SEC Filing | Bicycle Therapeutics

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

⌧	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-38916

Bicycle Therapeutics plc

(Exact Name of Registrant as Specified in its Charter)


England and Wales		Not Applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

B900, Babraham Research Campus Cambridge, United Kingdom		CB22 3AT
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: +44 1223 261503

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, nominal value £0.01 per share *	n/a	The Nasdaq Stock Market LLC
American Depositary Shares, each representing one ordinary share, nominal value £0.01 per share	BCYC	The Nasdaq Stock Market LLC

* Not for trading, but only in connection with the listing of the American Depositary Shares on the NASDAQ Global Select Market.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ◻	Accelerated filer ◻
Non-accelerated filer ⌧	Smaller reporting company ⌧
	Emerging growth company ⌧

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ⌧

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ⌧

As of May 3, 2021, the registrant had 24,077,665 ordinary shares, nominal value £0.01 per share, outstanding.

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		Page
PART I - FINANCIAL INFORMATION		1

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Shareholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	43

Item 4.	Controls and Procedures	44

PART II - OTHER INFORMATION		45

Item 1.	Legal Proceedings	45

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	103

Item 3.	Defaults Upon Senior Securities	103

Item 4.	Mine Safety Disclosures	103

Item 5.	Other Information	104

Item 6.	Exhibits	104

SIGNATURES		105

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Forward-looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or variations of these words or similar expressions that are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Any forward-looking statement involves known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statement. Forward-looking statements include statements, other than statements of historical fact, about, among other things:

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statements regarding the impact of the ongoing COVID-19 pandemic and its effects on our operations, research and development and clinical trials and potential disruption in the operations and business of third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business;

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the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;

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our ability to advance our product candidates into, and successfully complete, clinical trials;

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our reliance on the success of our product candidates in our Bicycle® Toxin Conjugate, or BTC, tumor-targeted immune cell agonist programs, and our other pipeline programs;

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our ability to utilize our screening platform to identify and advance additional product candidates into clinical development;

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the timing or likelihood of regulatory filings and approvals;

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the commercialization of our product candidates, if approved;

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our ability to develop sales and marketing capabilities;

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the pricing, coverage and reimbursement of our product candidates, if approved;

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the implementation of our business model, strategic plans for our business, product candidates and technology;

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the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

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our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

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costs associated with defending intellectual property infringement, product liability and other claims;

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regulatory development in the United States, under the laws and regulations of England and Wales, and other jurisdictions;

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estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

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the amount of and our ability to satisfy interest and principal payments under our debt facility with Hercules Capital, Inc., or Hercules;

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the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

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our ability to maintain and establish collaborations or obtain additional grant funding;

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the rate and degree of market acceptance of any approved products;

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developments relating to our competitors and our industry, including competing therapies;

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our ability to effectively manage our anticipated growth;

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our ability to attract and retain qualified employees and key personnel;

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our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act, or the JOBS Act;

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statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance; and

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other risks and uncertainties, including those listed under the caption “Risk Factors.”

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, these statements are based on our estimates or projections of the future that are subject to known and unknown risks and uncertainties and other important factors that may cause our actual results, level of activity, performance, experience or achievements to differ materially from those expressed or implied by any forward-looking statement. These risks, uncertainties and other factors are described in greater detail under the caption “Risk Factors” in Part II. Item 1A and elsewhere in this Quarterly Report on Form 10-Q. As a result of the risks and uncertainties, the results or events indicated by the forward-looking statements may not occur. Undue reliance should not be placed on any forward-looking statement.

In addition, any forward-looking statement in this Quarterly Report on Form 10-Q represents our views only as of the date of this quarterly report and should not be relied upon as representing our views as of any subsequent date. We anticipate that subsequent events and developments may cause our views to change. Although we may elect to update these forward-looking statements publicly at some point in the future, we specifically disclaim any obligation to do so, except as required by applicable law. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.

iii

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RISK FACTOR SUMMARY

The below summary risk factors provide an overview of certain of the risks we are exposed to in the normal course of our business activities. The below summary does not contain all of the information that may be important to investors, and investors should read the summary together with the more detailed discussion of risks set forth in Part II, Item 1A, “Risk Factors,” of this Quarterly Report on Form 10-Q and those contained in our other public filings.

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We have a history of significant operating losses and expect to incur significant and increasing losses for the foreseeable future, and we may never achieve or maintain profitability.

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We may need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product discovery and development programs or commercialization efforts.

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Raising additional capital may cause dilution to our existing shareholders or holders of our American Depositary Shares, or ADSs, restrict our operations or cause us to relinquish valuable rights.

●

Our failure to comply with the covenants or payment obligations under our existing term loan facility with Hercules Capital, Inc., or Hercules, could result in an event of default, which may result in increased interest charges, acceleration of our repayment obligations or other actions by Hercules, any of which could negatively impact our business, financial condition and results of operations.

●

We are at a very early stage in our development efforts, our product candidates and those of our collaborators represent a new category of medicines and may be subject to heightened regulatory scrutiny until they are established as a therapeutic modality.

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We are substantially dependent on the success of our internal development programs and of our product candidates from our Bicycle Toxin Conjugates®, or BTCs, Bicycle tumor-targeted immune cell agonist^™, or Bicycle TICA, programs, which may not successfully complete clinical trials, receive regulatory approval or be successfully commercialized.

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We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.

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Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.

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Our current or future product candidates may cause undesirable side effects or have other properties when used alone or in combination with other approved products or investigational new drugs, or IND, that could halt their clinical development, prevent their marketing approval, limit their commercial potential or result in significant negative consequences.

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We may be delayed or not be successful in our efforts to identify or discover additional product candidates.

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We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

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We may seek designations for our product candidates with the U.S. Food and Drug Administration, or FDA, and other comparable regulatory authorities that are intended to confer benefits such as a faster development process or an accelerated regulatory pathway, but there can be no assurance that we will successfully obtain such designations. In addition, even if one or more of our product candidates are granted such designations, we may not be able to realize the intended benefits of such designations.

●

Even if we complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time consuming and uncertain and may prevent us or any collaborators from obtaining approvals for the commercialization of some or all of our product candidates. As a result, we cannot predict when or if, and in which territories, we, or any collaborators, will obtain marketing approval to commercialize a product candidate.

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The market opportunities for any current or future product candidate we develop, if and when approved may be limited to those patients who are ineligible for established therapies or for whom prior therapies have failed, and may be small.

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We face significant competition and if our competitors develop and market products that are more effective, safer or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.

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Even if we receive marketing approval of a product candidate, we will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products, if approved.

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The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients, payors and others in the medical community.

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The insurance coverage and reimbursement status of newly-approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for any of our product candidates, could limit our ability to market those products and decrease our ability to generate revenue.

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Healthcare legislative reform measures may have a negative impact on our business and results of operations.

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We rely on third parties, including independent clinical investigators and clinical research organizations, or CROs, to conduct and sponsor some of the clinical trials of our product candidates. Any failure by a third party to meet its obligations with respect to the clinical development of our product candidates may delay or impair our ability to obtain regulatory approval for our product candidates.

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We intend to rely on third parties to manufacture product candidates, which increases the risk that we will not have sufficient quantities of such product candidates or products or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.

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If we are unable to obtain and maintain patent and other intellectual property protection for our products and product candidates, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products and product candidates may be adversely affected.

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If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

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As a company based outside of the United States, we are subject to economic, political, regulatory and other risks associated with international operations.

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COVID-19 could impact our business.

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The market price of our ADSs is highly volatile, and holders of our ADSs may not be able to resell their ADSs at or above the price at which they purchased their ADSs.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Bicycle Therapeutics plc

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)


	March 31,		December 31,
	2021		2020
Assets
Current assets:
Cash	$	195,901	$	135,990
Accounts receivable		2,000		5,456
Prepaid expenses and other current assets		5,962		5,100
Research and development incentives receivable		11,530		9,177
Total current assets		215,393		155,723
Property and equipment, net		2,550		2,317
Operating lease right-of-use assets		3,721		1,290
Other assets		2,178		1,822
Total assets	$	223,842	$	161,152
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	996	$	1,365
Accrued expenses and other current liabilities		9,716		11,629
Deferred revenue, current portion		10,094		10,135
Total current liabilities		20,806		23,129
Long-term debt, net of discount		29,498		14,505
Operating lease liabilities, net of current portion		3,025		426
Deferred revenue, net of current portion		25,616		25,021
Other long‑term liabilities		2,806		2,611
Total liabilities		81,751		65,692
Commitments and contingencies (Note 11)
Shareholders’ equity:
Ordinary shares, £0.01 nominal value; 31,995,653 shares authorized at March 31, 2021 and December 31, 2020; 23,516,587 and 21,094,557 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		300		266
Additional paid-in capital		312,793		249,947
Accumulated other comprehensive loss		(3,251)		(3,193)
Accumulated deficit		(167,751)		(151,560)
Total shareholders’ equity		142,091		95,460
Total liabilities and shareholders’ equity	$	223,842	$	161,152

The accompanying notes are an integral part of the condensed consolidated financial statements

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Bicycle Therapeutics plc

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)


	Three Months Ended
	March 31,
	2021		2020
Collaboration revenues	$	1,808	$	1,129
Operating expenses:
Research and development		9,693		7,774
General and administrative		8,139		4,998
Total operating expenses		17,832		12,772
Loss from operations		(16,024)		(11,643)
Other income (expense):
Interest income		15		212
Interest expense		(522)		—
Total other income (expense), net		(507)		212
Net loss before income tax provision		(16,531)		(11,431)
Benefit from income taxes		(340)		(107)
Net loss	$	(16,191)	$	(11,324)
Net loss per share, basic and diluted	$	(0.73)	$	(0.63)
Weighted average ordinary shares outstanding, basic and diluted		22,100,840		17,997,929

Comprehensives Loss:
Net loss	$	(16,191)	$	(11,324)
Other comprehensive income (loss):
Foreign currency translation adjustment		(58)		(2,184)
Total comprehensive loss	$	(16,249)	$	(13,508)

The accompanying notes are an integral part of the condensed consolidated financial statements

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Bicycle Therapeutics plc

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except share data)

(Unaudited)



						Accumulated
				Additional		Other				Total
	Ordinary Shares			Paid‑in		Comprehensive		Accumulated		Shareholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balance at December 31, 2020	21,094,557	$	266	$	249,947	$	(3,193)	$	(151,560)	$	95,460
Issuance of ADSs upon exercise of share options	63,545		1		283		—		—		284
Issuance of ADSs, net of commissions and offering expenses of $1.8 million	2,358,485		33		58,742		—		—		58,775
Share-based compensation expense	—		—		3,821		—		—		3,821
Foreign currency translation adjustment	—		—		—		(58)		—		(58)
Net loss	—		—		—		—		(16,191)		(16,191)
Balance at March 31, 2021	23,516,587	$	300	$	312,793	$	(3,251)	$	(167,751)	$	142,091


Balance at December 31, 2019	17,993,701	$	227	$	195,056	$	(1,535)	$	(100,550)	$	93,198
Issuance of ADSs upon exercise of share options	1,071		—		2		—		—		2
Issuance of ordinary shares upon exercise of warrants	21,435		—		—		—		—		—
Share-based compensation expense	—		—		2,121		—		—		2,121
Foreign currency translation adjustment	—		—		—		(2,184)		—		(2,184)
Net loss	—		—		—		—		(11,324)		(11,324)
Balance at March 31, 2020	18,016,207	$	227	$	197,179	$	(3,719)	$	(111,874)	$	81,813

The accompanying notes are an integral part of the condensed consolidated financial statements

