Prime Medicine, Inc.PRME
Prime Medicine, Inc. Stock Compensation Disclosure
Stock-Based Compensation
2019 Equity Incentive Plan
The Company’s 2019 Stock Option and Grant Plan (the “2019 Plan”) provides for the Company to grant incentive stock options, non-qualified stock options, unrestricted stock awards, restricted stock awards and other stock-based awards to the officers, employees, consultants and other key persons of the Company. The 2019 Plan is administered by the board of directors, or at the discretion of the board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or its committee if so delegated.
In October 2022, the Company completed its IPO, and in connection with the closing, the board of directors determined that no further awards would be granted under the 2019 Plan.
2022 Stock Option and Incentive Plan
In February 2022, the Company’s board of directors adopted, and in October 2022 its stockholders approved, the 2022 Plan, which became effective immediately preceding the date on which the registration statement for the Company’s IPO was declared effective by the SEC. The 2022 Plan allows the Company to make equity-based and cash-based incentive awards to its officers, employees, directors, and consultants. The 2022 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted common stock
awards, restricted stock units and other stock-based awards. Stock options awarded under the 2022 Plan expire 10 years after the grant date and typically vest over four years.
The shares of common stock underlying any awards under the 2022 Plan and the 2019 Plan that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of stock, expire, or are otherwise terminated (other than by exercise) will be added back to the shares of common stock available for issuance under the 2022 Plan. The number of shares reserved and available for issuance under the 2022 Plan will increase on January 1 of each year, by five percent of the outstanding number of shares of common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Compensation Committee. On January 1, 2025, the annual increase for the 2022 Plan resulted in an additional 6,558,042 shares authorized for issuance being added to the 2022 Plan.
As of December 31, 2024, the Company had 21,522,110 shares reserved under the 2022 Plan and the 2019 Plan, and 9,049,689 shares available for issuance under the 2022 Plan.
2022 Employee Stock Purchase Plan
In February 2022, the Company’s board of directors adopted, and in October 2022 its stockholders approved, the 2022 Employee Stock Purchase Plan (the “2022 ESPP”).
The 2022 ESPP provides for an annual increase on January 1 each year through January 1, 2032, by the least of (i) 971,350 shares of common stock, (ii) one percent of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such number of shares of common stock as determined by the administrator of the 2022 ESPP. There was no annual increase for the 2022 ESPP on January 1, 2025. As of December 31, 2024, the Company had 1,753,191 shares available for issuance under the 2022 ESPP.
Under the 2022 ESPP, the Company issued 189,509 shares of the Company’s common stock during the year ended December 31, 2024. No shares of the Company’s common stock were issued during the year ended December 31, 2023 under the 2022 ESPP.
Stock Option Valuation
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options granted:
| Year ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Risk-free interest rate | 4.2 | % | 3.7 | % | ||||||||||
| Expected term (in years) | 5.8 | 6.0 | ||||||||||||
| Expected volatility | 78.4 | % | 80.0 | % | ||||||||||
| Expected dividend yield | — | % | — | % | ||||||||||
Time-Based Stock Options
The following table summarizes the Company’s time-based stock option activity for the year ended December 31, 2024:
| Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||||||||||||
| Outstanding at December 31, 2023 | 7,641,863 | $ | 9.79 | 8.68 | $ | 12,014 | ||||||||||||||||||||
| Granted | 4,476,710 | 7.99 | ||||||||||||||||||||||||
| Exercised | (28,048) | 3.69 | ||||||||||||||||||||||||
| Forfeited | (679,834) | 10.16 | ||||||||||||||||||||||||
| Outstanding at December 31, 2024 | 11,410,691 | $ | 9.08 | 8.10 | $ | — | ||||||||||||||||||||
| Vested and exercisable at December 31, 2024 | 4,888,933 | $ | 8.72 | 7.34 | $ | — | ||||||||||||||||||||
| Vested and expected to vest at December 31, 2024 | 11,410,691 | $ | 9.08 | 8.10 | $ | — | ||||||||||||||||||||
Other information related to the time-based stock option activity of the Company was as follows:
| Year ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Weighted-average fair value of options granted | $ | 5.60 | $ | 8.96 | ||||||||||
| Intrinsic value of options exercised (in thousands) | $ | 70 | $ | 1,368 | ||||||||||
As of December 31, 2024 there was $39.3 million of total unrecognized compensation cost related to time-based unvested stock options, and the Company expects to recognize such amount over a remaining weighted-average period of 2.2 years.
