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 envisioned.

The total number of ADSs available for issue under the 2019 EIP and 2019 NED EIP was 9.0 million as of June 30, 2024.

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


	Three Months Ended June 30,					Six Months Ended June 30,
		2024		2023		2024		2023
		($'000)		($'000)		($'000)		($'000)
2019 EIP			1,568		684		3,027		1,889
2019 NED EIP			520		259		1,111		687
Total			2,088		943		4,138		2,576

As of June 30, 2024, the total unrecognized compensation cost related to outstanding share awards was $7.3 million, which the Company expects to recognize over a weighted-average period of 1.7 years.

A summary of the Company’s Option activity and related information under the 2019 EIP for the six months ended June 30, 2024 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, 2023		9,595,161			1.63		1.41		8,133
Granted		2,477,404			3.35		2.60		—
Forfeited		(47,288	)		2.01		1.69		69
Exercised		(415,568	)		1.51		1.27		760
Expired		(5,000	)		3.32		2.93		—
At June 30, 2024		11,604,709			2.00		1.66		18,975
Vested		4,957,767			1.95		1.66		8,566
Unvested		6,646,942			2.03		1.67		10,409

At December 31, 2023, 6,169,952 Options with a weighted average grant date fair value of $1.13 were unvested. The weighted average per share fair value of options vesting during the six months ended June 30, 2024 and 2023 was $1.14 and $1.51 respectively.

The weighted average contractual life of Options outstanding at June 30, 2024 and December 31, 2023 was 8.1 years and 8.0 years respectively. For vested Options at June 30, 2024 and December 31, 2023 it was 7.2 years and 6.6 years respectively.

Where presented, 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.

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:


	Six Months Ended June 30,
	2024			2023
Market value of ADSs ($)	$	3.35		$	1.01
Risk-free interest rate (%)		4.02	%		3.43	%
Expected life (years)		6.25			10.00
Expected volatility (%)		90.78	%		98.06	%
Expected dividends		0.00	%		0.00	%

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.

RSUs were first awarded in 2023 and each RSU entitles the holder to 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 is as follows. As of June 30, 2024 all outstanding RSUs are expected to vest:


	Number of RSUs (ADSs)			Weighted Average Grant Date Fair Value ($)		Aggregate intrinsic value ($'000)
At December 31, 2023		489,225			1.04		1,130
Granted		204,914			3.36		—
Vested		(142,583	)		1.01		480
Forfeited		(23,533	)		1.36		—
At June 30, 2024		528,023			1.93		1,901

At June 30, 2024, the weighted average remaining period of RSUs outstanding was 2.8 years.

Where presented, the aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs. 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.

PSUs were first awarded in 2023 and each PSU entitles the holder to 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 the six months ended June 30, 2024 is as follows:


	Number of PSUs (ADSs)			Weighted Average Grant Date Fair Value ($)		Aggregate intrinsic value ($'000)
At December 31, 2023		1,338,150			0.61		3,091
Granted		—			—		—
Forfeited		—			—		—
Vested		(802,890	)		0.65		2,798
At June 30, 2024		535,260			0.54		1,927

At June 30, 2024, the weighted average contractual life of PSUs outstanding was 0.6 years.

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

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 the six months ended June 30, 2024 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, 2023		1,355,087		1.66		1.43		1,166
Granted		360,000		3.87		2.83		—
At June 30, 2024		1,715,087		2.12		1.72		2,700
Vested		1,475,087		1.84		1.54		2,700
Unvested		240,000		3.87		2.83		—

At December 31, 2023, 73,336 Options with a weighted average grant date fair value of $0.84 were unnvested. The weighted average per share fair value of options vesting during the six months ended June 30, 2024 and 2023 was $2.08 and $0.90 respectively.

The weighted average contractual life of Options outstanding at June 30, 2024 and December 31, 2023 was 7.9 years and 8.0 years respectively. For vested Options at June 30, 2024 and December 31, 2023 it was 7.7 years and 7.9 years respectively.

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:


	Six Months Ended June 30,
	2024			2023
Market value of ADSs ($)		3.87			0.94
Risk-free interest rate (%)		4.08	%		3.36	%
Expected life (years)		5.25			10.00
Expected volatility (%)		90.67	%		97.94	%
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.

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 the six months ended June 30, 2024 is as follows; all outstanding DRSUs are expected to vest:


	Number of DRSUs (ADSs)		Weighted Average Grant Date Fair Value ($)		Aggregate intrinsic value ($'000)
At December 31, 2023		729,982		1.01		1,686
Granted		125,393		3.87		485
Forfeited		—		—		—
At June 30, 2024		855,375		1.43		3,079
Vested		771,778		1.17		2,778
Unvested		83,597		3.87		301

Where presented, the aggregate intrinsic value is calculated as the quoted market price of the Company’s ADSs. 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.

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 envisioned.

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, 2023		1,572,358			9.22		8.19		—
Expired		(152,491	)		—		—		—
At June 30, 2024		1,419,867			9.24		9.05		—

The weighted average contractual life of Options outstanding and vested at June 30, 2024 and December 31, 2023 was 1.3 years and 1.8 years respectively.