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Bicycle Therapeutics plc

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended
	Ended
	March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(16,191)	$	(11,324)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		3,821		2,121
Depreciation and amortization		325		305
Non-cash interest		93		—
Changes in operating assets and liabilities:
Accounts receivable		3,520		(846)
Research and development incentives receivable		(2,277)		(2,097)
Prepaid expenses and other current assets		(922)		347
Operating lease right‑of‑use assets		(2,434)		187
Other assets		(353)		(215)
Accounts payable		(304)		2,702
Accrued expenses and other current liabilities		(1,858)		(464)
Operating lease liabilities		2,466		191
Deferred revenue		236		30,103
Other long-term liabilities		171		152
Net cash (used in) provided by operating activities		(13,707)		21,162
Cash used in investing activities:
Purchases of property and equipment		(623)		(320)
Net cash used in investing activities		(623)		(320)
Cash flows from financing activities:
Proceeds from the issuance of ADSs, net of issuance costs		58,775		—
Proceeds from the exercise of share options and sale of ordinary shares		284		2
Proceeds from issuance of debt		15,000		—
Net cash provided by financing activities		74,059		2
Effect of exchange rate changes on cash		182		(3,324)
Net increase in cash		59,911		17,520
Cash at beginning of period		135,990		92,117
Cash at end of period	$	195,901	$	109,637
Supplemental disclosure of cash flow information
Cash paid for interest	$	429	$	—
Cash paid for income taxes	$	—	$	11
Cash paid for amounts included in the measurement of operating lease liabilities	$	199	$	—
Purchases of property and equipment included in accounts payable and accrued expenses	$	76	$	71

The accompanying notes are an integral part of the condensed consolidated financial statements

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Bicycle Therapeutics plc

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Nature of the business and basis of presentation

Bicycle Therapeutics plc (collectively with its subsidiaries, the “Company”) is a clinical-stage biopharmaceutical company developing a novel class of medicines, which the Company refers to as Bicycles, for diseases that are underserved by existing therapeutics. Bicycles are a unique therapeutic modality combining the pharmacology usually associated with a biologic with the manufacturing and pharmacokinetic properties of a small molecule. The Company’s initial internal programs are focused on oncology indications with high unmet medical need. The Company is evaluating BT5528, a second-generation Bicycle Toxin Conjugate (“BTC”) targeting Ephrin type-A receptor 2 (“EphA2”), in a Company-sponsored Phase I/II clinical trial, and BT8009, a second-generation BTC targeting Nectin-4, in a Company-sponsored Phase I/II clinical trial. In addition, BT1718, a BTC that is being developed to target tumors that express Membrane Type 1 matrix metalloproteinase, is being investigated for safety, tolerability and efficacy in an ongoing Phase I/IIa clinical trial sponsored and fully funded by the Centre for Drug Development of Cancer Research UK. The Company’s discovery pipeline in oncology includes Bicycle-based systemic immune cell agonists and Bicycle tumor-targeted immune cell agonists (Bicycle TICAs). Beyond the Company’s wholly-owned oncology portfolio, the Company is collaborating with biopharmaceutical companies and organizations in immuno-oncology, anti-infective, cardiovascular, ophthalmology, dementia and respiratory indications.

The accompanying condensed consolidated financial statements include the accounts of Bicycle Therapeutics plc and its wholly owned subsidiaries, BicycleTx Limited, BicycleRD Limited and Bicycle Therapeutics Inc. All intercompany balances and transactions have been eliminated on consolidation.

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Liquidity

On June 5, 2020, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and Oppenheimer & Co. Inc. (the “Sales Agents”) with respect to an at-the-market offering program (“ATM”) pursuant to which the Company may offer and sell through the Sales Agents, from time to time at the Company’s sole discretion, American Depositary Shares (“ADSs”), each ADS representing one ordinary share. As of March 31, 2021, the Company had issued and sold 5,287,298 ADSs, representing the same number of ordinary shares for gross proceeds of $110.6 million, resulting in net proceeds of $106.9 million after deducting sales commissions and offering expenses of $3.7 million.

On September 30, 2020, Bicycle Therapeutics plc and certain of its subsidiaries (together with Bicycle Therapeutics plc, the “Borrowers”) entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”) as agent, which provided for maximum borrowings of up to $40.0 million in aggregate principal amount, consisting of (i) a term loan of $15.0 million, which was funded on September 30, 2020, (ii) subject to satisfaction of customary conditions, an additional term loan of up to $15.0 million available from September 30, 2020 through March 15, 2021, and (iii) subject to the achievement of certain performance milestones and satisfaction of customary conditions, an additional term loan of $10.0 million available until March 15, 2022.

On March 10, 2021 (“the Amendment Closing Date”), the Borrowers entered into the First Amendment to the Loan and Security Agreement (the “First Amendment to LSA”) with Hercules, in its capacity as administrative agent and collateral agent, and the lenders named in the First Amendment to LSA. Pursuant to the First Amendment to LSA, payments on borrowings under the Company’s debt facility with Hercules will be interest-only until the first payment is due on August 1, 2023, which date was extended from November 1, 2022. If the Company achieves certain performance milestones, the interest-only period will be extended, with the first principal payment due on February 1, 2024, which date was extended from May 1, 2023. On the Amendment Closing Date and pursuant to the terms of the First

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Amendment to LSA, the Company borrowed the additional term loan of $15.0 million that had been available from September 30, 2020 to March 15, 2021.

The Company is subject to risks common to companies in the biotechnology industry and in light of the ongoing COVID-19 pandemic, including but not limited to, risks of delays in initiating or continuing research programs and clinical trials, risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization. Even if the Company’s research and development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital. The Company has funded its operations with proceeds from the sale of its ordinary shares and ADSs, convertible preferred shares, and proceeds received from its collaboration arrangements (Note 9), and proceeds from the Loan Agreement with Hercules (Note 6). The Company has incurred recurring losses since inception, including net losses of $16.2 million and $11.3 million, for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, the Company had an accumulated deficit of $167.8 million. The Company expects to continue to generate operating losses in the foreseeable future. The Company expects that its cash will be sufficient to fund its operating expenses and capital expenditure requirements through at least twelve months from the issuance date of these interim condensed consolidated financial statements.

The Company expects its expenses to increase substantially in connection with ongoing activities, particularly as the Company advances its preclinical activities and clinical trials for its product candidates in development. Accordingly, the Company will need to obtain additional funding in connection with continuing operations. If the Company is unable to raise capital when needed, or on attractive terms, it could be forced to delay, reduce or eliminate its research or drug development programs or any future commercialization efforts. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

2. Summary of significant accounting policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (the “SEC”), on March 11, 2021 (the “2020 Annual Report”). Since the date of such consolidated financial statements, there have been no changes to the Company’s significant accounting policies, other than those disclosed below.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses, revenue recognition, share-based compensation expense, valuation procedures for right-of-use assets and liabilities, and income taxes, including the valuation allowance for deferred tax assets. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of reasonable changes in circumstances, facts and experience.

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Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions.

Significant Risks and Uncertainties

In 2020, with the global spread of the ongoing COVID-19 pandemic, the Company established a cross-functional task force and implemented business continuity plans designed to address and mitigate the impact of the ongoing COVID-19 pandemic on the Company’s business. While the Company continues to experience limited financial impacts at this time, the extent to which the ongoing COVID-19 pandemic ultimately impacts the Company’s business, clinical development and regulatory efforts, corporate development objectives and the value of and market for the Company’s ADSs, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United Kingdom, United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

In addition, the Company is subject to other challenges and risks specific to its business and ability to execute its strategy, as well as risks and uncertainties common to companies in the biotechnology industry, including but not limited to: risks of failure of preclinical studies and clinical trials, the need to obtain marketing approval for any drug product candidate that it may identify and develop, the need to successfully commercialize and gain market acceptance of its product candidates, dependence on key personnel and collaboration partners, protection of proprietary technology, compliance with government regulations, development by competitors of technological innovations, and the ability to secure additional capital to fund operations. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

Unaudited Interim Financial Information

Certain information in the footnote disclosures of the financial statements has been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2020 included in the Company’s 2020 Annual Report.

The accompanying condensed consolidated balance sheet at March 31, 2021, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of shareholders’ equity, and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020, and the related financial information disclosed in these notes are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements for the year ended December 31, 2020, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2021, the results of its operations and its cash flows for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

Government grants

From time to time, the Company may enter into arrangements with governmental entities for the purposes of obtaining funding for research and development activities. The Company recognizes government grant funding in the condensed consolidated statements of operations and comprehensive loss as the related expenses being funded are incurred. The Company classifies government grants received under these arrangements as a reduction to the related research and development expense incurred. The Company analyzes each arrangement on a case-by-case basis. For the three months ended March 31, 2021 and March 31, 2020, the Company recognized $1.1 million and $0.2 million, respectively, as a reduction of research and development expense related to government grant arrangements.

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Recently adopted accounting pronouncements

In 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes and will be effective beginning after December 15, 2020. The adoption of ASU 2019‑12 did not have a material impact on the Company’s results of operations or cash flows.

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates to amend the effective date of ASU 2016-13, for entities eligible to be “smaller reporting companies,” as defined by the SEC, to be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company has not elected to early adopt ASU No. 2016-13. The Company is currently evaluating the potential impact that the adoption of ASU 2016-13 will have on the Company’s financial position and results of operations.

3. Fair value of financial assets and liabilities

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: Level 1, Quoted prices in active markets for identical assets or liabilities; Level 2, Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data; Level 3, unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of accounts receivable, research and development incentives receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the long-term debt approximates its fair value as the debt arrangement is based on interest rates the Company believes it could obtain for borrowings with similar terms. As of March 31, 2021, and December 31, 2020, there were no assets or liabilities measured at fair value on a recurring basis.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. The Company had no cash equivalents at March 31, 2021 and December 31, 2020.

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4. Property and equipment, net

Property and equipment, net consisted of the following (in thousands):


	March 31,		December 31,
	2021		2020
Laboratory equipment	$	5,979	$	5,583
Leasehold improvements		385		383
Computer equipment and software		188		188
Furniture and office equipment		196		195
		6,748		6,349
Less: Accumulated depreciation and amortization		(4,198)		(4,032)
	$	2,550	$	2,317

Depreciation expense was $0.3 million for both the three months ended March 31, 2021 and 2020, respectively.

5. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):


	March 31,		December 31,
	2021		2020
Accrued employee compensation and benefits	$	1,737	$	4,390
Accrued external research and development expenses		5,239		4,428
Accrued professional fees		1,905		1,759
Current portion of operating lease liabilities		708		844
Other		127		208
	$	9,716	$	11,629

6. Long-term debt

On September 30, 2020 (the “Closing Date”), Bicycle Therapeutics plc and its subsidiaries (the “Borrowers”) entered into the Loan Agreement with Hercules, which provided for aggregate maximum borrowings of up to $40.0 million, consisting of (i) a term loan of $15.0 million, which was funded on the Closing Date, (ii) subject to customary conditions, an additional term loan of up to $15.0 million available from the Closing Date through March 15, 2021, and (iii) subject to the Borrowers achieving certain performance milestones and satisfying customary conditions and available until March 15, 2022, an additional term loan of $10.0 million.

Borrowings under the Loan Agreement bear interest at an annual rate equal to the greater of (i) 8.85% or (ii) 5.60% plus the Wall Street Journal prime rate. On the Amendment Closing Date, the Borrowers entered into the First Amendment to LSA with Hercules, in its capacity as administrative agent and collateral agent, and the lenders named in the First Amendment to LSA. Pursuant to the First Amendment to LSA, payments on borrowings under the Company’s debt facility with Hercules will be interest-only until the first payment is due on August 1, 2023, which date was extended from November 1, 2022, followed by equal monthly payments of principal and interest through the scheduled maturity date on October 1, 2024 (the “Maturity Date”). If the Company achieves certain performance milestones, the interest-only period will be extended, with the first principal payment due on February 1, 2024, which date was extended from May 1, 2023.

