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Share Based Compensation
12 Months Ended
Dec. 31, 2023
Share-Based Payment Arrangement [Abstract]  
Share Based Compensation

17. Share-based compensation

The Company currently grants equity awards under the Mereo 2019 Equity Incentive Plan (the "2019 EIP") and the 2019 Non-Employee Equity Incentive Plan (the “2019 NED EIP”). There are also still outstanding awards under two previous plans, the 2015 Plan and the Mereo Share Option Plan (together the "Previous Share Option Plans"), however no awards have been granted under these plans since 2016 and no further grants are envisaged.

The 2019 EIP and 2019 NED EIP were adopted on April 4, 2019, and subsequently amended on February 3, 2020 and January 15, 2021. The 2019 EIP and 2019 NED EIP authorizes the grant of a variety of types of share awards over the Company’s ADSs to executives and employees, and non-executives, respectively. The total number of ADSs available for issue under the 2019 EIP and 2019 NED EIP was 4.7 million as of December 31, 2023.

The charge for share based compensation arises solely in respect of awards made under these two active plans as follows:

 

 

Year ended December 31,

 

 

2023

 

 

2022

 

 

($'000)

 

 

($'000)

 

2019 EIP

 

 

4,064

 

 

 

3,888

 

2019 NED EIP

 

 

860

 

 

 

880

 

Total

 

 

4,924

 

 

 

4,768

 

 

As of December 31, 2023, the total unrecognized compensation cost related to outstanding share awards was $2.9 million, which the Company expects to recognize over a weighted-average period of 1.6 years.

The majority of awards that were exercised in 2023 and 2022 were net share settled such that the Company withheld shares with a value equivalent to the exercise price and the employees’ obligation for the applicable income and other employment taxes and remitted the cash to the appropriate taxing authorities. The remaining shares delivered upon exercise by employees were satisfied by delivering shares from the Employee Benefit Trust. Shares delivered in settlement of deferred RSUs to non-executive directors following separation of service were satisfied by issuing new shares.

2019 EIP

The Company has awarded the following instruments under the 2019 EIP:

Market Value Options (“Options”)

Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs on the date of grant. Options issued under the EIP have a contractual term of 10 years and vest over four years, with one-fourth of the award vesting on the first anniversary of the grant date and the remainder vesting in equal monthly installments over the three-year period thereafter. No performance conditions apply to such Options.

A summary of the Company’s Option activity and related information under the 2019 EIP for 2023 and 2022 is as follows; all outstanding Options are expected to vest:

 

 

Number of
options
(ADSs)

 

 

Weighted
Average
Exercise
Price ($)

 

 

Weighted
Average
Grant
Date Fair
Value ($)

 

 

Aggregate intrinsic
value
($'000)

 

At January 1, 2022

 

 

3,943,702

 

 

 

2.88

 

 

 

2.40

 

 

 

 

Granted

 

 

4,126,400

 

 

 

1.38

 

 

 

3.09

 

 

 

 

Forfeited

 

 

(48,044

)

 

 

3.97

 

 

 

3.09

 

 

 

 

Expired

 

 

(1,164,197

)

 

 

1.83

 

 

 

1.58

 

 

 

 

At December 31, 2022

 

 

6,857,861

 

 

 

2.15

 

 

 

1.83

 

 

 

1

 

Granted

 

 

4,874,300

 

 

 

1.03

 

 

 

0.92

 

 

 

 

Forfeited

 

 

(1,324,809

)

 

 

1.42

 

 

 

1.27

 

 

 

 

Expired

 

 

(751,672

)

 

 

2.82

 

 

 

2.35

 

 

 

 

Exercised

 

 

(60,519

)

 

 

1.57

 

 

 

1.29

 

 

 

45

 

At December 31, 2023

 

 

9,595,161

 

 

 

1.63

 

 

 

1.41

 

 

 

8,122

 

Vested

 

 

3,425,209

 

 

 

2.27

 

 

 

1.91

 

 

 

1,463

 

Nonvested

 

 

6,169,952

 

 

 

1.27

 

 

 

1.13

 

 

 

6,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2022, 4,775,834 Options with a weighted average grant date fair value of $1.57 were nonvested. The weighted average per share fair value of options vesting during the year ended December 31, 2023 was $1.55 (2022: $2.45).

At December 31, 2023, the weighted average contractual life of Options outstanding was 8.1 years (2022: 7.9 years) and for vested Options was 7.1 years (2022: 6.2 years).

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s ADSs for the Options that were in-the-money at December 31, 2023.

