three years, as set forth in the Pay versus Performance Table. Further, it demonstrates the relationship between CAP to our PEO, average CAP to non-PEO NEOs and Net Income (Loss) as presented in the audited Consolidated Statements of Operations and Comprehensive Income (Loss) included in our Annual Report on Form 10-K in each case, during the past three years, as set forth in the Pay versus Performance Table. Figure 1: Analysis demonstrating the relationship of CAP during the past four years to the Company's TSR and the relationship of the Company's TSR to that of its peer group, the NASDAQ Biotechnology Index. Figure 2: Analysis demonstrating the relationship of CAP during the past four years to the Company's net income (loss) for the financial year as presented in the audited Consolidated Statements of Operations and Comprehensive Income (Loss) included in our Annual Report on Form 10-K.
DIRECTOR COMPENSATION
DIRECTOR COMPENSATION Each non-employee director is eligible to receive compensation for his or her service consisting of annual cash retainers and equity awards under our outside director compensation policy, which was originally adopted in November 2017 and became effective in connection with the initial public offering of our securities in December 2017. Our outside director compensation policy was crafted in consultation with Aon, an independent consultant, in anticipation of our initial public offering. Aon provided us with competitive data, analysis and recommendations regarding non-employee director compensation. After careful consideration of this information and the scope of the duties and responsibilities of our non-employee directors, our board of directors approved our outside director compensation policy, which we believe provides reasonable compensation to our non-employee directors that is commensurate with their contributions and appropriately aligned with our peers. Our outside director compensation policy has been amended periodically, most recently in February 2022. We also reimburse our directors for expenses associated with attending meetings of our board of directors and committees of our board of directors. Pursuant to our amended outside director compensation policy, all non-employee directors (also referred to as "outside directors") were paid cash compensation as set forth below during the year ended December 31, 2023. The cash compensation our outside directors are entitled to receive for their services for 2024 are also set forth below:
DIRECTOR COMPENSATION
| | 2023 Annual Retainer | 2024 Annual Retainer | | Board of Directors: | | | | All non-employee members | $45,000 | $45,000 | | Additional retainer for Non-Executive Chairperson of the Board | $35,000 | $35,000 | | Audit Committee: | | | | Additional retainer for Chairperson | $20,000 | $20,000 | | Additional retainer for Non-Chairperson members | $10,000 | $10,000 | | Compensation Committee: | | | | Additional retainer for Chairperson | $15,000 | $15,000 | | Additional retainer for Non-Chairperson members | $7,500 | $7,500 | | Corporate Governance and Nominating Committee: | | | | Additional retainer for Chairperson | $10,000 | $10,000 | | Additional retainer for Non-Chairperson members | $5,000 | $5,000 | | Science and Technology Committee: | | | | Additional retainer for Chairperson | $15,000 | $15,000 | | Additional retainer for Non-Chairperson members | $7,500 | $7,500 |
DIRECTOR COMPENSATION
All cash payments to non-employee directors who served in the relevant capacity at any point during the immediately preceding prior fiscal quarter will be paid quarterly in arrears, prorated for the portion of the fiscal quarter for which the non-employee director served in the relevant capacity. In addition, nondiscretionary, automatic grants of stock options will be made to our non-employee directors under our amended outside director compensation policy. Under our 2017 Plan, no non-employee directors may be granted, in any fiscal year, awards with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of more than $1 million, increased to $1.6 million in connection with his or her initial service. Any awards granted to an individual while he or she was an employee, or while he or she was a consultant but not a non-employee director, will not count for purposes of these limitations. Our outside director compensation policy provides for initial awards of a nonstatutory stock option to purchase shares of our common stock and an initial award RSUs together having an aggregate Company-assessed value of approximately $700,000 (with the shares covered by each award rounded down to the nearest whole share), effective on the date on which such person first becomes elected as a non-employee director. 