At the Borrowers’ option, the Borrowers may prepay all or any portion greater than $5.0 million of the outstanding borrowings, subject to a prepayment premium equal to (i) 2.0% of the principal amount outstanding if the prepayment occurs during the first year following the Closing Date, (ii) 1.5% of the principal amount outstanding if the prepayment occurs during the second year following the Closing Date, and (iii) 1.0% of the principal amount outstanding if the prepayment occurs thereafter but prior to the Maturity Date. The Loan Agreement also provides for an end of term charge (the “End of Term Charge”), payable upon maturity or the repayment of obligations under the Loan

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Agreement, equal to 5.0% of the principal amount repaid. Borrowings under the Loan Agreement are collateralized by substantially all of the Borrower’s personal property and other assets, other than their intellectual property. Hercules has a perfected first-priority security interest in certain cash accounts. The Loan Agreement contains customary affirmative and restrictive covenants and representations and warranties, including a covenant against the occurrence of a change in control, as defined in the agreement. There are no financial covenants. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period, cross acceleration to third-party indebtedness, certain events relating to bankruptcy or insolvency, and the occurrence of certain events that could reasonably be expected to have a material adverse effect. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to the outstanding principal and interest payments due, and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. The Company has determined that the risk of subjective acceleration under the material adverse events clause is not probable and therefore has classified the outstanding principal in long-term liabilities based on scheduled principal payments.

The Company incurred fees and transaction costs totaling $0.6 million associated with the initial term loan, which are recorded as a reduction to the carrying value of the long-term debt in the condensed consolidated balance sheets. The fees, transaction costs, and the End of Term Charge are amortized to interest expense through the Maturity Date using the effective interest method. The Company evaluated the First Amendment to LSA, and concluded that the amendment represented a modification, as such, the fees and transaction costs associated with the initial term loan will continue to be amortized to interest expense through the Maturity Date. The effective interest rate of the Hercules borrowings was 11.4% at March 31, 2021.

The Company assessed all terms and features of the Loan Agreement in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the debt. The Company determined that all features of the Loan Agreement are clearly and closely associated with a debt host and, as such, do not require separate accounting as a derivative liability. Interest expense for the three months ended March 31, 2021 was $0.5 million.

Long-term debt consisted of the following (in thousands):


	March 31,
	2021
Term loan payable	$	30,000
End of term charge		118
Unamortized debt issuance costs		(620)
Carrying value of term loan	$	29,498

Future principal payments, including the End of Term Charge, are as follows (in thousands):



Year Ending December 31,
2021	$	—
2022		—
2023		9,614
2024		21,886
Total	$	31,500

7. Ordinary shares

Each holder of ordinary shares is entitled to one vote per ordinary share and to receive dividends when and if such dividends are recommended by the board of directors and declared by the shareholders. Holders of ADSs are not treated as holders of the Company’s ordinary shares, unless they withdraw the ordinary shares underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of the Company’s ordinary

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shares, other than the rights that they have pursuant to the deposit agreement with the depositary. As of March 31, 2021, and 2020, the Company has not declared any dividends.

As of March 31, 2021 and December 31, 2020, the Company’s authorized share capital consisted of 31,995,653 ordinary shares with a nominal value of £0.01 per share.

8. Share-based compensation

Employee incentive pool

2020 Share Option Plan

In June 2020, the Company’s shareholders approved the Bicycle Therapeutics plc 2020 Equity Incentive Plan (the “2020 Plan”), under which the Company may grant market value options, market value stock appreciation rights or restricted shares, restricted share units, performance restricted share units and other share-based awards to the Company’s employees. The Company’s non-employee directors and consultants are eligible to receive awards under the 2020 Non-Employee Sub-Plan to the 2020 Plan. All awards under the 2020 Plan, including the 2020 Non-Employee Sub-Plan, will be set forth in award agreements, which will detail the terms and conditions of awards, including any applicable vesting and payment terms, change of control provisions and post-termination exercise limitations. In the event of a change of control of the Company, as defined in the 2020 Plan, any outstanding awards under the 2020 Plan will vest in full immediately prior to such change of control. Share options issued under the 2020 Share Option Plan have a 10 year contractual life, and generally vest over either a three year service period for non-employee directors, or a four year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments for employees and consultants. Certain options granted to the Company’s non-employee directors vest immediately upon grant.

The Company initially reserved up to 4,773,557 ordinary shares for future issuance under the 2020 Plan, representing 574,679 new shares, 544,866 shares that remained available for future issuance under the Company’s 2019 Share Option Plan (the “2019 Plan”) immediately prior to the effectiveness of the 2020 Plan and up to 3,654,012 shares subject to options that were granted under the 2019 Plan and that were granted pursuant to option contracts granted prior to the Company’s IPO, in each case that expire, terminate, are forfeited or otherwise not issued from time to time, if any. Additionally, the number of ordinary shares reserved for issuance pursuant to the 2020 Plan will automatically increase on the first day of January of each year, commencing on January 1, 2021, in an amount equal to 5% of the total number of the Company’s ordinary shares outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s board of directors. The number of shares reserved for issuance under the 2020 Plan was increased by 1,054,727 shares effective January 1, 2021. As of March 31, 2021, there were 5,690,652 shares available for issuance and options to purchase 1,480,335 shares outstanding under the 2020 Plan.

2019 Share Option Plan

In May 2019, the Company adopted the 2019 Plan, which became effective in conjunction with the IPO. As of March 31, 2021, there were 2,583,940 options to purchase ordinary shares outstanding under the 2019 Plan. In conjunction with the adoption of the 2020 Plan, all shares available for future issuance under the 2019 Plan as of June 29, 2020 became available for issuance under the 2020 Plan and the Company ceased making awards under the 2019 Plan. The 2020 Plan is the successor of the 2019 Plan.

Share options previously issued under the 2019 Share Option Plan have a 10 year contractual life, and generally either vest monthly over a three year service period, or over a four-year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments. Certain awards granted to the Company’s non-employee directors were fully vested on the date of grant. The exercise price of share options issued under the 2019 Share Option Plan is not less than the fair value of ordinary shares as of the date of grant.

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Employee Share Purchase Plan (“ESPP”)

In May 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective in conjunction with the IPO. The Company initially reserved 215,000 ordinary shares for future issuance under this plan. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020 and each January 1 thereafter through January 1, 2029, by the least of (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31; (ii) 430,000 ordinary shares or (iii) such lesser number of shares as determined by the Compensation Committee. The number of shares reserved under the ESPP is subject to adjustment in the event of a split-up, share dividend or other change in our capitalization. The number of shares reserved for issuance under the ESPP was increased by 210,945 shares effective January 1, 2021. As of March 31, 2021, the total number of shares available for issuance under the ESPP was 605,883 ordinary shares.

Once the Company commences offerings under the ESPP, each offering to the employees to purchase shares under the ESPP will begin on each June 1 and December 1 and will end on the following November 30 and May 31, respectively. On each purchase date, which will fall on the last date of each offering period, ESPP participants will purchase ordinary shares at a price per share equal to 85% of the lesser of (1) the fair market value of the shares on the offering date or (2) the fair market value of the shares on the purchase date. The occurrence and duration of offering periods under the ESPP are subject to the determinations of the Company’s compensation committee. As of March 31, 2021, there have been no offering periods to employees under ESPP.

Share-based compensation

The Company recorded share-based compensation expense in the following expense categories of its condensed consolidated statements of operations and comprehensive loss (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Research and development expenses	$	1,211	$	675
General and administrative expenses		2,610		1,446
	$	3,821	$	2,121

Share options

The following table summarizes the Company’s option activity since December 31, 2020:


				Weighted
		Weighted		Average	Aggregate
	Number of	Average		Contractual	Intrinsic
	Shares	Exercise Price		Term	Value
				(in years)	(in thousands)
Outstanding as of December 31, 2020	3,736,663	$	10.51	8.54	$	27,553
Granted	1,297,999		18.74	—		—
Exercised	(63,545)		4.47	—		—
Forfeited	(20,509)		15.89	—		—
Outstanding as of March 31, 2021	4,950,608	$	12.73	8.69	$	80,172
Vested and expected to vest as of March 31, 2021	4,950,608	$	12.73	8.69	$	80,172
Options exercisable as of March 31, 2021	2,018,352	$	9.87	8.18	$	39,782

The weighted average grant-date fair value of share options granted during the three months ended March 31, 2021 and 2020 was $12.60 per share and $6.68 per share, respectively.

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Total share-based compensation expense for share options granted was $3.8 million and $2.1 million for the three months ended March 31, 2021, and 2020, respectively. Expense for non-employee consultants for the three months ended March 31, 2021 and 2020 was immaterial.

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares. The aggregate intrinsic value of share options exercised was $1.5 million for the three months ended March 31, 2021, and immaterial for the three months ended March 31, 2020.

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the fair value of share options granted to employees and directors:


	Three Months Ended
	March 31,
	2021		2020
Risk-free interest rate	0.5	%	1.6	%
Expected volatility	79.5	%	73.7	%
Expected dividend yield	—		—
Expected term (in years)	5.95		5.95

As of March 31, 2021, total unrecognized compensation expense related to the unvested employee and director share-based awards was $26.0 million, which is expected to be recognized over a weighted average period of 3.1 years.

9. Significant agreements

For the three months ended March 31, 2021 and 2020, the Company recognized revenue for its collaborations with Genentech Inc. (“Genentech”), AstraZeneca AB (“AstraZeneca”), and the Dementia Discovery Fund (“DDF”). The following table summarizes the revenue recognized in the Company’s condensed consolidated statements of operations and comprehensive loss from these arrangements (in thousands):


	Three Months
	Ended
	March 31,
	2021		2020
Collaboration revenues
AstraZeneca	$	277	$	412
Dementia Discovery Fund		83		56
Genentech		1,448		661
Total collaboration revenues	$	1,808	$	1,129

Genentech Collaboration Agreement

On February 21, 2020, the Company entered into a Discovery Collaboration and License Agreement (the “Genentech Collaboration Agreement”) with Genentech. The collaboration is focused on the discovery and development of Bicycle peptides directed to biological targets selected by Genentech and aimed at developing up to four potential development candidates against multiple immuno-oncology targets suitable for Genentech to advance into further development and commercialization.

Under the terms of the Genentech Collaboration Agreement, Bicycle received a $30.0 million upfront, non-refundable payment. The initial discovery and optimization activities will focus on utilizing Bicycle’s phage screening technology to identify product candidates aimed at two immuno-oncology targets (“Genentech Collaboration Programs”), which may also include additional discovery and optimization of Bicycles as targeting elements for each Genentech Collaboration Program (each a “Targeting Arm”). Genentech has the option to nominate up to two additional

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immuno-oncology targets (each, an “Expansion Option”), which may also include an additional Targeting Arm for each Expansion Option, as additional Genentech Collaboration Programs during a specified period following completion of certain activities under an agreed research plan. If Genentech exercises one or more Expansion Options, Genentech will pay to the Company an expansion fee of $10.0 million per Expansion Option. Genentech also has rights, under certain limited circumstances, to select an alternative target to be the subject of a Genentech Collaboration Program, in some cases subject to payment of an additional target selection fee.

