9. Stock-Based Compensation

Equity Incentive Plans

2020 Stock Incentive Plan

Under the 2020 Stock Incentive Plan (as amended, the “2020 Plan”), the Company was authorized to issue shares of common stock to the Company’s employees, officers, directors, consultants and advisors in the form of options, restricted stock awards or other stock-based awards.

2021 Stock Incentive Plan

In September 2021, the Company’s board of directors and stockholders adopted the 2021 Stock Incentive Plan (the “2021 Plan”), which became effective immediately prior to the Company’s initial public offering of common stock (“IPO”) in October 2021. Upon effectiveness of the 2021 Plan, the Company ceased granting awards under the 2020 Plan. The 2021 Plan provides for the grant of

incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. The Company initially reserved 6,579,016 shares of common stock under the 2021 Plan. The 2021 Plan provides that the number of shares reserved and available for issuance under the 2021 Plan will be cumulatively increased on January 1 of each calendar year by 5% of the number of shares of common stock outstanding on such date or such lesser amount determined by the Company’s board of directors. On January 1, 2025, the number of shares reserved for issuance under the 2021 Plan automatically increased by 2,293,405 shares. As of September 30, 2025, there were 1,907,013 shares of common stock available for future issuance under the 2021 Plan.

2022 Inducement Plan

In 2022, the Company’s board of directors adopted the 2022 Inducement Stock Incentive Plan pursuant to Nasdaq Rule 5635(c)(4) (the “2022 Inducement Plan”). In accordance with Rule 5635(c)(4), stock-based incentive awards under the 2022 Inducement Plan may only be made to a newly hired employee who has not previously been a member of the Company’s board of directors, or an employee who is being rehired following a bona fide period of non-employment by the Company as a material inducement to the employee’s entering into employment with the Company. The Company initially reserved 275,000 shares of the Company’s common stock for issuance under the 2022 Inducement Plan. In November 2024, the number of shares reserved for issuance under the 2022 Inducement Plan increased by 500,000 shares. In March 2025, the number of shares reserved for issuance under the 2022 Inducement Plan increased by an additional 500,000 shares. As of September 30, 2025, there were 238,300 shares of common stock available for future issuance under the 2022 Inducement Plan.

2021 Employee Stock Purchase Plan

In 2021, the Company’s board of directors and stockholders adopted the 2021 Employee Stock Purchase Plan (the “2021 ESPP”), which became effective immediately prior to the IPO in October 2021. The Company initially reserved 292,031 shares of common stock for issuance under the 2021 ESPP. The 2021 ESPP provides that the number of shares of common stock reserved for issuance under the 2021 ESPP will be cumulatively increased on January 1 of each calendar year by 1% of the number of shares of the Company’s common stock outstanding on such date or such lesser amount determined by the Company’s board of directors (up to a maximum increase of 584,062 shares of common stock per year). On January 1, 2025, the number of shares reserved for issuance under the 2021 ESPP was increased by 458,681 shares. During the nine months ended September 30, 2025 and 2024, the Company issued 45,505 shares of common stock and 38,998 shares of common stock under the 2021 ESPP, respectively. As of September 30, 2025, there were 1,314,384 shares available for future issuance under the 2021 ESPP.

Stock-Based Compensation Expense

During the three and nine months ended September 30, 2025 and 2024, the Company recorded compensation expense related to stock options, restricted stock units and restricted common stock for employees and non-employees and share purchases under the 2021 ESPP for employees, which was allocated as follows in the condensed consolidated statements of operations and comprehensive loss:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2025		2024		2025		2024
Research and development expense	$	319	$	384	$	1,054	$	1,275
General and administrative expense		804		1,190		2,955		3,643
Total stock-based compensation expense	$	1,123	$	1,574	$	4,009	$	4,918

Stock Options

A summary of stock option activity under the Company’s 2020 Plan, 2021 Plan and 2022 Inducement Plan is as follows:


						Weighted
						Average
						Remaining		Aggregate
				Weighted		Contractual		Intrinsic
	Number of			Average		Term		Value (1)
	Stock Options			Exercise Price		(In years)		(In thousands)
Outstanding as of December 31, 2024		8,333,932		$	4.15		8.0	$	282
Granted		3,882,830		$	0.90
Exercised		(17,534	)	$	0.58
Forfeited		(686,036	)	$	3.70
Outstanding as of September 30, 2025		11,513,192		$	3.09		7.9	$	263
Exercisable as of September 30, 2025		6,453,329		$	4.55		7.0	$	68

(1)

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock as of the end of the period.

Using the Black-Scholes option pricing model, the weighted average fair value of options granted to employees and directors during the nine months ended September 30, 2025 and 2024 was $0.71 per share and $0.68 per share, respectively. The following assumptions were used in determining the fair value of options granted during the nine months ended September 30, 2025 and 2024:


	Nine Months Ended September 30,
	2025			2024
Risk-free interest rate	3.9 - 4.4		%		3.7 - 4.6		%
Expected dividend yield		0	%			0	%
Expected term (in years)	5.5 - 6.1				5.5 - 6.1
Expected volatility	94.5 - 100.8		%		87.7 - 91.4		%

As of September 30, 2025, the Company had unrecognized stock-based compensation expense of $4.1 million related to stock options issued to employees and directors, which is expected to be recognized over a weighted-average period of 2.8 years.

Restricted Stock Units

In January 2024, the Company awarded 481,500 restricted stock units to certain employees of the Company. The restricted stock units vest in four equal annual installments beginning on the first anniversary of the grant date. The restricted stock units are generally forfeited if the individual’s service relationship with the Company or any subsidiary terminates prior to vesting.

A summary of the Company’s restricted stock unit activity and related information is as follows:


	Number			Weighted
	of Shares			Average
	of Restricted			Grant Date
	Stock Units			Fair Value
Unvested as of December 31, 2024		445,500		$	0.55
Granted		—		$	—
Vested		(111,375	)	$	0.55
Forfeited		—		$	—
Unvested as of September 30, 2025		334,125		$	0.55

For each of the nine months ended September 30, 2025 and 2024, the Company recognized less than $0.1 million of stock-based compensation expense related to these awards. As of September 30, 2025, the Company had unrecognized stock-based compensation expense of $0.2 million related to these restricted stock units, which is expected to be recognized over 2.3 years.

Xilio Therapeutics, Inc. 10-Q