The fair value of each Option is estimated on the date of grant using the Black-Scholes option pricing model based on the following weighted average assumptions:

 

 

2023

 

 

2022

 

Market value of ADSs ($)

 

 

1.03

 

 

 

1.38

 

Risk-free interest rate (%)

 

 

3.48

%

 

 

1.83

%

Expected life (years)

 

 

10.00

 

 

 

10.00

 

Expected volatility (%)

 

 

98.24

%

 

 

96.00

%

Expected dividends

 

 

 

 

 

 

 

 

The expected volatility assumption is calculated by reference to the historical volatility of an appropriate peer group of companies for a period equal to the expected term of the Option. The grant date fair value is recognized over the requisite service period using the accelerated graded-vesting attribution method.

Restricted Stock Units (“RSUs”)

RSUs were first awarded in 2023 and each RSU entitles the holder a conditional right to receive an ADS at no cost upon the completion of the applicable vesting period. RSUs granted under the EIP vest over three years with one-third of the awards vesting on the first anniversary of the grant date and the remainder vesting in four equal six-monthly installments thereafter. Upon vesting of the RSUs, the Company issues the requisite ADSs, a portion of which are sold to satisfy the resulting withholding tax obligations, and the remaining ADSs are delivered to the holder. RSUs have a maximum contractual life of 3.0 years.

A summary of the Company’s RSU activity and related information under the 2019 EIP for 2023 is as follows. As at December 31, 2023 no RSUs were vested but all outstanding RSUs are expected to vest:

 

 

Number of
RSUs
(ADSs)

 

 

Weighted
Average
Grant
Date Fair
Value ($)

 

 

Aggregate intrinsic
value
($'000)

 

At December 31, 2022

 

 

 

 

 

 

 

 

 

Granted

 

 

679,225

 

 

 

1.03

 

 

 

 

Forfeited

 

 

(190,000

)

 

 

1.01

 

 

 

 

At December 31, 2023

 

 

489,225

 

 

 

1.03

 

 

 

1,130

 

 

At December 31, 2023, the weighted average remaining period of RSUs outstanding was 2.1 years.

The aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs at December 31, 2023. The fair value of each RSU was calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

Performance Based Restricted Stock Units (PSUs)

PSUs were first awarded in 2023 and each PSU entitles the holder a conditional right to receive an ADS at no cost upon satisfaction of four escalating ADS price performance targets over a two year performance period following the date of grant. A summary of the Company’s PSU activity and related information under the 2019 EIP for 2023 is as follows. At December 31, 2023 no PSUs were vested.

 

 

Number of
PSUs
(ADSs)

 

 

Weighted
Average
Grant
Date Fair
Value ($)

 

 

Aggregate intrinsic
value
($'000)

 

At December 31, 2022

 

 

 

 

 

 

 

 

 

Granted

 

 

1,543,150

 

 

 

0.61

 

 

 

 

Forfeited

 

 

(205,000

)

 

 

0.61

 

 

 

 

At December 31, 2023

 

 

1,338,150

 

 

 

0.61

 

 

 

3,091

 

 

At December 31, 2023, the weighted average contractual life of PSUs outstanding was 1.1 years. These awards were valued using a Monte Carlo model with the following key inputs:

 

 

2023

 

Market value of ADSs ($)

 

 

1.01

 

Risk-free interest rate (%)

 

 

4.14

%

Expected life (years)

 

 

1.03

 

Expected volatility (%)

 

 

105.56

%

Expected dividends

 

 

 

 

The grant date fair value is recognized over the expected life using the straight-line attribution method.

2019 NED EIP

The Company has awarded the following instruments under the 2019 NED EIP:

Options

Options permit the recipient to purchase ADSs at an exercise price equal to the market price of the underlying ADSs on the date of grant. Options issued under the 2019 NED EIP have a contractual term of 10 years and vest in equal monthly installments over one year. There are no performance conditions. A summary of the Company’s Option activity and related information under the 2019 NED EIP for 2023 and 2022 is as follows; all outstanding Options are expected to vest:

 

 

Number of
options
(ADSs)

 

 

Weighted
Average
Exercise
Price ($)

 

 

Weighted
Average
Grant
Date Fair
Value ($)

 

 

Aggregate intrinsic value ($'000)

 

At December 31, 2021

 

 

421,791

 

 

 

2.90

 

 

 

2.44

 

 

 

 

Granted

 

 

535,488

 

 

 

1.22

 

 

 

1.08

 

 

 

 

Forfeited

 

 

(42,192

)

 

 

1.01

 

 

 

0.89

 

 

 

 

At December 31, 2022

 

 

915,087

 

 

 

2.00

 

 

 

1.71

 

 

 

6

 

Granted

 

 

440,000

 

 

 

0.94

 

 

 

0.84

 

 

 

 

At December 31, 2023

 

 

1,355,087

 

 

 

1.66

 

 

 

1.43

 

 

 

1,166

 

Vested

 

 

1,281,751

 

 

 

1.70

 

 

 

1.46

 

 

 

1,066

 

Nonvested

 

 

73,336

 

 

 

0.94

 

 

 

0.84

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2022, 82,503 Options with a weighted average grant date fair value of $1.01 were nonvested. The weighted average per share fair value of options vesting during the year ended December 31, 2023 was $1.38 (2022: $1.78).