If Genentech elects for Bicycle to perform discovery and optimization services for certain Targeting Arms, the Company will be entitled to receive an additional advance payment for the additional research services. Genentech exercised its right to select a Targeting Arm for one of the initial Genentech Collaboration Programs at the inception of the arrangement, which entitled the Company to an additional $1.0 million payment. If a Targeting Arm achieves specified criteria in accordance with the research plan, Genentech will be required to pay a further specified amount in the low single digit millions for each such Targeting Arm as consideration for the additional services to be provided.

Bicycle granted to Genentech a non-exclusive research license under Bicycle’s intellectual property solely to enable Genentech to perform any activities under the agreement. The activities under the Genentech Collaboration Agreement are governed by a joint research committee (“JRC”) with representatives from each of the Company and Genentech. The JRC will oversee, review and recommend direction of each Genentech Collaboration Program, achievement of development criteria, and variations of or modifications to the research plans.

After the Company performs the initial discovery and optimization activities in accordance with an agreed research plan and achieves specified criteria, Genentech will have the option to have the Company perform initial pre-clinical development and optimization activities in exchange for an additional specified milestone payment in the mid-single digit millions for each Genentech Collaboration Program (the “LSR Go Option”). Upon completion of such initial pre-clinical development and optimization activities for each Genentech Collaboration Program, Genentech will have the option to obtain an exclusive license to exploit any compound developed under such Genentech Collaboration Program in exchange for an additional specified payment in the mid to high single digit millions for each of the initial two Genentech Collaboration Programs and each of the two Expansion Option Genentech Collaboration Programs (the “Dev Go Option”).

On a Genentech Collaboration Program by Genentech Collaboration Program basis, if Genentech elects to obtain exclusive development and commercialization rights and pays the applicable LSR Go Option and Dev Go Option fees, Genentech will be required to make milestone payments to the Company upon the achievement of specified development, regulatory, and initial commercialization milestones for products arising from each collaboration program, totaling up to $200.0 million. Specifically, the Company is eligible for additional development milestones totaling up to $65.0 million, as well as regulatory milestones of up to $135.0 million for each collaboration program. In addition, the Company is also eligible to receive up to $200.0 million in sales milestone payments on a Genentech Collaboration Program-by-Genentech Collaboration Program basis. In addition, to the extent any of the product candidates covered by the licenses conveyed to Genentech are commercialized, the Company would be entitled to receive tiered royalty payments on net sales at percentages ranging from the mid-single to low double-digits, subject to certain standard reductions and offsets. Royalties will be payable, on a product by product and country by country basis, until the later of the expiration of specified licensed patents covering such product in such country, or ten years from first commercial sale of such product in such country.

Accounting Analysis

Upon the execution of the Genentech Collaboration Agreement, the Company has identified the following performance obligations:

(i)

Research license, and the related research and development and preclinical services through LSR Go for a first Genentech Collaboration Program (Genentech Collaboration Program #1);

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(ii)

Research license, and the related research and development and preclinical services through LSR Go for a second Genentech Collaboration Program with a specified Targeting Arm (Genentech Collaboration Program #2);

(iii)

Material right associated with an option to a specified Targeting Arm for Genentech Collaboration Program #1;

(iv)

Two material rights associated with the LSR Go Option for Genentech Collaboration Program #1 and Genentech Collaboration Program #2, which includes research services to be provided through the Dev Go Option and an option to receive an exclusive license;

(v)

Material rights associated with certain limited substitution rights with respect to a limited number of collaboration targets;

(vi)

Two material rights related to each Genentech Expansion Option, which upon exercise include the services for an additional immuno-oncology target through the LSR Go Option, an LSR Go Option which includes the services to be provided through the Dev Go Option and an option to receive an exclusive license, limited substitution rights, and an option to select a specified Targeting Arm.

The Company concluded that certain substitution rights that require the payment of additional consideration, which approximate the standalone selling price of the underlying services to be provided, do not provide the customer with a material right and therefore, are not considered as performance obligations and are accounted for as separate contracts upon exercise, if ever. The Company’s participation in the joint steering committee was assessed as immaterial in the context of the contract.

The Company has concluded that the research license is not distinct from the research and development services as Genentech cannot obtain the benefit of the research license without the Company performing the research and development services. The services incorporate proprietary technology and unique skills and specialized expertise, particularly as it relates to constrained peptide technology that is not available in the marketplace. As a result, for each research program, the research license has been combined with the research and development services into a single performance obligation. In addition, the Company concluded that the Dev Go Option is not distinct or separately exercisable from the LSR Go Option, as the customer cannot benefit from the Dev Go Option unless and until the LSR Go Option is exercised.

In assessing whether the various options under the Genentech Collaboration Agreement represent material rights, the Company considered the additional consideration the Company would be entitled to upon the option exercise, the standalone selling price of the underlying goods, services, and additional options. For the material rights identified above the Company concluded that each of the options provided Genentech with a discount that it otherwise would not have received.

The total transaction price was initially determined to be $31.0 million, consisting of the $30.0 million upfront fee and the additional $1.0 million for Genentech’s selection of a new Targeting Arm at inception. The Company utilizes the most likely amount method to determine the amount of research and development funding to be received. Additional consideration to be paid to the Company upon the exercise of options by Genentech and subsequent milestones are excluded from the transaction price as they relate to option fees and milestones that can only be achieved subsequent to the exercise of an option. In addition, other variable consideration for development milestones not subject to option exercises was fully constrained, as a result of the uncertainty regarding whether any of the milestones will be achieved.

During the three months ended March 31, 2021, the Company achieved specified criteria in accordance with the research plan under the Genentech Collaboration agreement and therefore updated its estimate of the variable

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consideration to include an additional $2.0 million, that is no longer constrained. The arrangement consideration was increased to $33.0 million.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. The estimated standalone selling prices for the Genentech Collaboration Programs was based on the nature of the services to be performed and estimates of the associated effort and costs of the services, adjusted for a reasonable profit margin for what would be expected to be realized under similar contracts. The estimated standalone selling price for the material rights was determined based on the fees Genentech would pay to exercise the options, the estimated value of the underlying goods and services, and the probability that Genentech would exercise the option and any underlying options. Based on the relative standalone selling price, the allocation of the transaction price as of March 31, 2021 to the separate performance obligations is as follows (in thousands):


	Allocation of
Performance Obligations	Transaction Price
Genentech Collaboration Program #1 Performance Obligation	$	4,019
Genentech Collaboration Program #2 Performance Obligation		8,037
Specified Targeting Arm Material Right Arm for Genentech Collaboration Program #1		352
Two material rights associated with the LSR Go Option for Collaboration Programs #1 and #2		12,400
Material rights associated with limited substitution rights		1,187
Two material rights for Expansion Options		7,005
	$	33,000

The Company is recognizing revenue related to amounts allocated to the Genentech Collaboration Program #1 and #2 Performance Obligations as the underlying services are performed using a proportional performance model over the period of service using input-based measurements of total full-time equivalent efforts and external costs incurred to date as a percentage of total full-time equivalent time and external expected, which best reflects the progress towards satisfaction of the performance obligation. The amount allocated to the material rights is recorded as deferred revenue and the Company commences revenue recognition upon exercise of or upon expiry of the respective option. The Company anticipates that the Genentech Collaboration Performance Program #1 and #2 obligations will be performed over a period of approximately two years, and the material rights will be exercised or expire within approximately four years from contract execution.

During the three months ended March 31, 2021 and 2020, the Company recognized revenue of $1.4 million and $0.7 million, and as of March 31, 2021 and December 31, 2020, the Company recorded $28.4 million and $27.6 million of deferred revenue in connection with the Genentech Collaboration Agreement.

Dementia Discovery Fund Agreement

In May 2019, the Company entered into a collaboration with the DDF to use Bicycle technology for the discovery and development of novel therapeutics for dementia (the “DDF Collaboration Agreement”). In October 2019, the collaboration with DDF was expanded to include Oxford University’s Oxford Drug Discovery Institute (“ODDI”). Under the terms of the DDF Collaboration Agreement, the Company and DDF will collaborate to identify Bicycles that bind to clinically validated dementia targets (the “DDF Research Plan”). The Company is obligated to use commercially reasonable efforts to perform research activities under the DDF Research Plan. DDF shall not be directly engaged in the conduct of any research activities under the arrangement. ODDI will then profile these Bicycles in a range of target-specific and disease-focused assays to determine their therapeutic potential. The activities under the DDF Collaboration Agreement will be governed by a project advisory panel, composed of two representatives from the Company and DDF. The Research Advisory Panel will oversee, review and recommend direction for the Research Plans and variations of or modifications of research plans.

The Company received an upfront payment of $1.1 million in May 2019. The DDF arrangement provided the Company could receive up to an additional $0.7 million, of which $0.5 million has been received as of March 31, 2021,

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upon achievement of certain milestones such as the identification of lead Bicycle candidates with a certain affinity, which would be used to fund additional research and development services including lead optimization.

Intellectual property created by the collaboration shall be owned by the Company, and background intellectual property improvements shall be owned by the party from whose background intellectual property they exclusively relate. If promising lead compounds are identified, the Company, ODDI and DDF have the option (the “DDF Option”) to establish a jointly owned new company (“NewCo”) to advance the compounds through further development towards commercialization. NewCo will receive a royalty and milestone-bearing assignment and license of intellectual property from the Company for this purpose. The DDF Option is exercisable at any time until 90 days following the completion of the Research Plan and delivery of a final report. If DDF does not elect to exercise the DDF Option during the Option period, then DDF shall have no right in the collaboration intellectual property. NewCo will initially be owned 66% by the Company and 34% by DDF; however, the Company shall not be entitled to exercise more than 50% of the total voting rights related to its ownership interests. After completion of the DDF Option exercise, for a period of two years following the option exercise, NewCo shall have the right to initiate a new research program to develop up to three additional dementia targets, on a target by target basis, and the Company will be entitled to charge NewCo an agreed upon FTE rate for peptide screening and optimization for the active targets.

Either party may terminate the DDF Collaboration Agreement upon providing not less than 60 days written notice. A party may terminate the DDF Collaboration Agreement with immediate effect without notice if at any time the other party files for protection under bankruptcy or insolvency laws, makes an arrangement for the benefit of creditors, appoints a receiver, administrator, manager or trustee over its property, proposes a written agreement of composition or extension of its debts, is a party to any dissolution, winding-up or liquidation, or is in material breach that has not been remedied.

Accounting Analysis

The Company identified a single performance obligation associated with the performance of research and development services under the DDF Research Plan.

The Company concluded that the DDF Option is an immaterial obligation at the inception of the arrangement, as it represents a right to acquire shares of NewCo that have de minimis value. The DDF Option also does not contain a material right that otherwise would not have been received. The Company’s participation in the Research Advisory Panel was assessed as immaterial in the context of the contract. In addition, the Company concluded that the option for NewCo to obtain additional peptide screening and optimization services is not an obligation at the inception of the arrangement, as they are optional services and the amount that will be paid for the services do not reflect a discount that the customer would otherwise receive and do not provide the customer with material rights.

The total transaction price was initially determined to be $1.1 million, consisting of the upfront payment for research and development funding. The Company may receive additional milestone payments during the DDF Research Plan, as well as for research and development services for additional targets following the exercise of DDF Option. These variable amounts are excluded from the transaction price as they relate to fees that can only be achieved subsequent to the exercise of an option, and therefore are treated as separate contracts.

The transaction price was allocated to the single performance obligation of research and development services. The Company is recognizing revenue as the underlying services are performed using a proportional performance model, over the period of service using input-based measurements of total costs, including total full-time equivalent effort incurred to date as a percentage of total costs expected, which best reflects the progress towards satisfaction of the performance obligation. In December 2020, the Company received a payment of $0.5 million upon the achievement of specified scientific criteria. The Company concluded that the payment represents consideration for a single performance obligation to perform lead optimization activities, and will recognize revenue as the underlying services are performed using a proportional performance model, over the period of service using input based measurements of total costs, including total full time equivalent effort incurred to date as a percentage of total costs expected, which best reflects the progress towards satisfaction of the performance obligation.

