In October 2024, the Company's board of directors adopted, and its stockholders approved the 2024 Option and Incentive Plan (the “2024 Plan”) which became effective on October 25, 2024. The 2024 Plan allows for the issuance of equity-based and cash-based incentive awards to the Company's officers, employees, directors and consultants. The 2024 Plan is administered by the Company's compensation committee. The exercise prices, vesting and other restrictions are determined at the discretion of the compensation committee, subject to the provisions of the 2024 Plan.

The Company initially reserved for issuance under the 2024 Plan 3.7 million shares of its common stock. The 2024 Plan provides that the number of shares reserved and available for issuance under the 2024 Plan will automatically increase on January 1, 2025 and each January 1 thereafter through January 1, 2034, by 5% of the outstanding number of shares of the Company's common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Company's compensation committee. 3.7 million shares remained available for future issuance under the 2024 Plan as of December 31, 2024.

The number of shares reserved under the 2024 Plan is subject to adjustment in the event of a stock split, stock dividend or other change in the Company's capitalization. The 2024 Plan replaced the 2021 Plan as the Company’s board of directors determined not to make additional awards under the 2021 Plan following the completion of the IPO. However, the 2021 Plan will continue to govern outstanding equity awards granted thereunder. The shares of common stock underlying any awards under the 2024 Plan and the 2021 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 to the shares of the Company's common stock available for issuance under the 2024 Plan.

In 2021, the Company adopted the Septerna, Inc. 2021 Stock Option and Grant Plan (the “2021 Plan”), which authorizes the Company to grant incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards and restricted stock units, to officers, employees, directors, consultants, or other key persons of the Company. The terms of the stock option and restricted stock agreements, including vesting requirements, are determined by the Board of Directors, subject to the provisions of the 2021 Plan. Stock option awards expire 10 years from the grant date, or as otherwise determined by the Board of Directors, or in the case of incentive stock options granted to 10% stockholders, the term is no more than 5 years from the grant date.

Additionally, the Company granted and issued restricted stock awards and allowed the recipients to purchase the unvested restricted stock awards at par value per share. The shares issued for unvested restricted stock awards under the 2021 Plan are subject to repurchase by the Company at the original issuance price in the event of the holder’s termination of its relationship with the Company. Consideration received for shares associated with the unvested restricted stock awards is initially recorded as a liability and subsequently reclassified into stockholders’ equity (deficit) as the related awards vest over the requisite service period.

The 2021 Plan initially authorized a total of 2.4 million shares reserved for future issuance. In June 2023, the Company amended the 2021 Stock Option and Grant Plan to, among other things, increase the shares reserved for issuance under the 2021 Plan to 4.2 million shares. In September 2024, the Company amended the 2021 Stock Option and Grant Plan, as amended to, among other things, increase the shares reserved for issuance under the 2021 Plan to 5.4 million shares.

1.6 million shares remained available for future issuance under the 2021 Plan as of December 31, 2023. No shares remained available for future issuance under the 2021 Plan as of December 31, 2024 as the 2021 plan was replaced by the 2024 Option and Incentive Plan (the “2024 Plan”), which is further discussed above.

In October 2024, the Company's board of directors adopted, and its stockholders approved, the 2024 Employee Stock Purchase Plan (the “2024 ESPP”), which became effective upon the date immediately preceding the date on which the IPO registration statement was declared effective by the SEC. The 2024 ESPP initially reserved and authorized the issuance of up to a total of 0.4 million shares of the Company’s common stock to participating employees. The 2024 ESPP provides that the number of shares reserved and available for issuance will automatically increase on January 1, 2026 and each January 1 thereafter through January 1, 2034, by the lesser of (i) 0.4 million shares of common stock, (ii) 1% of the outstanding number of shares of common stock on the immediately preceding December 31, or (iii) such lesser number of shares of common stock as determined by the administrator of the 2024 ESPP. The number of shares reserved under the 2024 ESPP is subject to adjustment in the event of a stock split, stock dividend or other change in the Company's capitalization.

As of December 31, 2024, the Company has issued no shares under the ESPP as the first offering period has not begun. As of December 31, 2024, there were 0.4 million shares available for issuance under the ESPP.

In May 2024, the Company’s board of directors modified the terms of stock option awards for 1.3 million shares of the Company’s common stock and restricted stock awards for 0.9 million shares of the Company's common stock to certain executive officers and members of the Company’s board of directors. Under the modified terms, accelerated vesting provisions were added associated with certain change of control events. No incremental stock-based compensation expense was recognized as a result of the modification.

The Company has granted restricted stock awards from the 2021 Plan and from outside of its stock plans, under the terms of restricted stock purchase agreements and subscription agreements. Unvested shares are subject to repurchase by the Company upon the holder’s termination of its relationship with the Company at the original purchase price. Consideration received for shares associated with the unvested restricted stock awards is initially recorded as a liability and subsequently reclassified into stockholders’ equity (deficit) as the related awards vest.