Performance-Based Stock Options
The Company has granted stock options to certain employees to purchase shares of common stock that contain performance-based vesting criteria related to corporate milestones. The fair value of each option grant under the performance share option plan was estimated on the date of grant. Recognition of stock-based compensation expense associated with these performance-based stock options commences when the performance condition is considered probable of achievement, using management’s best estimates, which consider the inherent risk and uncertainty regarding the future outcomes of the milestones.
The following table summarizes the Company’s performance-based stock option activity for the year ended December 31, 2024:
| Number of Options | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||||||||||||
| Outstanding at December 31, 2023 | 411,730 | $ | 6.65 | 8.15 | $ | 1,362 | ||||||||||||||||||||
| Granted | 650,000 | 7.74 | ||||||||||||||||||||||||
| Exercised | — | — | ||||||||||||||||||||||||
| Forfeited | — | — | ||||||||||||||||||||||||
| Outstanding at December 31, 2024 | 1,061,730 | $ | 7.31 | 8.35 | $ | — | ||||||||||||||||||||
| Vested and exercisable at December 31, 2024 | 490,230 | $ | 6.81 | 7.87 | $ | — | ||||||||||||||||||||
Other information related to the performance-based stock option activity of the Company was as follows:
| Year ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Weighted-average fair value of options granted | $ | 5.27 | $ | — | ||||||||||
As of December 31, 2024 there was $3.0 million of total unrecognized compensation cost related to performance-based stock options.
Restricted Common Stock Awards
The Company awarded restricted common stock to employees and non-employees under its 2019 Plan and may continue to award restricted common stock to employees and non-employees under the 2022 Plan. The fair value of each share of restricted common stock is based on the market price of the Company's common stock on the date of grant. The vesting of these restricted stock awards are time-based or performance-based.
For a period of up to six months from a grantee’s termination, the Company has the right and option to repurchase unvested restricted common stock at the lower of (i) the original purchase price per share or (ii) the fair market value per share as of the date of the Company elects to exercise its repurchase right.
Time-Based Restricted Common Stocks Awards
Restricted common stock that have time-based vesting conditions vest over a four-year period, subject to the employee’s continued employment with, or service to, the Company on such vesting date. Compensation expense is recognized on a straight-line basis over the vesting period.
The following table summarizes the Company’s time-based restricted common stock award activity for the year ended December 31, 2024:
| Number of Shares | Weighted-Average Grant-Date Fair Value | |||||||||||||
| Unvested restricted common stock at December 31, 2023 | 903,227 | $ | 0.17 | |||||||||||
| Issued | — | — | ||||||||||||
| Vested | (873,873) | 0.16 | ||||||||||||
| Repurchased | (4,423) | 0.34 | ||||||||||||
| Unvested restricted common stock at December 31, 2024 | 24,931 | $ | 0.16 | |||||||||||
Performance-Based Restricted Common Stock Awards
Performance‑based restricted common stock awards vest upon the achievement of performance‑based milestones related to corporate milestones.
Stock-based compensation expense associated with the performance-based restricted common stock is recognized if the performance condition is considered probable of achievement using the Company’s best estimates of the time to vesting for the achievement of the performance‑based milestones. Each reporting period, the Company updates its assessment of the probability that the performance-based milestones will be achieved. The fair value of the restricted common stock was based on the fair market value of the Company’s common stock on the date of grant.
The following table summarizes the Company’s performance-based restricted common stock award activity for the year ended December 31, 2024:
| Number of Shares | Weighted-Average Grant-Date Fair Value | |||||||||||||
| Unvested restricted common stock at December 31, 2023 | 3,832,769 | $ | 0.07 | |||||||||||
| Issued | — | — | ||||||||||||
| Vested | (360,226) | 0.18 | ||||||||||||
| Repurchased | — | — | ||||||||||||
| Unvested restricted common stock at December 31, 2024 | 3,472,543 | $ | 0.06 | |||||||||||
Stock-Based Compensation
The following table below summarizes the classification of the Company’s stock-based compensation expense related to stock options and restricted common stock awards in the consolidated statements of operations and comprehensive loss:
| Year ended December 31, | ||||||||||||||
| (in thousands) | 2024 | 2023 | ||||||||||||
| Stock-based compensation expense: | ||||||||||||||
| Research and development | $ | 12,704 | $ | 7,950 | ||||||||||
| General and administrative | 13,364 | 5,960 | ||||||||||||
| Total stock-based compensation expense | $ | 26,068 | $ | 13,910 | ||||||||||
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.