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For both of the three months ended March 31, 2021 and 2020, the Company recognized $0.1 million of revenue. As of March 31, 2021 and December 31, 2020, the Company recorded deferred revenue of $0.7 million and $0.8 million, respectively, related to its collaboration with DDF.

AstraZeneca Collaboration Agreement

In November 2016, the Company entered into a Research Collaboration Agreement (the “AstraZeneca Collaboration Agreement” with AstraZeneca. The collaboration activities initially focused on two targets within respiratory, cardiovascular and metabolic disease, for which collaboration activities were terminated by AstraZeneca in October 2020 and March 2021, respectively.

In May 2018, AstraZeneca made an irrevocable election to exercise an option to nominate up to four additional targets (“Additional Four Target Option”). As a result, AstraZeneca was entitled to obtain research and development services from the Company with respect to Bicycle peptides that bind to up to four additional targets, along with license rights to those selected targets, in exchange for an option fee of $5.0 million. After discovery and initial optimization of such Bicycle peptides, AstraZeneca will be responsible for all research and development, including lead optimization and drug candidate selection. AstraZeneca has option rights, at drug candidate selection, which allow it to obtain development and exploitation license rights with regard to such drug candidate. Each research program is to continue for an initial period of three years, referred to as the research term, including one year for the Bicycle Research Term and two for the AZ Research Term. AstraZeneca may extend the research term for each research program by twelve months (or fifteen months, if needed to complete certain toxicology studies) or could be shorter if it is ceased due to a screening failure, a futility determination, or abandonment by AstraZeneca. AstraZeneca has certain target substitution rights should a screening failure or futility determination be reached, but was obligated to fund these additional efforts related to substitution. AstraZeneca is obligated to fund two FTEs during the Bicycle Research Term, for each research program, based on an agreed upon FTE reimbursement rate. Payment is made quarterly in advance of services being provided. AstraZeneca has the option to obtain worldwide development and commercialization licenses associated with each designated drug candidate in return for a fee of $8.0 million per drug candidate, upon the selection of such drug candidate. AstraZeneca is required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial milestones. More specifically, for each research program, the Company is eligible to receive up to $29.0 million in development milestone payments and up to $23.0 million in regulatory milestone payments. The Company is also eligible for up to $110.0 million in commercial milestone payments, on a research program by research program basis. In addition, to the extent any of the drug candidates covered by the licenses conveyed to AstraZeneca are commercialized, the Company would be entitled to receive tiered royalty payments of mid-single digits based on a percentage of net sales, subject to certain reductions, including in certain countries where the licensed product faces generic competition. AstraZeneca may terminate the AstraZeneca Collaboration Agreement, entirely or on a licensed product by licensed product or country by country basis, for convenience.

Accounting Analysis

Upon the execution of the Additional Four Target Option, the Company identified the following five performance obligations associated with the May 2018 AstraZeneca Agreement:

(i)

Research license and the related research and development services during the Bicycle Research Term for the third target (the “Target Three Research License and Related Services”),

(ii)

Material right associated with the development and exploitation license option for the third target (“Target Three Material Right”),

(iii)

Material right associated with the research services option, including the underlying development and exploitation license option for the fourth target (“Target Four Material Right”),

(iv)

Material right associated with the research services option, including the underlying development and exploitation license option for the fifth target (“Target Five Material Right”), and

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(v)

Material right associated with the research services option, including the underlying development and exploitation license option for the sixth target (“Target Six Material Right”).

The Company concluded that the fourth, fifth and sixth targets available for selection are options. Upon exercise, AstraZeneca will obtain a research license and the related research and development services and an option to a development and exploitation license. The Company has concluded that the research services option, including the underlying development and exploitation license options related to each respective target results in a material right as the option exercise fee related to the development and exploitation license contains a discount that AstraZeneca would not have otherwise received.

The research license and the related research and development services related to the fourth, fifth and sixth targets were not performance obligations at the inception of the arrangement, as they are optional services that will be performed if AstraZeneca selects additional targets and they reflect their standalone selling prices and do not provide the customer with material rights. The Company’s participation in the joint steering committee was assessed as immaterial in the context of the contract.

The total transaction price was initially determined to be $5.7 million, consisting of the $5.0 million option exercise fee and research and development funding of an estimated $0.7 million. The research and development funding is being provided based on the costs that are incurred to conduct the research and development services. The Company utilizes the most likely amount method to determine the amount of research and development funding to be received. Additional consideration to be paid to the Company upon the exercise of the license options by AstraZeneca or upon reaching certain milestones are excluded from the transaction price as they relate to option fees and milestones that can only be achieved subsequent to the license option exercise or are outside of the initial contact term.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. The estimated standalone selling prices for each Research License and Related Services obligation was primarily based on the nature of the services to be performed and estimates of the associated effort and costs of the services, adjusted for a reasonable profit margin what would be expected to be realized under similar contracts. The estimated standalone selling price for the material rights was determined based on the fees AstraZeneca would pay to exercise the license options, the estimated value of the License Option using comparable transactions, and the probability that (i) AstraZeneca would opt into the target development, and (ii) the license options would be exercised by AstraZeneca. Based on the relative standalone selling price, the allocation of the transaction price to the separate performance obligations was as follows (in thousands):


	Allocation of
Performance Obligations	Transaction Price
Target Three Research License and Related Services	$	650
Target 3 Material Right		1,504
Target 4 Material Right		1,204
Target 5 Material Right		1,165
Target 6 Material Right		1,127
	$	5,650

The Company recognizes revenue related to amounts allocated to the Target Three Research License and Related Services as the underlying services are performed using a proportional performance model over the period of service using input-based measurements of total full-time equivalent effort incurred to date as a percentage of total full-time equivalent time expected, which best reflects the progress towards satisfaction of the performance obligation. The amount allocated to the material rights is recorded as deferred revenue and the Company commences revenue recognition upon exercise of or upon expiry of the option. The optional future research license and the related research and development services related to the fourth, fifth and sixth targets reflect their standalone selling prices and do not provide the customer with a material right and, therefore, are not considered performance obligations and are accounted for as separate contracts. In June 2019, AstraZeneca selected a replacement target for the third target, and as such a new Research Term was started related to the Target Three Research License and Related Services. The total transaction price under the arrangement increased to $6.3 million for the additional research and development funding to be

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received. In October 2020, AstraZeneca terminated the collaboration activities related to the third target. As a result, deferred revenue related to the amount allocated to the Target 3 Material Right of $1.5 million was recognized during the year ended December 31, 2020. As of March 31, 2021, two research programs were in the AZ Research Term, and one program was in the Bicycle Research Term.

For the three months ended March 31, 2021, the Company recognized $0.3 million of revenue related to the research and development services for the sixth target related to the exercise of the Additional Four Target Option, and for the three months ended March 31, 2020 the Company recognized $0.4 million for the Target Three Research License and Related Service, and research and development services for the fourth target and fifth targets. As of March 31, 2021 and December 31, 2020, the Company recorded $3.6 million and $3.8 million, respectively, of deferred revenue in connection with the Additional Four Target Option and related contracts.

Evaluation and Option Agreement

On December 31, 2020 (the “Effective Date”), the Company entered into the Evaluation and Option Agreement. Under the terms of the Evaluation and Option Agreement, the Company agreed to transfer Bicycles (the “Option Materials”) to the recipient in order to evaluate a particular application of the Company’s technology platform for a period of up to four months (the “Evaluation Period”). The recipient agreed to pay, a non-refundable, $3.0 million option fee within five business days after the Effective Date. The Evaluation Period may be extended by up to two months by written notice and the payment of an extension fee of $2.0 million.

At any point during the term of the agreement and continuing through 30 days after the expiration of the Evaluation Period, the recipient has the option to obtain an exclusive license to the Company’s intellectual property for the purpose of continued research, development, manufacture and commercialization of products within a particular application of the Company’s platform technology. The recipient may terminate the agreement for convenience upon 30 days written notice to the Company. The upfront payment of $3.0 million and extension payment of $2.0 million are fully creditable against any upfront payment to be paid upon the execution of a license agreement.

For the three months ended March 31, 2021, the Company recognized zero revenue and $3.0 million of deferred revenue related to the Evaluation and Option Agreement. The Company concluded that the transaction price is $3.0 million, and all other amounts are excluded from the transaction price as they relate to fees that can only be achieved subsequent to the exercise of an option. The transaction price was allocated to the single performance obligation, an option to enter into a future license agreement which is a material right, as the Evaluation and Option Agreement payment is creditable against the upfront payments to paid for a license agreement. The Company concluded that all other performance obligations were immaterial in the context of the contract. The Company will begin to recognize revenue when the option is exercised or when the option expires.

Summary of Contract Assets and Liabilities

Up-front payments and fees are recorded as deferred revenue upon receipt or when due until such time as the Company satisfies its performance obligations under these arrangements. A contract asset is a conditional right to consideration in exchange for goods or services that the Company has transferred to a customer. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

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The following table presents changes in the balances of the Company’s contract assets and liabilities (in thousands):


	Beginning Balance						Impact of		Ending Balance
	January 1,						Exchange		March 31,
	2021		Additions		Deductions		Rates		2021
Contract assets	$	—	$	—	$	—	$	—	$	—
Contract liabilities:
Deferred revenue
AstraZeneca collaboration deferred revenue		3,756		54		(277)		27		3,560
DDF collaboration deferred revenue		821		—		(83)		8		746
Genentech collaboration deferred revenue		27,579		2,000		(1,448)		246		28,377
Evaluation and Option Agreement deferred revenue		3,000		—		—		27		3,027
Total deferred revenue	$	35,156	$	2,054	$	(1,808)	$	308	$	35,710


	Beginning Balance						Impact of		Ending Balance
	January 1,						Exchange		December 30,
	2020		Additions		Deductions		Rates		2020
Contract assets	$	—	$	—	$	—	$	—	$	—
Contract liabilities:
Deferred revenue
AstraZeneca collaboration deferred revenue		4,913		585		(2,696)		954		3,756
DDF collaboration deferred revenue		744		500		(436)		13		821
Genentech collaboration deferred revenue		—		31,000		(4,896)		1,475		27,579
Evaluation and Option Agreement deferred revenue		—		3,000		—		—		3,000
Total deferred revenue	$	5,657	$	35,085	$	(8,028)	$	2,442	$	35,156

The contract assets represent research and development services which have been performed but have not yet been billed, and are reduced when they are subsequently billed.

The AstraZeneca deferred revenue balance as of March 31, 2021 includes $3.6 million allocated to the Target 4, Target 5 and Target 6 Material Rights, which will commence revenue recognition when the respective option is exercised at the end of AZ Research Term or when the option expires.

The Genentech deferred revenue balance at March 31, 2021 includes $20.7 million allocated to material rights that will commence revenue recognition when the respective option is exercised or when the option expires.

During the years ended March 31, 2021 and 2020, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods (in thousands):


	Three Months Ended
	March 31,
	2021		2020
Revenue recognized in the period from:
Revenue recognized based on proportional performance	$	1,652	$	1,129
Revenue recognized based on changes in transaction price		156		—
Total	$	1,808	$	1,129

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Cancer Research UK

BT1718

On December 13, 2016, the Company entered into a Clinical Trial and License Agreement with Cancer Research Technology Limited (“CRTL”), a wholly owned subsidiary of Cancer Research UK that Cancer Research UK’s commercial activities operate through, and Cancer Research UK (the “Cancer Research UK Agreement”). Pursuant to the Cancer Research UK Agreement, as amended in March 2017 and June 2018, Cancer Research UK’s Centre for Drug Development will sponsor and fund a Phase I/IIa clinical trial for BT1718, a Bicycle Toxin Conjugate, in patients with advanced solid tumors.