60% of the value of the initial awards is in nonstatutory stock options (the “Initial Option”), while the remaining 40% is in RSUs (the “Initial RSU”). Specifically, the number of shares subject to the Initial Option is 60% of the number of shares that would be subject to a stock option granted on the same date having a grant date fair value of $700,000. For this purpose, the Company values RSUs as 1 RSU for every 2 shares subject to an option, and therefore the number of shares subject to the Initial RSU is: (x) 40% of the number of shares that would be subject to a stock option granted on the same date having a grant date fair value of $700,000, divided by (y) two. Subject to the terms of the policy, the Initial Option vests as to 1/4th of the shares subject thereto on the one-year anniversary of the initial award’s grant date and as to 1/48th of the shares subject to the Initial Option on each monthly anniversary of the date of grant thereafter (and if there is no corresponding day, on the last day of the month), in each case, provided that the non-employee director continues to serve as a non-employee director through the applicable vesting date. Subject to the terms of the policy, the Initial RSU award vests over a four-year period commencing on the Initial RSU's grant date, with 1/4th of the shares vesting on each anniversary of the Initial RSU’s grant date (or, for the last tranche that otherwise would vest on the fourth anniversary of the grant date, on such anniversary or, if earlier, on the day prior to our next annual meeting of stockholders occurring after the third anniversary of the grant date), in each case, provided that the non-employee director continues to serve as a non-employee director through the applicable vesting date. Our outside director compensation policy provides for annual awards having a grant date fair value of approximately $400,000, split approximately 60/40 between options and RSUs. The mechanics are as follows: on the date of each annual meeting of stockholders, each non-employee director who, as of such annual meeting date, has served on the board as a director for at least the preceding six months, is automatically granted a nonstatutory stock option to purchase shares of our common stock and an initial award RSUs together having an aggregate Company-assessed value of approximately $400,000 (with the shares covered by each award rounded down to the nearest whole share), effective on the date of the annual meeting. 60% of the value of the annual awards is in nonstatutory stock options (the “Annual Option”), while the remaining 40% was in RSUs (the Annual RSU). Specifically, the number of shares subject to Annual Option is 60% of the number of shares that would be subject to a stock option granted on the same date having a grant date fair value of $400,000. For this purpose, the Company values RSUs as 1 RSU for every 2 shares subject to an option, and therefore the number of shares subject to the Annual RSU is: (x) 40% of the number of shares that would be subject to a stock option granted on the same date having a grant date fair value of $400,000, divided by (y) two. Any non-employee director who is not continuing as a director following the applicable annual meeting will not receive an Annual Option or Annual RSU with respect to such annual meeting. Subject to the terms of the policy, the Annual Option and Annual RSU vest and become exercisable as to 100% of the shares subject to the Annual Option and Annual RSU upon the earlier of the one year anniversary of the grant date or the day prior to our next annual meeting of stockholders occurring after the grant date, in each case, provided that the non-employee director continues to serve as a non-employee director through the applicable vesting date. Our 2017 Plan provides that in the event of a merger or change in control, as defined in our 2017 Plan, where awards granted to non-employee directors are assumed or substituted for, if on the date of or following such assumption or substitution, the non-employee director’s status as a director or director of the successor corporation, as applicable, is terminated other than upon a voluntary resignation by the non-employee director (unless such resignation is at the request of the acquirer), then each outstanding equity award granted under our 2017 Plan to a non-employee director will fully vest, all restrictions on the shares subject to such award will lapse, and with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at 100% of target levels, and all of the shares subject to such award will become fully exercisable, if applicable, unless specifically provided otherwise under the applicable award agreement or other written agreement with the director.
