Equity Incentive Plans, Equity Inducement Plans, Employee Stock Purchase Plan and Stock-Based Compensation

12 Months Ended

Dec. 31, 2025

Share-Based Payment Arrangement [Abstract]

Equity Incentive Plans, Equity Inducement Plans, Employee Stock Purchase Plan and Stock-Based Compensation

13. Equity Incentive Plans, Equity Inducement Plans, Employee Stock Purchase Plan and Stock-Based Compensation

2018 Equity Incentive Plan, 2021 Equity Inducement Plan, and Amended and Restated 2021 Equity Inducement Plan

In September 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”), which became effective on September 25, 2018. The Company initially reserved 230,000 shares of common stock for issuance under the 2018 Plan. In addition, the number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2019, in an amount equal to 5% of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year (rounded to the nearest whole share), or a lesser number of shares determined by the Company’s board of directors. As a result, common stock reserved for issuance under the 2018 Plan was increased by 412,632 shares on January 1, 2025.

In August 2021, the Company adopted the 2021 Equity Inducement Plan (“2021 Plan”), which became effective on August 4, 2021. Upon its effective date, the Company initially reserved 75,000 shares of common stock for issuance pursuant to non-qualified stock options and restricted stock units (“RSUs”) under the 2021 Plan. In accordance with Rule 5635(c)(4) of the Nasdaq listing rules, equity awards under the 2021 Plan may only be made to an employee if he or she is granted such equity awards in connection with his or her commencement of employment with the Company and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. In addition, awards under the 2021 Plan may only be made to employees who have not previously been an employee or member of the Board (or any parent or subsidiary of the Company) or following a bona fide period of non-employment of the employee by the Company (or a parent or subsidiary of the Company). At all times the Company will reserve and keep available a sufficient number of shares as will be required to satisfy the requirements of all outstanding awards granted under the 2021 Plan.

In August 2022, the Company amended and restated the 2021 Plan (the “Amended and Restated 2021 Plan”) and reserved an additional 75,000 shares of common stock available for issuance under the Amended and Restated 2021 Plan to be granted by the Company to certain employees as a material inducement to their acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).

Additionally, in February 2023, the Company amended and restated the Amended and Restated 2021 Plan and reserved an additional 50,000 shares of common stock available for issuance under the Amended and Restated 2021 Plan to be granted by the Company to certain employees as a material inducement to their acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). Additionally, in May 2025, the Company amended and restated the Amended and Restated 2021 Plan and reserved an additional 225,000 shares of common stock available for issuance under the Amended and Restated 2021 Plan to be granted by the Company to certain employees. The total number of shares reserved for issuance pursuant to the Amended and Restated 2021 Plan is 425,000 shares.

As of December 31, 2025, the Company had 676,072 shares available for grant under the 2018 Plan and the 2021 Plan.

The following table summarizes option activity under the Company’s Equity Incentive Plans:


	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contract Term (Years)		Aggregate Intrinsic Value (in thousands)
Stock options outstanding at December 31, 2024		867,072		$	98.93		5.89	$	—
Granted		401,465			8.21
Exercised		(827	)		5.40
Canceled and forfeited		(349,901	)		109.43
Stock options outstanding at December 31, 2025		917,809		$	55.33		6.19	$	1,224
Stock options exercisable at December 31, 2025		544,368		$	84.37		4.08	$	263

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between our closing stock price on the last trading day of fiscal 2025 and the exercise prices, multiplied by the number of in-the-money stock options) that would have been received by the stock option holders had all stock option holders exercised their stock options on December 31, 2025. For the years ended December 31, 2025 and 2024, the aggregate intrinsic value of stock options exercised was immaterial, determined at the date of the option exercise.

Employee Stock Options Valuation

For determining stock-based compensation expense, the fair-value-based measurement of each employee stock option was estimated as of the date of grant using the Black-Scholes option pricing model with assumptions as follows:


	Year Ended December 31,
	2025		2024
Expected term (in years)	2.5-6.1		6.0-6.1
Expected volatility	84.5%-94.3%		86.4%-89.2%
Risk-free interest rate	3.5%-4.2%		3.5%-4.7%
Expected dividend		—		—

Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding. The Company used the “simplified” method to determine the expected term of options granted, which calculates the expected term as the average of the weighted-average vesting term and the contractual term of the option.

Expected Volatility—The expected volatility is determined by using a blended approach of the Company and its industry peers’ historical volatilities.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the options.

Expected Dividend—The Company has never paid dividends on its common stock. Therefore, the Company used an expected dividend of zero.

Using the Black-Scholes option-valuation model, the weighted-average estimated grant-date fair value of employee stock options granted during the years ended December 31, 2025 and 2024 was $6.08 and $30.73 per share, respectively.

Restricted Stock Units

Restricted stock units (“RSUs”) are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs generally vest over a four-year period provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.

A summary of the status and activity of non-vested RSUs for the year ended December 31, 2025 is as follows:


	Number of Shares			Weighted Average Grant-Date Fair Value
Non-vested December 31, 2024		595,691		$	60.54
Granted		359,725			5.70
Released		(252,107	)		72.17
Canceled		(285,537	)		36.67
Non-vested December 31, 2025		417,772		$	22.63

2018 Employee Stock Purchase Plan

In September 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“ESPP”), which became effective on September 26, 2018, in order to enable eligible employees to purchase shares of the Company’s common stock. The Company initially reserved 23,000 shares of common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP will automatically increase on the first day of January for a period of up to ten years, commencing on January 1, 2019, in an amount equal to 1% of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year (rounded to the nearest whole share), or a lesser number of shares determined by the Company’s board of directors. As a result, common stock reserved for issuance under the ESPP was increased by 75,000 shares on January 1, 2025. The aggregate number of shares issued over the term of the Company’s ESPP, subject to stock-splits, recapitalizations or similar events, may not exceed 305,000 shares of the Company’s common stock.

The fair value of the ESPP shares is estimated using the Black-Scholes option pricing model. For the years ended December 31, 2025 and 2024, the fair value of ESPP shares was estimated using the following assumptions:


	Year Ended December 31,
	2025		2024
Expected term (in years)	0.5		0.5
Expected volatility	104.8%-130.3%		88.4-93.7%
Risk-free interest rate	3.8%-4.3%		4.6%-5.5%
Expected dividend		—		—

During the years ended December 31, 2025 and 2024, 52,277 and 56,517 shares, respectively, had been purchased. As of December 31, 2025, 69,816 shares were available for future issuance under the ESPP.

Stock-Based Compensation Expense

The Company believes that the fair value of the stock options, RSUs and ESPP shares is more reliably measurable than the fair value of services received.

Total stock-based compensation expense recognized was as follows:


	Year Ended December 31,
	2025			2024
	(in thousands)
Research and development expense:
Stock options	$	981		$	1,898
Restricted stock units		4,406			9,813
ESPP		(35	)		792
Subtotal		5,352			12,503
General and administrative expense:
Stock options		2,636			5,494
Restricted stock units		3,071			6,517
ESPP		(8	)		173
Subtotal		5,699			12,184
Restructuring and related costs		2,957			—
Total	$	14,008		$	24,687

As of December 31, 2025, unrecognized stock-based compensation expense related to the unvested stock options and RSUs granted was $3.3 million and $6.3 million, respectively. The remaining unrecognized compensation cost related to the unvested stock options and RSUs is expected to be recognized over a weighted-average period of 2.7 years and 2.1 years, respectively. As of December 31, 2025, there was $26,000 of unrecognized stock-based compensation expense related to the ESPP.

SUTRO BIOPHARMA, INC. 10-K