Cancer Research UK is responsible for designing, preparing, carrying out and sponsoring the clinical trial at its cost. The Company is responsible for supplying agreed quantities of GMP materials for the trial, the supply of which has been completed. In the event that additional quantities are needed, the Company will provide Cancer Research UK with all reasonable assistance to complete the arrangements necessary for the generation and supply of such additional GMP materials, but Cancer Research UK will be responsible for supplying and paying for such additional quantities of GMP materials.

The Company granted Cancer Research UK a license to its intellectual property in order to design, prepare for, sponsor, and carry out the clinical trial. The Company retains the right to continue the development of BT1718 during the clinical trial. Upon the completion of the Phase I/IIa clinical trial, the Company has the right to obtain a license to the results of the clinical trial upon the payment of a milestone, in cash and ordinary shares, with a combined value in the mid six digit dollar amount. If such license is not acquired, or if it is acquired and the license is terminated and the Company decides to abandon development of all products that deliver cytotoxic payloads to the MT1 target antigen, the Company will assign or grant to CRTL an exclusive license to develop and commercialize the product on a revenue sharing basis (in which case the Company will receive tiered royalties of 70% to 90% of the net revenue depending on the stage of development when the license is granted). The Cancer Research UK Agreement contains additional future milestone payments upon the achievement of development and regulatory milestones, payable in cash and shares, with an aggregate total value of $50.9 million, as well as royalty payments based on a single digit percentage on net sales of products developed.

The Cancer Research UK Agreement can be terminated by either party upon an insolvency event, material breach of the terms of the contract, or upon a change in control (and the new controlling entity develops, sells or manufactures tobacco products or generates the majority of its profits from tobacco products or is an affiliate of such party). Cancer Research UK may also terminate the arrangement for safety reasons or if it determines that the objectives of the clinical trial will not be met. The Company was obligated to reimburse Cancer Research UK for certain costs if the Cancer Research UK agreement was terminated by Cancer Research UK prior to the completion of the dose escalation (Phase I) part of the clinical trial for an insolvency event of, or material breach by, the Company or upon termination for safety reasons or if Cancer Research UK determined that the objectives of the clinical trial would not be met, however, these reimbursement obligations expired unexercised upon the completion of the Phase I portion of the clinical trial in 2020. If the Company is subject to a change in control and the new controlling entity develops, sells or manufactures tobacco products or generates the majority of its profits from tobacco products or is an affiliate of such party prior to the last cycle of treatment under the Phase IIa clinical trial, the Company will reimburse Cancer Research UK in full for all costs paid or committed in connection with the clinical trial and no further license payments, where applicable, shall be due. In such case, Cancer Research UK will not be obliged to grant a license to the Company in respect of the results of the clinical trial and the Company will assign or grant to CRTL an exclusive license to develop and commercialize the product without CRTL being required to make any payment to the Company.

The Company concluded that the costs incurred by Cancer Research UK is a liability in accordance with ASC 730, Research and Development, as certain payments are not based solely on the results of the research and development having future economic benefit. As such, the Company recorded a liability of $2.8 million and $2.6 million at March 31, 2021 and at December 31, 2020, which is recorded in other long-term liabilities in the condensed consolidated balance sheets. The liability is recorded as incremental research and development expense in the condensed consolidated statements of operations and comprehensive loss.

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BT7401

In December 2019, the Company entered into a clinical trial and license agreement with Cancer Research Technology Limited and Cancer Research UK. Pursuant to the agreement, Cancer Research UK’s Centre for Drug Development will fund and sponsor development of BT7401, a multivalent Bicycle CD137 agonist, from current preclinical studies through the completion of a Phase IIa trial in patients with advanced solid tumors.

The Company granted to Cancer Research UK a license to the Company’s intellectual property in order to design, prepare for, sponsor, and carry out the clinical trial and all necessary preclinical activities to support the trial. The Company retains the right to continue the development of BT7401 during the clinical trial. Upon the completion of the Phase I/IIa clinical trial, the Company has the right to obtain a license to the results of the clinical trial upon the payment of a milestone, in cash and ordinary shares, with a combined value in the mid six digit dollar amount. If such license is not acquired, or if it is acquired and the license is terminated and the Company decides to abandon development of all products that contain BT7401 or all the pharmaceutically active parts of BT7401, CRTL may elect to receive an exclusive license to develop and commercialize the product on a revenue sharing basis (in which case the Company will receive tiered royalties of 55% to 80% of the net revenue depending on the stage of development when the license is granted) less certain costs, as defined by the agreement. The BT7401 Cancer Research UK agreement contains additional future milestone payments upon the achievement of development, regulatory and commercial milestones, payable in cash, with an aggregate total value of up to $60.3 million for each licensed product, as well as royalty payments based on a single digit percentage on net sales of products developed, and sublicense royalties to the Cancer Research UK in the low double digit percentage of sublicense income depending on the stage of development when the license is granted.

The BT7401 Cancer Research UK agreement can be terminated by either party upon an insolvency event, material breach of the terms of the contract, or upon a change in control (and the new controlling entity develops, sells or manufactures tobacco products or generates the majority of its profits from tobacco products or is an affiliate of such party), or upon written notice by Cancer Research UK prior to the last cycle of treatment has been completed under the clinical trial. If the trial is terminated by the Company prior to the filing of a clinical trial authorization, or by Cancer Research UK for an insolvency event or a material breach by the Company prior to the start of a clinical trial, the Company will reimburse Cancer Research UK for certain costs paid or committed prior to the start of the clinical trial. In such case where the Company is subject to a change in control and the new controlling entity develops, sells or manufactures tobacco products or generates the majority of its profits from tobacco products or is an affiliate of such party, Cancer Research UK will not be obliged to grant a license to the Company in respect of the results of the clinical trial and CRTL may elect to receive an exclusive license to develop and commercialize the product without CRTL being required to make any payment to the Company. The Company concluded that the BT7401 Cancer Research UK arrangement does not represent a liability in accordance with ASC 730, Research and Development, as the payments are based solely on the results of the research and development having future economic benefit and risk of repayment is substantive and genuine, and as such there was no accounting impact as of March 31, 2021.

10. Income Taxes

During the three months ended March 31, 2021, and 2020, the Company recorded an income tax benefit of $0.3 million and $0.1 million, respectively. The Company is subject to United Kingdom corporate taxation. Due to the nature of its business, the Company has generated losses since inception and has therefore not paid United Kingdom corporation tax. The Company’s income tax benefit is mainly the result of deferred tax assets benefitted in the United States that do not have a valuation allowance against them because of profits that will be generated by an intercompany service agreement. The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighed the evidence based on its objectivity. After consideration of the evidence, including the Company’s history of cumulative net losses in the United Kingdom, and the Company has concluded that it is more likely than not that the Company will not realize the benefits of its U.K. deferred tax assets and accordingly the Company has provided a valuation allowance for the full amount of the net deferred tax assets in the United Kingdom. The Company has considered the Company’s history of

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cumulative net profits in the United States, estimated future taxable income and concluded that it is more likely than not that the Company will realize the benefits of its United States deferred tax assets and has not provided a valuation allowance against the net deferred tax assets in the United States. The Company recorded a valuation allowance against all of its U.K. deferred tax assets as of March 31, 2021 and December 31, 2020.

The Company intends to continue to maintain a full valuation allowance on its U.K. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The release of the valuation allowance would result in the recognition of certain deferred tax assets and an increase to the benefit from income taxes for the period the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that the Company is able to actually achieve.

The benefit from income taxes shown on the condensed consolidated statements of operations differs from amounts that would result from applying the statutory tax rates to income before taxes primarily because of certain permanent expenses that were not deductible, U.K., federal and state research and development credits, as well as the application of valuation allowances against the U.K. deferred tax assets.

11. Commitments and Contingencies

Leases

In September 2017, Bicycle Therapeutics Inc. entered into a lease agreement for office and laboratory space in Lexington, Massachusetts, which commenced on January 1, 2018 and expires on December 31, 2022. Bicycle Therapeutics Inc. has the option to extend for a successive period which is not included in the lease term as it is not reasonably certain that the option will be exercised. In conjunction with the lease agreement, Bicycle Therapeutics Inc. paid a security deposit of $0.2 million as well as prepaid rent of $0.1 million for the first month of the third, fourth, and fifth year of the lease. The deposit is recorded in other assets in the condensed consolidated balance sheets. The Company has recorded a right-of-use asset (inclusive of the impact of prepaid rent) and corresponding lease liability, by calculating the present value of lease payments, discounted at 9%, the incremental borrowing rate, over the lease term.

In October 2017, BicycleRD Limited entered into a lease agreement for office and laboratory space in Building 900, Babraham Research Campus, Cambridge, U.K. which expires on December 11, 2021. The annual rent is approximately $0.5 million. The lease agreement provides that the Company has the right to renew the lease for five years commencing December 12, 2021. The renewal period was not included in the original lease term as it was not reasonably certain that the right would be exercised. In March 2021, the Company concluded that it was reasonably certain that it will exercise the lease renewal option, and accounted for the lease extension as a modification of the existing lease. The Company remeasured the right of use asset and lease liability by calculating the present value of lease payments, discounted at 7.70%, the Company’s incremental borrowing rate, over the new lease term. The payments for the modified lease are approximately $0.5 million through December 31, 2021, and $0.8 million annually thereafter. Service charges are also payable based on floor area and are estimated to be approximately $0.1 million per year. In conjunction with the 2017 lease agreement, the Company paid a security deposit of $0.6 million, which is recorded in other current assets in the condensed consolidated balance sheets.

The components of the Company’s lease expense, which are recorded as a component of research and development expenses and general and administrative expenses in the condensed consolidated statement of operations and comprehensive loss are as follows (in thousands):


	March 31,			March 31,
	2021			2020
Operating lease cost	$	232		$	223
Variable lease cost		80			139
Total lease cost	$	312		$	362
Weighted‑average remaining operating lease term (years)		5.0			2.4
Weighted‑average discount rate		7.93	%		8.56	%

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The following table summarizes the maturities of the Company’s operating leases as of March 31, 2021, including the payments for the U.K. lease renewal which is reasonably certain of being extended (in thousands):


Year Ending December 31,
2021	$	713
2022		1,104
2023		662
2024		662
2025		662
2026		662
Present value adjustment		(732)
Total lease liabilities		3,733
Less: current lease liabilities		(708)
Long term lease liabilities	$	3,025

The Company has entered into various agreements with contract manufacturing organizations to provide clinical trial materials and with vendors for preclinical research studies, synthetic chemistry and other services for operating purposes. These payments are not included in the table of operating lease payments above since the contracts are generally cancelable at any time upon less than 90 days’ prior written notice. The Company is not contractually able to terminate for convenience and avoid any and all future obligations to these vendors. Under such agreements, the Company is contractually obligated to make certain minimum payments to the vendors, with the payments in the event of a termination with less than 90 days’ notice based on the timing of the termination and the exact terms of the agreement.

Legal proceedings

From time to time, the Company may become involved in various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business.

