In July 2020, the Company’s board of directors and stockholders adopted and approved the 2020 Incentive Award Plan, or the 2020 Plan, and the Employee Stock Purchase Plan, or the ESPP, which became effective in connection with the Company’s initial public offering, or the IPO.

The Company may not grant any additional awards under the 2011 Equity Incentive Plan, or the 2011 Plan. The 2011 Plan will continue to govern outstanding equity awards granted thereunder.

The number of shares of common stock reserved for issuance under the 2020 Plan automatically increases on the first day of January, in an amount equal to 4% of the total number of shares of the Company’s capital stock outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s board of directors.

Awards granted under the 2020 Plan expire no later than ten years from the date of grant. For Incentive Stock Options, or ISOs, and Nonstatutory Stock Options, or NSOs, the option price shall not be less than 100% of the estimated fair value on the date of grant. Options granted typically vest over a four-year period but may be granted with different vesting terms. As of September 30, 2024, there were 2,059,871 shares available for issuance under the 2020 Plan.

In July 2022, the Company’s board of directors adopted the Annexon, Inc. 2022 Employment Inducement Award Plan, or, as amended, the Inducement Plan, and together with the 2011 Plan and the 2020 Plan, the Plans. The Inducement Plan was adopted by the Company’s board of directors without stockholder approval pursuant to Nasdaq Marketplace Rule 5635(c)(4), or Rule 5635(c)(4). In accordance with Rule 5635(c)(4), awards made under the Inducement Plan may only be granted to newly hired employees as an inducement material to the employees entering into employment with the Company. Awards granted under the Inducement Plan expire no later than ten years from the date of grant. An aggregate of 4,850,000 shares of common stock were reserved for issuance under the Inducement Plan. As of September 30, 2024, there were 2,398,730 shares available for issuance under the Inducement Plan.

The following table presents stock option activity under the Plans for the period:


	Number of Shares			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Balances as of December 31, 2023		9,208,970		$	10.31		7.53	$	2,930
Stock options granted		4,710,324		$	5.70
Stock options exercised		(248,907	)	$	3.69
Stock options forfeited		(912,703	)	$	10.96
Balances as of September 30, 2024		12,757,684		$	8.69		7.79	$	8,435
Exercisable as of September 30, 2024		6,429,000		$	11.22		6.55	$	4,278

The total intrinsic value of options exercised was $0.2 million and zero for the three months ended September 30, 2024 and 2023, respectively, and $0.5 million and $0.3 million for the nine months ended September 30, 2024 and 2023, respectively. The intrinsic value is the difference between the fair value of the Company’s common stock at the time of exercise and the exercise price of the stock option.

The weighted-average grant date fair value of options granted to employees during the nine months ended September 30, 2024 and 2023 was $4.51 and $3.87 per share, respectively.

As of September 30, 2024, the total unrecognized stock-based compensation cost related to outstanding unvested stock options was $28.3 million, which the Company expects to recognize over an estimated weighted-average period of 2.7 years.

RSUs are share awards that entitle the holder to receive freely tradeable shares of the Company’s common stock upon vesting. The RSUs cannot be transferred and the awards are subject to forfeiture if the holder’s employment terminates prior to the release of the vesting restrictions. The RSUs generally vest over a three-year period in equal amounts on an annual basis, provided the employee remains continuously employed with the Company. The fair value of the RSUs is equal to the closing price of the Company’s common stock on the grant date.

A summary of RSU activity under the Company’s equity incentive plan and related information is as follows:


	Number of Shares			Weighted-Average Grant Date Fair Value Per Share
Unvested as of December 31, 2023		495,579		$	5.69
Granted		602,600			5.13
Vested		(187,835	)		5.59
Cancelled		(127,635	)		5.29
Unvested as of September 30, 2024		782,709		$	5.35

As of September 30, 2024, unrecognized stock-based compensation expense related to outstanding unvested RSUs was $3.0 million, which is expected to be recognized over a weighted-average period of 2.0 years.

The ESPP enables eligible employees to purchase shares of the Company’s common stock at the end of each offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Eligible employees generally include all employees. Share purchases are funded through payroll deductions of at least 1%, and up to 15% of an employee’s eligible compensation for each payroll period. The number of shares reserved for issuance under the ESPP increase automatically on the first day of each fiscal year, by a number equal to, 1% of the shares of common stock outstanding on the

last day of the immediately preceding fiscal year, or such number of shares determined by the Company’s board of directors. As of September 30, 2024, 2,023,537 shares were available for future purchase. The ESPP generally provides for six-month consecutive offering periods beginning on May 16 and November 16 of each year. The ESPP is a compensatory plan as defined by the authoritative guidance for stock compensation. As such, stock-based compensation expense has been recorded for the three and nine months ended September 30, 2024.

The stock-based compensation expense related to the ESPP was $16,000 and $0.1 million for the three months ended September 30, 2024 and 2023, respectively, and $0.1 million and $0.2 million for the nine months ended September 30, 2024 and 2023.

The total stock-based compensation expense recognized was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Research and development	$	2,325	$	2,243	$	6,918	$	6,801
General and administrative		2,284		2,306		7,293		7,015
Total stock-based compensation expense	$	4,609	$	4,549	$	14,211	$	13,816

To determine the value of stock option awards for stock-based compensation purposes, the Company uses the Black-Scholes option pricing model and the assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment.

Fair Value of Common Stock—The fair value of each share of underlying common stock is based on the closing price of the Company’s common stock as reported on the date of grant on the Nasdaq Global Select Market.

Expected Term—The expected term represents the period that the stock-based awards 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 continues using the simplified method as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded.

Expected Volatility—Beginning in 2024, the expected volatility was estimated based on a weighted volatility using both the Company’s trading history for its common stock and the average volatility for comparable publicly traded life sciences companies over a period equal to the expected term of the stock option grants. Prior to 2024, the expected volatility was estimated based on the average volatility for comparable publicly traded life sciences companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on the similar size, stage in life cycle or 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 option.

Dividend Yield—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.

The fair value of each stock option issued was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Expected term (in years)	6.02 - 6.08	6.08	6.02 - 6.08	5.50 - 6.08
Expected volatility	96.80% - 97.60%	81.80% - 81.90%	95.90% - 97.80%	81.20% - 82.40%
Risk-free interest rate	3.48% - 4.15%	4.20% - 4.42%	3.48% - 4.65%	3.47% - 4.42%
Dividend yield	—	—	—	—