The purpose of the arrangements is to attract and retain the best available personnel and to provide participants with additional incentive to increase their efforts on behalf and in the best interest of the Company and its subsidiaries. The reference to “Common Shares” refers to shares in MoonLake AG.

MoonLake AG's compensation plans are settled with Common Shares, and with a number of Class C Ordinary Shares determined by multiplying the number of Common Shares by the Exchange Ratio. The owners of Common Shares have the right to exchange their Common Shares for a number of Class A Ordinary Shares derived using the Exchange Ratio. In the event MoonLake AG shareholders elect to exchange their Common Shares, such MoonLake AG shareholder forfeits a number of Class C Ordinary Shares equal to the number of Class A Ordinary Shares issued (refer to Note 11 — Shareholders’ Equity - Class C Ordinary Shares).

As of January 1, 2024, the Company executed the conversion of the majority of the outstanding ESOP awards into an equivalent number of Equity Incentive Plan option awards that are settled with Class A Ordinary Shares, thereby eliminating the intermediary right to the exchange step noted above. From an accounting perspective, there is no underlying modification to the economic, control or legal rights of the awards, including vesting terms and conditions, exercise price and accounting classification. This is purely an administrative change as opposed to an accounting modification whereby the plan issuer is amended from MoonLake AG to MoonLake Immunotherapeutics. Consequently, there is no incremental fair value generated following the conversion and therefore no incremental expense recorded. Any remaining unvested compensation expense will be depleted over the remaining vesting period of the original awards, thereby resulting in no change to the consolidated financial statements.

As a result of this administrative conversion, the two main plans which remain active as of June 30, 2024 are the ESPP and Equity Incentive Plan, whereas the Restricted Founder Shares and ESOP are fully vested as of April 2023 and January 2024, respectively.

For the three and six months ended June 30, 2024, the Company has recognized an increase in equity in the condensed consolidated balance sheet, and share-based compensation expense in the condensed consolidated statements of operations and comprehensive loss of $1.8 million and $3.5 million, respectively. The share-based compensation expense was driven by the aforementioned two main active share-based compensation plans and programs:


Compensation Plan	Three Months Ended June 30, 2024		Three Months Ended June 30, 2023		Six Months Ended June 30, 2024		Six Months Ended June 30, 2023
MoonLake AG Restricted Founder Shares	$	—	$	364,218	$	—	$	1,574,300
ESPP	733,098		771,313		1,450,402		1,828,267


ESOP	—		171,058		—		359,297


Equity Incentive Plan	1,095,147		191,072		2,055,051		312,984
Total share-based compensation expense	$	1,828,245	$	1,497,661	$	3,505,453	$	4,074,848
Of which: included in research and development expense	520,373		301,104		937,351		888,098
Of which: included in general and administrative expense	1,307,872		1,196,557		2,568,102		3,186,750

We expect that all future employee awards will be made under the Equity Incentive Plan. As of June 30, 2024, 3,296,532 Class A Ordinary Shares from the authorized pool of 4,353,948 Class A Ordinary Shares remain available for future grants, and 959,023 and 98,393 Class A Ordinary Shares are reserved for issuance upon exercise of stock options granted under the Equity Incentive Plan and ESOP, respectively. The latter relate to awards not yet subjected to the conversion described above.

On April 28, 2021, the shareholders’ agreement between the co-founders, the Series A investors and MoonLake AG imposed a reverse vesting condition on 90% of the total 110,000 Common Shares (the equivalent of 3,700,257 Class C Ordinary Shares) held by each of the three co-founders. Therefore, 99,000 Common Shares (the equivalent of 3,330,231 Class C Ordinary Shares) held by each of the co-founders were subject to these restrictions and considered unvested (the “Restricted Founder Shares”). The Restricted Founder Shares vested on the 28th of each month at a rate of 4.166% over a period of two years until April 28, 2023. In the event of a termination of the contractual relationship of the relevant co-founder before the end of the vesting period, MoonLake AG in first priority, or any third party designated by it, and the other shareholders in second priority pro rata to their shareholdings, had an option to purchase all or a pro rata portion of the leaver shares that remained unvested on the effective day of the termination at nominal value of CHF 0.10.

The ESPP grants will vest 25% on each anniversary of the grant date. In the event of a termination of contractual relationship between the Company and the entitled employee, the awards can be deemed forfeited by MoonLake AG if certain conditions are met. Awards feature an accelerated vesting condition linked to a “Change of Control”, defined as any transfer of shares that results in the proposed acquirer holding more than 50% of the then issued share capital of MoonLake AG or the Company, as the case may be, where all the outstanding awards (whether currently outstanding or granted in the future) will be deemed fully vested.


Grants awarded
Program			ESPP



Awards issued as of January 1 and June 30, 2023			2,237,915


Awards vested as of June 30, 2023			1,452,115

Awards issued as of January 1, 2024			2,237,915

Awards forfeited for the six months ended June 30, 20241			(16,853)
Awards issued as of June 30, 2024			2,221,062
Awards vested as of June 30, 2024			1,754,359

The ESOP grants will vest 25% on each anniversary of the grant date. In the event of a termination of the contractual relationship between the Company and the entitled employee, options can be deemed forfeited by MoonLake AG if certain conditions are met. Awards feature an accelerated vesting condition linked to a “Change of Control”, defined as any transfer of shares that results in the proposed acquirer holding more than 50% of the then issued share capital of MoonLake AG or the Company, as the case may be, where all the outstanding awards (whether currently outstanding or granted in the future) will be deemed fully vested.


Grants awarded
Program			ESOP
Awards issued as of January 1, 2023			466,770
Awards granted for the six months ended June 30, 2023			55,100
Awards issued as of June 30, 2023			521,870
Awards exercisable as of June 30, 2023			186,593

Awards issued as of January 1, 2024			585,078

Awards converted from ESOP to Equity Incentive Plan for the six months ended June 30, 2024			(486,685)
Awards issued as of June 30, 2024			98,393
Awards exercisable as of June 30, 2024			98,393

On April 5, 2022 (the “Effective Date”), the Company created the Equity Incentive Plan to promote and closely align the interests of employees, officers, non-employee directors and other service providers of MoonLake Immunotherapeutics and its shareholders by providing share-based compensation and other performance-based compensation.

The Equity Incentive Plan provides for the grant of options, stock appreciation rights, restricted stock units, restricted stock and other share-based awards and for incentive bonuses, which may be paid in cash, Common Shares or a combination thereof, as determined by the compensation committee of the board of directors or such other committee as


Grants awarded
Program	Equity Incentive Plan
Awards issued as of January 1, 2023		180,000
Awards granted for the six months ended June 30, 2023		56,485
Awards issued as of June 30, 2023		236,485
Awards exercisable as of June 30, 2023		60,000

Awards issued as of January 1, 2024		312,400
Awards granted for the six months ended June 30, 2024		159,938
Awards converted from ESOP to Equity Incentive Plan for the six months ended June 30, 2024		486,685
Awards issued as of June 30, 2024		959,023
Awards exercisable as of June 30, 2024		366,718


Weighted average assumptions for the awards issued during the six months ended June 30, 2024
Estimated fair value of the option on the grant date using Black-Scholes model ($)			31.66
Exercise price ($)			45.91
Expected term of the award on the grant date (years) (1)			6
Expected volatility of the share price (2)			75%
Risk-free interest rate (3)			4.6%
Expected dividend rate			—%
(1) The expected term represents the period that share-based awards are expected to be outstanding. (2) The expected volatility was derived from the historical stock volatilities of comparable peer public companies within the Company’s industry. (3) The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the measurement date with maturities approximately equal to the expected term.