At December 31, 2023, the weighted average contractual life of Options outstanding was 8.0 years (2022: 8.5 years) and for vested Options was 7.9 years (2022: 8.4 years).

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted market price of the Company’s shares for the Options that were in-the-money at December 31, 2023.

The fair value of each Option is estimated on the date of grant using the Black-Scholes option pricing model based on the following weighted average assumptions:

 

 

2023

 

 

2022

 

Market value of ADSs ($)

 

 

0.94

 

 

 

1.22

 

Risk-free interest rate (%)

 

 

3.36

%

 

 

1.96

%

Expected life (years)

 

 

10.00

 

 

 

10.00

 

Expected volatility (%)

 

 

97.94

%

 

 

96.00

%

Expected dividends

 

 

 

 

 

 

 

The expected volatility assumption is calculated by reference to the historical volatility of an appropriate peer group of companies for a period equal to the expected term of the Option. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

Deferred Restricted Stock Units (“DRSUs”)

Non-executive directors may voluntarily elect to convert their annual cash fees for services on the board of directors and DRSUs were granted to NEDs who made such elections. The number of DRSUs granted is determined by dividing the amount of the annual cash compensation by the average closing trading price of the Company's ADSs over the most recent 30 trading days as of the date of grant. Each DRSU entitles the holder to receive an ADS at no cost upon the completion of the vesting period. DRSUs granted under the 2019 NED EIP vest in substantially equal monthly installments over the plan year. Payment of DRSUs in ADSs will generally be 180 days following separation of service but have no specified contractual term.

A summary of the Company’s DRSU activity and related information under the 2019 NED EIP for 2023 and 2022 is as follows. At December 31, 2023 all DRSUs are expected to vest:

 

 

Number of
DRSUs
(ADSs)

 

 

Weighted
Average
Grant
Date Fair
Value ($)

 

 

Aggregate intrinsic value ($'000)

 

At January 1, 2022

 

 

 

 

 

 

 

 

 

Granted

 

 

348,044

 

 

 

1.11

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

At December 31, 2022

 

 

348,044

 

 

 

1.11

 

 

 

261

 

Granted

 

 

482,214

 

 

 

0.94

 

 

 

 

Issued

 

 

(100,276

)

 

 

1.02

 

 

 

 

At December 31, 2023

 

 

729,982

 

 

 

1.01

 

 

 

1,686

 

Vested

 

 

689,837

 

 

 

1.02

 

 

 

1,594

 

Non vested

 

 

40,145

 

 

 

0.94

 

 

 

93

 

 

The aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs at December 31, 2023. The fair value of each DRSU was calculated by reference to the value of the shares awarded. The grant date fair value is recognized over the vesting period using the accelerated graded-vesting attribution method.

Previous Share Option Plans

Mereo previously granted options to employees under two separate plans, the Mereo BioPharma Group Limited Share Option Plan (the “2015 Plan”) and the Mereo Share Option Plan (the “Share Option Plan”). No awards have been granted under either of these plans since 2017 and following the introduction of the 2019 EIP and the 2019 NED EIP, no further awards are envisaged.

All awards made under these plans became fully vested, with all compensation cost fully recognized, before December 31, 2021. A summary of the awards still outstanding under these plans is as follows:

 

 

Number of
options
(ADSs)

 

 

Weighted
Average
Exercise
Price ($)

 

 

Weighted
Average
Grant
Date Fair
Value ($)

 

 

Aggregate intrinsic value ($'000)

 

At December 31, 2021

 

 

1,924,331

 

 

 

10.45

 

 

 

9.39

 

 

 

 

Expired

 

 

(240,776

)

 

 

16.31

 

 

 

11.04

 

 

 

 

At December 31, 2022

 

 

1,683,555

 

 

 

9.63

 

 

 

9.15

 

 

 

 

Expired

 

 

(111,197

)

 

 

15.94

 

 

 

8.11

 

 

 

 

At December, 31, 2023

 

 

1,572,358

 

 

 

9.22

 

 

 

8.19

 

 

 

 

 

At December 31, 2023, the weighted average contractual life of options outstanding and vested was 1.8 years (2022: 2.4 years).