DIRECTOR COMPENSATION
Our outside director compensation policy provides that until at least the date of the annual meeting held in 2025, neither the cash retainers nor the value of equity compensation payable under our outside director compensation policy will be raised to a level that is in excess of the 75th percentile of the cash retainers or value of equity award compensation, respectively, paid by the then-applicable peer group, as approved by the compensation committee of our board of directors, to their non-employee directors. Notwithstanding the foregoing, newly elected or appointed outside directors may receive total cash and equity compensation in connection with their initial appointment or election to the Board having an aggregate value of up to two times the total of (x) the aggregate amount of annual cash retainers that could be provided to any incumbent outside director under the terms of the then effective outside director compensation policy, and (y) the value of annual awards that could be provided to any incumbent outside director under the terms of the then-effective outside director compensation policy. Further, the policy provides that Company will determine its peer group annually based on such factors as the compensation committee or the Board deems relevant after discussion with the compensation committee’s consultant, and will consider for inclusion in the peer group, among other companies, companies which are operating in the same industries as the Company (by reference to Global Industry Classification Standard code or similar reasonable identifiers, which may change from time to time), and similar in size to the Company based on market capitalization (or, during volatile market conditions, revenue, if so determined by the compensation committee or the Board, as applicable).
2023 Director Compensation
2023 Director Compensation The following table sets forth information regarding compensation earned by or paid to our non-employee directors during 2023:
2023 Director Compensation
| Name | Fees Earned or Paid in Cash | Stock Awards(1) | Option Awards(2) | Total | | Vicki Sato, Ph.D. | $85,000 | $130,359 | $244,075 | $459,434 | | Douglas Cole, M.D.(3) | $36,247 | $130,359 | $244,075 | $410,681 | | Jennifer Cook | $55,000 | $130,359 | $244,075 | $429,434 | | Jay Flatley | $70,000 | $130,359 | $244,075 | $444,434 | | Erik Harris | $55,000 | $130,359 | $244,075 | $429,434 | | Peter Klein | $65,000 | $130,359 | $244,075 | $439,434 | | Steve E. Krognes | $45,000 | $130,359 | $244,075 | $419,434 | | David Schenkein, M.D. | $65,000 | $130,359 | $244,075 | $439,434 | | Marc Tessier-Lavigne, Ph.D. | $57,500 | $130,359 | $244,075 | $431,934 | | Nancy A. Thornberry | $60,000 | $130,359 | $244,075 | $434,434 |
2023 Director Compensation
(1)The amounts included in this column reflect the aggregate grant date fair value of RSUs granted during 2023 based on the closing market price of the Company’s common stock on the date of grant. (2)This column reflects the aggregate grant date fair value of stock options granted during 2023 computed in accordance with the provisions of Accounting Standards Codification (ASC) 718, Compensation—Stock Compensation. The assumptions that we used to calculate these amounts are discussed in Note 9 to our audited consolidated financial statements for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023. These amounts do not reflect the actual economic value that will be realized by the director upon the vesting of the stock options, the exercise of the stock options, or the sale of the common stock underlying such stock options. (3)Dr. Cole served on our board of directors until August 7, 2023, at which time his stock and option awards were canceled. For information about the compensation of directors who are also our employees, see “Executive Compensation.”
Director Outstanding Equity Awards as of 2023 Fiscal Year End
Director Outstanding Equity Awards as of 2023 Fiscal Year End The following table sets forth information regarding the equity awards that were outstanding as of December 31, 2023 for each of the non-employee directors serving during 2023:
Director Outstanding Equity Awards as of 2023 Fiscal Year End
| | Option Awards | Stock Awards | | Name | Number of Securities Underlying Unexercised Options | Number of Shares of Stock That Have Not Vested | | Vicki Sato, Ph.D. | 191,753 | 4,216 | | Douglas Cole, M.D.(1) | — | — | | Jennifer Cook | 129,302 | 4,216 | | Jay Flatley | 154,253 | 4,216 | | Erik Harris | 33,256 | 9,368 | | Peter Klein | 117,212 | 4,216 | | Steve E. Krognes | 238,649 | 31,502 | | David Schenkein, M.D. | 154,253 | 4,216 | | Marc Tessier-Lavigne, Ph.D. | 59,875 | 4,216 | | Nancy A. Thornberry | 38,143 | 5,472 |
Director Outstanding Equity Awards as of 2023 Fiscal Year End
(1)Dr. Cole served on our board of directors until August 7, 2023, at which time his stock and option awards were canceled.