The following summarizes restricted stock award activity:


	Number of Shares Outstanding			Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2023		1,002,044		$	2.67
Restricted stock awards vested		(410,916	)		2.77
Restricted stock awards repurchased		(14,299	)		2.31
Balance at December 31, 2024		576,829			2.62

The restricted stock awards generally include a service condition for vesting and vest over four years with a one-year cliff vesting and pro-rata monthly vesting thereafter, but some awards vest over different time periods. In addition, some restricted stock awards include vesting criteria subject to the achievement of performance-based conditions in addition to service conditions, for which the Company periodically assesses the probability that the performance criteria will be met and only recognizes stock-based compensation expense related to these awards when achievement of the performance criteria becomes probable. The aggregate grant date fair value of shares vested during the year ended December 31, 2024 was $1.1 million.

The following summarizes stock option activity under the 2024 and 2021 Plans:


	Options Outstanding
	Total Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life		Aggregate Intrinsic Value
						(in years)		(in thousands)
Outstanding as of December 31, 2023		1,123,296		$	2.62		9.78	$	2,287
Granted		1,965,907			5.66
Exercised		(28,896	)		2.28
Cancelled		(121,325	)		3.02
Outstanding as of December 31, 2024		2,938,982			4.64		9.11		53,706
Exercisable as of December 31, 2024		514,144			2.90		8.23		10,285

Stock options include a service condition for vesting and most stock options vest over four years with a one-year cliff vesting and pro-rata monthly vesting thereafter. The aggregate intrinsic values of options outstanding and exercisable were calculated as the difference between the exercise price of the options and the closing market price of the Company’s common stock as of December 31, 2024.

The aggregate grant date fair value of options that vested for the year ended December 31, 2024 was $1.5 million. The options granted in the year ended December 31, 2024 had a weighted-average per share grant-date fair value of $6.65 and a total grant date fair value of $13.1 million. The total intrinsic value of stock options exercised during 2024 was $0.4 million.

During the year ended December 31, 2024, the Company granted a total of 2.0 million shares of stock options to its employees. A total of 0.6 million of the stock options granted in the year ended December 31, 2024 include vesting criteria subject to both service conditions and the achievement of performance-based conditions, related to the consummation of the Company’s IPO or a Sale Event, while the remainder include vesting criteria subject to service conditions only. As a result of the consummation of the Company's IPO in October 2024, the performance-based condition related to these stock options was met, triggering commencement of vesting of the options, and the Company began recognizing expense related to these grants.

A total of 0.7 million of the stock options granted in the year ended December 31, 2024 also include accelerated vesting provisions associated with certain change of control events.

The weighted-average assumptions used to value employee and non-employee stock option awards granted during the years ended December 31, 2024 and 2023, using the Black Scholes option pricing model, were as follows:


	Years Ended December 31,
	2024			2023
Fair value of common stock	$	6.65		$	3.01
Risk-free interest rate		3.83	%		4.56	%
Expected volatility		91.1	%		86.2	%
Expected term (years)		6.03			5.90
Expected dividend yield	—%			—%

In determining the fair value of the options granted, the Company uses the Black Scholes option pricing model and assumptions discussed below. This model utilizes inputs that are highly subjective including the fair value of the Company's common stock prior to the IPO, and expected volatility.

Fair Value of Common Stock — Prior to the IPO in October 2024, because there had been no public market for the Company’s common stock, the Board of Directors, with input from management, determined the fair value of common stock by considering a number of objective and subjective factors including (i) valuations performed by independent third parties, (ii) important developments in the Company’s operations, (iii) the rights, preferences, and privileges of the Company’s preferred stock relative to those of the Company’s common stock, (iv) actual operating results and financial performance, including the Company’s levels of available capital resources, (v) the conditions in the capital markets, biotechnology industry and the U.S. economy in general, (vi) the stock price performance and volatility of comparable public companies and (vii) the lack of marketability of the Company’s common stock, among other factors. After completion of the IPO, the fair value of common stock is based on the closing market price on the date of grant.

Expected Term — The expected term represents the period that the Company’s stock options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). The Company has very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The Company will continue to apply this process until a sufficient amount of historical information regarding employee exercise patterns and post-vesting employment termination behavior becomes available.

Expected Volatility — Due to the Company’s limited operating history and lack of company-specific historical volatility as a public company, due to the Company's IPO in October 2024, or implied volatility as a private company, the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period, where available, equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, life cycle stage and area of specialty.

Risk-free Interest Rate — The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the options.

Expected Dividend — The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Stock-based compensation expense for restricted stock awards and stock options recognized in the Company’s statements of operations and comprehensive (loss) income is presented as follows (in thousands):


	Years Ended December 31,
	2024		2023
Research and development expense	$	1,619	$	887
General and administrative expense		1,533		733
Total stock-based compensation expense	$	3,152	$	1,620

As of December 31, 2024, total unrecognized stock-based compensation expense related to unvested restricted stock awards and unvested stock options was $15.0 million, which is expected to be recognized over a weighted-average period of 2.8 years.