Werewolf Therapeutics, Inc.HOWL
Werewolf Therapeutics, Inc. Stock Compensation Disclosure
9. Stock-based Compensation
2017 Stock Incentive Plan
In December 2017, we adopted the 2017 Stock Incentive Plan (the “2017 Plan”), as amended and restated, under which it could grant incentive stock options (“ISOs”), non-qualified stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards to eligible employees, officers, directors and consultants. The terms of stock options and RSAs, including vesting requirements, are determined by our board of directors, subject to the provisions of the 2017 Plan.
2021 Stock Incentive Plan
In April 2021, our board of directors adopted and our stockholders approved the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective immediately prior to the effectiveness of our initial public offering (the “IPO”). As a result of the adoption of the 2021 Plan, no further awards will be made under the 2017 Plan.
The 2021 Plan provides for the grant of ISOs, non-qualified stock options, RSAs, RSUs, stock appreciation rights and other stock-based awards. Our employees, officers, directors, consultants and advisors are eligible to receive awards under the 2021 Plan. The terms of awards, including vesting requirements, are determined by our board of directors, subject to the provisions of the 2021 Plan.
We initially registered 3,352,725 shares of common stock under the 2021 Plan, pursuant to a Registration Statement on Form S-8 filed with the SEC on April 30, 2021, which was comprised of (i) 2,843,116 shares of common stock reserved for issuance under the 2021 Plan, (ii) 31,884 shares of common stock originally reserved for issuance under the 2017 Plan that became available for issuance under the 2021 Plan upon the completion of the IPO, and (iii) 477,725 shares of unvested restricted stock subject to repurchase by us that may become issuable under the 2021 Stock Incentive Plan following such repurchase. The 2021 Plan also provides that an additional number of shares will be added annually to the shares authorized for issuance under the 2021 Plan on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2022 and continuing until, and including, the fiscal year ended December 31, 2031. The number of shares added each year will be equal to the lesser of (i) 5% of the number of outstanding common stock on such date and (ii) such amount as determined by the board of directors. As of December 31, 2024, a total of 4,911,502 additional shares have been added to the total shares authorized for issuance under the 2021 Plan in accordance with these terms.
As of December 31, 2024, there were 1,919,921 shares available for future issuance under the 2021 Plan. Effective January 1, 2025, 2,241,357 additional shares were added to the shares authorized for future issuance under the 2021 Plan pursuant to the terms of the annual increase described above.
2021 Employee Stock Purchase Plan
The 2021 ESPP permits eligible employees to purchase shares of our common stock at a discount and consists of consecutive six-month offering periods, each containing a single six-month purchase period. On the first day of each offering period, each employee who is enrolled in the 2021 ESPP will automatically receive an option to purchase up to a whole number of shares of our common stock. The purchase price of each of the shares purchased, in a given purchase period, will be equal to 85% of the lesser of the closing price of a share of our common stock on (i) the first day of the offering period, or (ii) the last day of the offering period. During the year ended December 31, 2024, 73,849 shares of our common stock were purchased by participants of the 2021 ESPP for total proceeds of $0.1 million. During the year ended December 31, 2023, 52,037 shares of our common stock were purchased by participants of the 2021 ESPP for total proceeds of $0.1 million.
Stock-Based Compensation Expense
Total stock-based compensation expense recognized in the consolidated statements of operations was as follows:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (in thousands) | |||||||||||
Research and development | $ | 4,606 | $ | 4,003 | |||||||
General and administrative | 4,220 | 4,005 | |||||||||
Total stock-based compensation | $ | 8,826 | $ | 8,008 | |||||||
RSA Activity
We may, at our discretion, repurchase unvested shares of restricted stock issued pursuant to the 2017 Plan at the initial purchase price if the employees or non-employees terminate their service relationship with us. The shares are recorded in stockholders’ deficit as they vest.
As of December 31, 2023, all RSAs granted to employees or non-employees had become fully vested or had been previously forfeited. No RSAs were granted during the year ended December 31, 2024. Accordingly, we had no unrecognized stock-based compensation expense related to unvested RSAs as of December 31, 2024.
The aggregate fair value of RSAs that vested during the year ended December 31, 2023, based upon the fair value of the stock underlying the RSAs on the day of vesting, was $0.2 million.