In September 2016, BicycleRD Limited, filed a complaint in the District Court of the Hague against Pepscan Systems B.V. and its affiliates (“Pepscan”) to contest the right of Pepscan to terminate a non-exclusive patent license agreement entered into with Pepscan in 2009. On November 20, 2020, the Company entered into a settlement and license agreement with Pepscan regarding Bicycle’s use of Pepscan’s CLIPS peptide technology. The companies agreed to settle all intellectual property disputes worldwide. Under the terms of the settlement, Bicycle has been granted a license to use CLIPS peptide technology in the development of its product candidates BT1718 and THR-149. Bicycle paid €3.0 million in November 2020, will pay €1.0 million on the first anniversary of the date of settlement, and will make additional future milestone payments upon the achievement of development, regulatory and commercial milestones, with an aggregate total value of $92.4 million. The Company recorded $4.7 million of expense related to the settlement and license agreement with Pepscan during the year ended December 31, 2020, and a liability of $1.2 million related to the Pepscan litigation as of December 31, 2020, which is included in current liabilities in the condensed consolidated balance sheet.

Founder Royalty arrangements

At the time BicycleRD Limited was organized, BicycleRD Limited entered into a royalty agreement with its founders and initial investors (the “Founder Royalty Agreement”). Pursuant to the Founder Royalty Agreement, as amended, the Company will pay a royalty rate in the low single digit percentages on net product sales under the collaborations with Oxurion and AstraZeneca to its founders and initial investors, for a period of 10 years from the first commercial sale on a country by country basis. No royalties have been earned or paid under the royalty arrangements to date.

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Indemnification obligations

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has indemnification obligations towards members of its board of directors and officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification arrangements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnification obligations. The Company is not aware of any claims under indemnification arrangements, and therefore it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of March 31, 2021 and December 31, 2020.

12. Net loss per share

Basic and diluted net loss per share attributable to ordinary shareholders was calculated as follows (in thousands, except share and per share amounts):


	Three Months Ended
	March 31,
	2021		2020
Numerator:
Net loss	$	(16,191)	$	(11,324)
Denominator:
Weighted average ordinary shares outstanding, basic and diluted		22,100,840		17,997,929
Net loss per share, basic and diluted	$	(0.73)	$	(0.63)

The Company’s potentially dilutive securities, which include share options and warrants to subscribe for ordinary shares, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of ordinary shares outstanding used to calculate both basic and diluted net loss per share attributable to ordinary shareholders is the same. The Company excluded the following potentially dilutive ordinary shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to ordinary shareholders for the periods indicated because including them would have had an anti-dilutive effect:


	Three Months Ended
	March 31,
	2021	2020
Warrants to subscribe for ordinary shares (1)	—	71,450
Options to purchase ordinary shares	4,950,608	3,654,888
	4,950,608	3,726,338

(1)	At March 31, 2020, 50,000 warrants are outstanding which are exercisable into 71,450 ordinary shares.

13. Benefit plans

The Company established a defined-contribution savings plan under Section 401(k) of the Code (the “401(k) Plan”). The 401(k) Plan covers all U.S. employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. Matching contributions to the 401(k) Plan may be made at the discretion of the Company’s board of directors. During each of the three months ended March 31, 2021 and 2020, the Company made contributions totaling $0.1 million to the 401(k) Plan.

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The Company provides a pension contribution plan for its employees in the United Kingdom, pursuant to which the Company may make contributions each year (“U.K Plan”). During the three months ended March 31, 2021 and 2020, the Company made contributions totaling $0.2 million, and $0.1 million, respectively, to the U.K. Plan.

14. Related party transactions

The Company has entered into Founder Royalty Agreements with its founders and initial investors (Note 11). No royalties have been earned or paid under the Founder Royalty Agreements to date.

The Chairman of the Company’s board of directors is associated with Stone Sunny Isles Inc., which provided consultancy services to the Company totaling $43,000 and $40,000 during each of the three months ended March 31, 2021 and 2020, respectively.

15. Geographic information

The Company operates in two geographic regions: the United States and the United Kingdom. Information about the Company’s long-lived assets, including operating lease right-of-use assets, held in different geographic regions is presented in the table below (in thousands):


	March 31,		December 31,
	2021		2020
United States	$	1,579	$	1,708
United Kingdom		4,692		1,899
	$	6,271	$	3,607

The Company’s collaboration revenues are attributed to the operations of the Company in the United Kingdom.

16. Subsequent events

Previously, on October 2, 2020, the Company entered into a Sales Agreement with Cantor Fitzgerald & Co. and Oppenheimer & Co. Inc. with respect to an ATM program under which the Company may offer and sell, from time to time at its sole discretion, ADSs through the Sales Agents, representing the same number of ordinary shares, having an aggregate offering price of up to $75.0 million. In April 2021, the Company issued and sold 482,299 ADSs, representing the same number of ordinary shares, pursuant to its ATM program for gross proceeds of $14.4 million, resulting in net proceeds of $14.0 million, after deducting sales commissions and offering expenses of $0.4 million, completing the sale of $75.0 million under the ATM Sales Agreement.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020, or the 2020 Annual Report, which was filed with the Securities and Exchange Commission, or SEC, on March 11, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth under the heading “Risk Factors” in Part II, Item 1A of this report. Such factors may be amplified by the ongoing COVID-19 pandemic and its potential impact on our business and the global economy.

Overview

We are a clinical-stage biopharmaceutical company developing a novel class of medicines, which we refer to as Bicycles, for diseases that are underserved by existing therapeutics. Bicycles are fully synthetic short peptides constrained to form two loops which stabilize their structural geometry. This constraint facilitates target binding with high affinity and selectivity, making Bicycles attractive candidates for drug development. Bicycles are a unique therapeutic modality combining the pharmacology usually associated with a biologic with the manufacturing and pharmacokinetic, or PK, properties of a small molecule. The relatively large surface area presented by Bicycles allow targets to be drugged that have historically been intractable to non-biological approaches. Bicycles are excreted by the kidney rather than the liver and have shown no signs of immunogenicity to date, which we believe together support a favorable toxicological profile.

We have a novel and proprietary phage display screening platform which we use to identify Bicycles in an efficient manner. The platform initially displays linear peptides on the surface of engineered bacteriophages, or phages, before “on-phage” cyclization with a range of small molecule scaffolds which can confer differentiated physicochemical and structural properties. Our platform encodes quadrillions of potential Bicycles which can be screened to identify molecules for optimization to potential product candidates. We have used this powerful screening technology to identify our current portfolio of candidates in oncology and intend to use it in conjunction with our collaborators to seek to develop additional future candidates across a range of other disease areas.

Our initial internal programs are focused on oncology indications with high unmet medical need. Our lead product candidates, BT5528, BT8009, and BT1718 are Bicycle Toxin Conjugates®, or BTCs. These Bicycles are chemically attached to a toxin that when administered is cleaved from the Bicycle® and kills the tumor cells. We are evaluating BT5528, a second-generation BTC targeting Ephrin type A receptor 2, or EphA2, in a company-sponsored Phase I/II clinical trial and BT8009, a second-generation BTC targeting Nectin-4, in a company-sponsored Phase I/II clinical trial. In addition, BT1718 is being developed to target tumors that express Membrane Type 1 matrix metalloproteinase, or MT1 MMP, and is being investigated for safety, tolerability and efficacy in an ongoing Phase I/IIa clinical trial sponsored and fully funded by the Cancer Research UK Centre for Drug Development, or Cancer Research UK. Our discovery pipeline in oncology includes Bicycle-based systemic immune cell agonists and Bicycle tumor-targeted immune cell agonists, or Bicycle TICAs.

Beyond our wholly-owned oncology portfolio, we are collaborating with biopharmaceutical companies and organizations in therapeutic areas in which we believe our proprietary Bicycle screening platform can identify therapies to treat diseases with significant unmet medical need. Our partnered programs outside of oncology include collaborations in immuno-oncology, anti-infective, cardiovascular, ophthalmology, dementia and respiratory indications.

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COVID-19 Business Update

In 2020, with the global spread of the ongoing COVID-19 pandemic, we established a cross-functional task force and implemented business continuity plans designed to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees, customers and our business. While we are experiencing limited financial and operational impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. We continue to closely monitor the ongoing COVID-19 situation as we evolve our business continuity plans and response strategy. Our laboratories in the United Kingdom and the United States remain operational, though certain of our employees continue to work predominately remotely. We have prepared plans, which we began implementing in March 2021, to allow certain non-laboratory based employees to return to the office in a phased approach that is principles-based and local in design, with a focus on employee safety and optimal work environment. In light of continually changing circumstances regarding infection rates and local government recommendations, we may be required to suspend or reverse any planned return to the office in the future.

Clinical Development

With respect to clinical development, our CROs have taken measures to implement remote and virtual approaches, including remote patient monitoring where possible, to maintain patient safety and trial continuity and to preserve trial integrity. While we have not experienced a material impact to our business, during the first half of 2020, all clinical sites for the Phase I/IIa trial of BT1718 being conducted by CRUK in the United Kingdom temporarily paused enrollment of new patients due to the COVID-19 pandemic. The pause in enrollment was lifted during the second quarter of 2020 and patient enrollment in the Phase IIa portion of the clinical trial remains underway. We are also currently enrolling patients in a Phase I/II clinical trial for BT5528 and BT8009. Clinical trial sites have remained open and activities are ongoing. However, as the COVID-19 pandemic continues, we anticipate our ability to enroll patients in these trials may be impacted. We could also see an impact on the ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the ongoing COVID-19 pandemic. If the COVID-19 pandemic is exacerbated or persists for an extended period of time, we could experience significant disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.

Supply Chain

As for our third-party manufacturers, distributors and other partners, we are working closely with them to manage our supply chain activities and mitigate potential disruptions to our clinical trial materials and supplies as a result of the ongoing COVID-19 pandemic. We currently expect to have adequate global supply of clinical trial materials and supplies to support our current clinical trial activities. If the COVID-19 pandemic persists for an extended period of time or begins to impact essential distribution systems such as FedEx and postal delivery, we could experience disruptions to our supply chain and operations, and associated delays in the manufacturing and supply of our products, which would adversely impact our ability to provide investigational product to our clinical trial sites and to generate sales of and revenues from our approved products, if approved.

Other Financial and Corporate Impacts

The impact of the ongoing COVID-19 pandemic on our business operations and financial results, clinical development and regulatory efforts, corporate development objectives and the value of and market for our ADSs, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United Kingdom, United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. If remote work policies for certain portions of our business, or that of our business partners, are extended longer than we currently expect or are reimposed due to increased incidence or infection rates, we may need to reassess our priorities and our corporate objectives. Additionally, our operations, ability to timely

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and accurately report financial results, the operating effectiveness of our internal controls, and the security of our informational technology and systems could be impacted.

Financial Overview

Since our inception, we have devoted substantially all of our resources to developing our Bicycle platform and our product candidates, BT5528, BT8009, BT1718, BT7480, BT7455 and BT7401, conducting research and development of our product candidates and preclinical programs, raising capital and providing general and administrative support for our operations. To date, we have financed our operations primarily with proceeds from the sale of our American Depositary Shares, or ADSs, ordinary shares, and convertible preferred shares, proceeds received from upfront payments, research and development payments, and development milestone payments from our collaboration agreements with Genentech Inc., or Genentech, Oxurion NV (formerly ThromboGenics NV), or Oxurion, AstraZeneca AB, or AstraZeneca, Sanofi (formerly Bioverativ Inc.) and the Dementia Discovery Fund, or DDF; and borrowings pursuant to our debt facility with Hercules Capital, Inc., or Hercules. From our inception in 2009 through March 31, 2021, we have received gross proceeds of $304.2 million from the sale of ADSs, ordinary shares and convertible preferred shares, including the proceeds from our initial public offering and at-the-market, or ATM, offering program; $68.6 million of cash payments under our collaboration revenue arrangements, including $31.0 million from Genentech, $10.3 million from AstraZeneca, $6.6 million from Oxurion, $15.0 million from Sanofi, $1.7 million from DDF and $3.0 million from an evaluation and option agreement; and borrowings of $30.0 million pursuant to our Loan and Security Agreement, or Loan Agreement, with Hercules. We do not have any products approved for sale and have not generated any revenue from product sales.

