Equity & Stock
The biggest differentiator between pharma and biotech. Understand RSUs, stock options, and ESPP to make informed career decisions.
Equity compensation is often the most significant—and most misunderstood—component of compensation in pharma and biotech. It's what separates a good offer from a potentially life-changing one. For bioinformatics scientists, equity can range from $10,000-$50,000 annually in RSUs at Big Pharma to potentially millions of dollars in stock options if a biotech startup succeeds (or $0 if it fails).
The type of equity you receive fundamentally changes your risk-reward profile. RSUs (Restricted Stock Units) at established pharmaceutical companies like Pfizer, Merck, or Genentech are relatively safe—they're real shares that always have value. Stock options at biotech startups are speculative—they give you the right to buy shares at a fixed price, which could be worth nothing if the company fails or a fortune if it succeeds.
In this guide, we explain both types in detail: how RSUs vest and are taxed, how to evaluate stock option grants (including what questions to ask), the differences between ISOs and NSOs, how ESPP works at public companies, and how to make an informed decision when choosing between a stable pharma offer and a risky-but-potentially-lucrative startup opportunity.
Types of Equity Compensation
RSUs
Restricted Stock Units
Stock Options
ISOs and NSOs
ESPP
Employee Stock Purchase Plan
RSUs (Restricted Stock Units)
How RSUs Work
RSUs are a promise to give you shares of company stock once they "vest" (become yours). Unlike stock options, RSUs always have value as long as the stock price is above $0.
Pros
- ✓ Always worth something (unlike options)
- ✓ No purchase required
- ✓ Easy to understand value
- ✓ Taxed only when they vest
Cons
- ✗ Limited upside (stock rarely 10x)
- ✗ Taxed as ordinary income at vest
- ✗ Lose unvested RSUs if you leave
Typical Annual RSU Grants (Big Pharma)
Note: Big pharma (Pfizer, Merck, J&J, etc.) typically grant RSUs annually. After 4 years, you have overlapping grants vesting each year.
Stock Options
How Stock Options Work
Stock options give you the right to buy company shares at a fixed price (the "strike price" or "exercise price"). You profit if the company's value increases.
Pros
- ✓ Huge upside potential (10-100x possible)
- ✓ No tax until you exercise
- ✓ Can control timing of tax event
- ✓ ISOs have favorable tax treatment
Cons
- ✗ Can be worth $0 if company fails
- ✗ Must pay to exercise
- ✗ Complex tax implications (AMT for ISOs)
- ✗ Often 90-day exercise window if you leave
Key Terms to Know
How to Value Startup Equity
To properly evaluate a startup equity offer, ask these questions:
- 1. How many shares outstanding? "10,000 options" means nothing without knowing total shares.
- 2. What % ownership? Calculate: your shares / fully diluted shares. Expect 0.01-0.1% for most roles.
- 3. Latest valuation? If Series B at $200M, your 0.05% = $100K on paper.
- 4. What's the strike price? Lower strike = more profit when you exercise.
- 5. Post-termination exercise period? 90 days is standard, but 7-10 years is better.
Reality Check
Most biotech startups fail. Assume your options have 70-80% chance of being worth $0. Only join a startup if you'd be happy with just the base salary and experience.
RSUs vs Stock Options
| Factor | RSUs (Big Pharma) | Options (Biotech) |
|---|---|---|
| Risk Level | Low | High |
| Upside Potential | Modest (20-50% over years) | Massive (10-100x possible) |
| Cost to You | $0 (shares are granted) | Strike price x shares |
| Tax Treatment | Taxed at vest as income | Taxed at exercise (complex) |
| If Stock Drops 50% | Still worth 50% | May be worthless |
| Best For | Stability seekers | Risk-tolerant with savings |
ESPP (Employee Stock Purchase Plan)
ESPP lets you buy company stock at a 15% discount using payroll deductions. Available at public companies (post-IPO biotechs and big pharma).
How It Works
You pay: $100 x 0.85 = $85
Instant gain: $105 - $85 = $20 (24% return)
Pro tip: ESPP is essentially free money. If you can afford to, always max it out. The 15% discount alone guarantees ~18% return. With lookback, expect 15-25% for stable pharma stocks, potentially higher for volatile biotech.
Real Scenario: Pharma vs Startup Offer
Let's compare two real offers for a Senior Computational Biologist:
Pfizer (Big Pharma)
Series B Biotech Startup
How to Decide:
- Choose Pfizer if: You have family obligations, mortgage, or prefer stability. The $30K/year in RSUs will reliably be worth something.
- Choose Startup if: You have savings to weather risk, are excited about the science, and would be happy even if options = $0. The upside could be life-changing.
Summary: Making Smart Equity Decisions
Equity is where the biggest compensation differences occur between pharma and biotech careers. A Senior Scientist at Pfizer might receive $30,000/year in RSUs—stable, predictable value. The same role at a Series B startup might include options worth $50,000 on paper, but with a realistic range of $0 to $500,000+ depending on company outcomes.
The right choice depends on your personal circumstances. Choose RSUs at Big Pharma if: you have financial obligations (mortgage, family), prefer predictable income, or are later in your career and want to minimize risk. Choose startup options if: you have savings to weather uncertainty, are excited about the science, and would join even if the options were worth nothing.
When evaluating startup equity, always ask: What percentage of the company do my options represent? What's the latest valuation? What's the strike price? What's the post-termination exercise period? And critically—do you believe in the science and team enough to bet on them?
Frequently Asked Questions
What's the difference between RSUs and stock options?
RSUs (Restricted Stock Units) are actual shares given to you that vest over time—they always have value as long as the stock price is above $0. Stock options give you the right to buy shares at a fixed "strike" price; they're only valuable if the stock price exceeds your strike price. RSUs are common at Big Pharma (lower risk, modest upside), while options are common at startups (higher risk, potentially massive upside).
How do I value startup stock options?
To value startup options, you need to know: total shares outstanding (to calculate your percentage), latest company valuation, your strike price, and vesting schedule. Calculate your ownership percentage (your shares / fully diluted shares), then multiply by valuation. However, discount this significantly—most startup options end up worthless. A conservative approach is to value them at 25-50% of paper value for early-stage companies, or even $0 when comparing offers.
What happens to my equity if I leave the company?
For RSUs, you keep shares that have already vested but forfeit unvested shares. For stock options, you typically have 90 days after leaving to exercise vested options (pay the strike price to buy shares), or they expire worthless. Some companies offer extended exercise windows of 7-10 years. If leaving a startup, you may need significant cash to exercise options and could face tax implications, so plan carefully.
Should I participate in ESPP?
Yes, if you can afford to. ESPP (Employee Stock Purchase Plan) lets you buy company stock at a 15% discount using payroll deductions. The 15% discount alone guarantees ~18% return. With the "lookback" provision (price is 85% of lower of start or end price), expect 15-25% returns for stable pharma stocks. It's essentially free money. The only reason not to participate is if you can't afford to have 10-15% of your paycheck locked up for 6 months.
What's the difference between ISOs and NSOs?
ISOs (Incentive Stock Options) and NSOs (Non-Qualified Stock Options) differ primarily in tax treatment. ISOs can qualify for favorable long-term capital gains tax rates if you hold shares for 1 year after exercise and 2 years after grant. NSOs are taxed as ordinary income at exercise. ISOs have a $100K annual limit and are only available to employees. Most startups grant a mix of both, with ISOs preferred when possible.