RSU Activity
We have granted RSUs to our employees under the 2021 Plan. The following table summarizes RSU activity during the year ended December 31, 2024:
| Shares/Units | Weighted-Average Grant Date Fair Value Per Share | ||||||||||
| Unvested at December 31, 2023 | 361,500 | $ | 3.92 | ||||||||
Granted | — | $ | — | ||||||||
Vested | (356,500) | $ | 3.95 | ||||||||
Forfeited | (5,000) | $ | 2.45 | ||||||||
| Unvested at December 31, 2024 | — | $ | — | ||||||||
As of December 31, 2024, there were no unvested RSUs. Accordingly, we had no unrecognized stock-based compensation expense related to unvested RSUs as of December 31, 2024.
The aggregate fair value of RSUs that vested during the year ended December 31, 2024, based upon the fair value of the stock underlying the RSUs on the day of vesting was $1.0 million. The aggregate fair value of RSUs that vested during the year ended December 31, 2023, based upon the fair value of the stock underlying the RSUs on the day of vesting was $0.2 million.
Stock Option Activity
During the year ended December 31, 2022, we granted performance-based stock options to certain executive officers for the purchase of an aggregate of 883,352 shares of common stock with a grant date fair value of $3.36 per share. These stock options would have vested only upon achievement of specified performance targets related to certain business objectives prior to December 31, 2023. These performance targets were not achieved, and accordingly these awards expired without vesting on December 31, 2023. No stock-based compensation expense was recognized during the year ended December 31, 2023 based on our assessment about the probability that the performance targets would be achieved prior to expiration.
The fair value of stock options granted during the years ended December 31, 2024 and 2023 was calculated on the date of grant using the following weighted-average assumptions:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Risk-free interest rate | 4.0 | % | 3.9 | % | |||||||
Expected term (in years) | 6.0 | 6.0 | |||||||||
Expected annual dividend yield | — | % | — | % | |||||||
Expected volatility | 92.7 | % | 82.7 | % | |||||||
The valuation assumptions were determined as follows:
•Risk-free interest rate: The yield on zero-coupon U.S. Treasury securities for a period that was commensurate with the expected term of the awards.
•Expected term (in years): The expected term of the awards represents the period of time that the awards were expected to be outstanding. We use the simplified method to estimate the expected term due to a lack of sufficient historical exercise data to provide a reasonable basis on which to estimate the expected term. Under this method, the expected term equals the average of the vesting term and the original contractual term of the option.
•Expected annual dividend yield: The estimated dividend yield was zero because we have no history of paying dividends, and do not intend to do so in the foreseeable future.
•Expected volatility: The expected term of stock options granted by us is generally longer than the trading history of our common stock since the IPO on April 30, 2021. Accordingly, we estimated the expected volatility based on the historical volatility of a group of publicly-traded companies with similar characteristics to us, including stage of product development and therapeutic focus within the life sciences industry. The historical volatility of these companies was calculated over a period of time commensurate with the expected term of the stock option.
Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted during the years ended December 31, 2024 and 2023 was $3.43 and $1.56 per share, respectively.
The following table summarizes stock option activity during the year ended December 31, 2024:
| Options Outstanding | |||||||||||||||||||||||
| Number of Options | Weighted-Average Exercise Price per Share | Weighted-Average Remaining Contractual Life (in years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
| Outstanding at December 31, 2023 | 5,700,070 | $ | 6.89 | ||||||||||||||||||||
Granted | 2,381,112 | $ | 4.44 | ||||||||||||||||||||
Exercised | (17,224) | $ | 2.05 | ||||||||||||||||||||
Cancelled | (429,021) | $ | 4.98 | ||||||||||||||||||||
| Outstanding, December 31, 2024 | 7,634,937 | $ | 6.24 | 7.44 | $ | — | |||||||||||||||||
| Exercisable at December 31, 2024 | 4,866,277 | $ | 7.13 | 6.79 | $ | — | |||||||||||||||||
The aggregate intrinsic fair value of stock options exercised during the years ended December 31, 2024 and 2023 were nominal for each year.
As of December 31, 2024, there was unrecognized stock-based compensation expense related to unvested stock options of $8.9 million, which we expect to recognize over a weighted-average period of approximately 2.2 years.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.