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. Our net loss was $16.2 million and $11.3 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $167.8 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future.

We anticipate that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates and, if any product candidates are approved, pursue the commercialization of such product candidates by building internal sales and marketing capabilities. We expect that our expenses and capital requirements will increase substantially if and as we:

●

continue our development of our product candidates, including conducting future clinical trials of BT5528, BT8009, and BT1718;

●

progress the preclinical and clinical development of BT7480, BT7455, and BT7401;

●

seek to identify and develop additional product candidates;

●

develop the necessary processes, controls and manufacturing data to obtain marketing approval for our product candidates and to support manufacturing to commercial scale;

●

develop, maintain, expand and protect our intellectual property portfolio;

●

seek marketing approvals for our product candidates that successfully complete clinical trials, if any;

●

hire and retain additional personnel, such as non-clinical, clinical, pharmacovigilance, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, medical affairs, commercial and scientific personnel;

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●

acquire or in-license other products and technologies;

●

expand our infrastructure and facilities to accommodate our growing employee base, including adding equipment and infrastructure to support our research and development; and

●

add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts, and our operations as a public company.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take many years and is subject to significant uncertainty. We have no commercial-scale manufacturing facilities of our own, and all of our manufacturing activities have been and are planned to be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations, or CROs, to carry out our clinical development activities. If we seek to obtain marketing approval for any of our product candidates from which we obtain promising results in clinical development, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, charitable grants, monetization transactions or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates. The COVID-19 pandemic has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, whether as a result of the ongoing COVID-19 pandemic or otherwise, we could experience an inability to access additional capital.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of March 31, 2021, we had cash of $195.9 million. We believe that our existing cash will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of filing of this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. See “— Liquidity and Capital Resources.”

Components of Our Results of Operations

Collaboration Revenues

To date, we have not generated any revenue from product sales and we do not expect to generate any revenue from product sales for the foreseeable future. Our revenue primarily consists of collaboration revenue under our arrangements with our collaboration partners, including amounts that are recognized related to upfront payments, milestone payments and option exercise payments, and amounts due to us for research and development services. In the future, revenue may include additional milestone payments and option exercise payments, and royalties on any net product sales under our collaborations. We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of license, research and development services, milestone and other payments.

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Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research and development activities, including our discovery efforts, and the development of our product candidates, which include:

●

employee-related expenses including salaries, benefits, and share-based compensation expense;

●

expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on our behalf;

●

the cost of consultants;

●

the cost of lab supplies and acquiring, developing and manufacturing preclinical study materials and clinical trial materials;

●

costs related to compliance with regulatory requirements; and

●

facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other operating costs.

Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as a prepaid expense or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

U.K. research and development tax credits and government grant funding are recorded as an offset to research and development expense. See “—Benefit from Income Taxes.”

Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors and contract manufacturing organizations, or CMOs, in connection with our preclinical and clinical development activities. Costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in direct research and development expenses for that program. Costs incurred prior to designating a product candidate are included in other discovery and platform related expense. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

In December 2016, we entered into a Clinical Trial and License Agreement with Cancer Research Technology Limited, or CRTL and Cancer Research UK, pursuant to which the Cancer Research UK Centre for Drug Development is sponsoring and funding a Phase I/IIa clinical trial for our product candidate, BT1718, in patients with advanced solid tumors. Cancer Research UK has designed and prepared and is carrying out and sponsoring the clinical trial at its own cost. Upon the completion of the Phase I/IIa clinical trial, we have the right to obtain a license to the results of the clinical trial upon the payment of a milestone, in cash and ordinary shares, with a combined value in the mid six digit dollar amount. If such license is not acquired, or if it is acquired and the license is terminated and we decide to abandon development of all products that deliver cytotoxic payloads to the MT1 target antigen, CRTL may elect to receive an assignment and exclusive license to develop and commercialize the product on a revenue sharing basis (in which case we will receive tiered royalties of 70% to 90% of the net revenue depending on the stage of development when the license is granted is less certain costs, as defined in the agreement). The Cancer Research UK Agreement contains additional future milestone payments upon the achievement of development, regulatory and commercial milestones,

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payable in cash and shares, with an aggregate total value of $50.9 million, as well as royalty payments based on a single digit percentage on net sales of products developed. The Cancer Research UK Agreement can be terminated by either party upon an insolvency event, material breach of the terms of the contract, upon a change in control involving a tobacco related entity, and in certain other specified circumstances, and includes provisions that require the repayment of costs to Cancer Research UK upon certain termination events. The costs incurred by Cancer Research UK are recorded as a liability in accordance with ASC 730, Research and Development as the payments are not based solely on the results of the research and development having future economic benefit. The accrual of the liability is recorded as incremental research and development expense in the condensed consolidated statements of operations and comprehensive loss. Upon the completion of the Phase IIa part of the clinical trial, we expect research and development expenses to increase significantly as we expect to fund the continued development of BT1718, as well as incur additional development milestone payments.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as a result of our expanded portfolio of product candidates and as we: (i) continue the clinical development and seek to obtain marketing approval for our product candidates, including BT5528, BT8009 and BT1718; (ii) initiate clinical trials for our product candidates, including BT7480, BT7455 and BT7401; and (iii) build our in-house process development and analytical capabilities and continue to discover and develop additional product candidates.

The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing products, including the uncertainty of:

●

whether our business will be adversely affected by the ongoing COVID-19 pandemic, which could materially affect our operations, delay our research efforts and clinical trials and cause significant disruption in the operations and business of third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business; and

●

completing research and preclinical development of our product candidates, including conducting future clinical trials of BT5528, BT8009 and BT1718;

●

progressing the preclinical and clinical development of BT7480, BT7455 and BT7401;

●

establishing an appropriate safety profile with IND-enabling studies to advance our preclinical programs into clinical development;

●

identifying new product candidates to add to our development pipeline;

●

successful enrollment in, and the initiation and completion of clinical trials;

●

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;

●

commercializing the product candidates, if and when approved, whether alone or in collaboration with others;

●

establishing commercial manufacturing capabilities or making arrangements with third party manufacturers;

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●

the development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials;

●

addressing any competing technological and market developments, as well as any changes in governmental regulations;

●

negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations under such arrangements;

●

maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how, as well as obtaining and maintaining regulatory exclusivity for our product candidates;

●

continued acceptable safety profile of the drugs following approval; and

●

attracting, hiring and retaining qualified personnel.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, the FDA, EMA or another regulatory authority may require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or we may experience significant trial delays due to patient enrollment or other reasons, including the impacts of the ongoing COVID-19 pandemic, in which case we would be required to expend significant additional financial resources and time on the completion of clinical development. For instance, all clinical sites for the Phase I/IIa trial of BT1718 being conducted by Cancer Research UK in the United Kingdom, temporarily paused enrollment of new patients due to the ongoing COVID-19 pandemic during the first half of 2020. The pause in enrollment was lifted in the second quarter of 2020, and patient enrollment in the Phase IIa portion of the clinical trial remains underway. However, changes in circumstances related to the ongoing pandemic could result in future pauses in or other impacts on enrollment. In addition, we may obtain unexpected results from our clinical trials and we may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, insurance, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.

Foreign currency transactions in currencies different from the functional currency of our UK entities are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences resulting from the settlement of such transactions and from the translation at period-end exchange rates in foreign currencies are recorded in general and administrative expense in the statement of operations and comprehensive loss. As such, our operating expenses may be impacted by future changes in exchange rates. See “Quantitative and Qualitative Disclosures About Market Risks” for further discussion.

We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our portfolio of product candidates. We also expect to incur increased expenses associated with being a public company,

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including costs of accounting, audit, information systems, legal, intellectual property, regulatory and tax compliance services, director and officer insurance costs and investor and public relations costs.

Other Income (Expense)

Interest Income

Interest income consists primarily of interest earned on our cash held in operating accounts.

Interest Expense

Interest expense consists primarily of interest expense for financing arrangements. On September 30, 2020, we entered into the Loan Agreement with Hercules and borrowed $15.0 million. On March 10, 2021, we entered into the First Amendment to the Loan and Security Agreement and borrowed an additional $15.0 million. Consequently, we expect interest expense to increase in future periods.

Benefit From Income Taxes

We are subject to corporate taxation in the United States and the United Kingdom. We have generated losses since inception and have therefore not paid United Kingdom corporation tax. The benefit from income taxes presented in our condensed consolidated statements of operations and comprehensive loss represents the tax impact from our operating activities in the United States, which have generated taxable income based on intercompany service arrangements.

The research and development tax credit received in the United Kingdom is recorded as a reduction to research and development expenses. The U.K. research and development tax credit, as described below, is fully refundable to us after surrendering tax losses and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from the U.K. research and development tax credit as a reduction to research and development expenses and is not reflected as part of the income tax provision. If, in the future, any U.K. research and development tax credits generated are needed to offset a corporate income tax liability in the United Kingdom, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded as a reduction to research and development expenses.

As a company that carries out extensive research and development activities, we seek to benefit from one of two U.K. research and development tax credit cash rebate regimes: The Small and Medium-sized Enterprises R&D Tax Credit Program, or SME Program, and the Research and Development Expenditure program, or RDEC Program. Qualifying expenditures largely comprise employment costs for research staff, consumables, expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on our behalf and certain internal overhead costs incurred as part of research projects.

Based on criteria established by U.K. law, a portion of expenditures being carried out in relation to our pipeline research and development, clinical trials management and manufacturing development activities were eligible for the RDEC Program for the year ended December 31, 2020. We will assess whether it is possible to qualify under the more favorable SME regime for future accounting periods, but this will be affected as a result of becoming a large company by reference to our staff headcount and/or our financial results.

Unsurrendered U.K. losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of U.K. taxable profits.

Value Added Tax, or VAT, is broadly charged on all taxable supplies of goods and services by VAT-registered businesses. Under current rates, an amount of 20% of the value, as determined for VAT purposes, of the goods or services supplied is added to all sales invoices and is payable to HMRC. Similarly, VAT paid on purchase invoices is

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generally reclaimable from HMRC and is included as a component of prepaid and other current assets in our condensed consolidated balance sheets.

Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020:



	Three Months Ended March 31,
	2021		2020		Change

	(in thousands)
Collaboration revenues	$	1,808	$	1,129	$	679
Operating expenses:
Research and development		9,693		7,774		1,919
General and administrative		8,139		4,998		3,141
Total operating expenses		17,832		12,772		5,060
Loss from operations		(16,024)		(11,643)		(4,381)
Other income (expense):
Interest income		15		212		(197)
Interest expense		(522)		—		(522)
Total other income (expense), net		(507)		212		(719)
Net loss before income tax provision		(16,531)		(11,431)		(5,100)
Benefit from income taxes		(340)		(107)		(233)
Net loss	$	(16,191)	$	(11,324)	$	(4,867)

Collaboration Revenues

Collaboration revenues increased by $0.7 million in the three months ended March 31, 2021, compared to the three months ended March 31, 2020, primarily due to an increase of $0.8 million from our collaboration with Genentech entered into in February 2020, offset by $0.1 million decrease related to our collaboration with AstraZeneca.

Research and Development Expenses

The table below summarizes our research and development expenses for the period:



	Three Months Ended March 31,
	2021		2020		Change

	(in thousands)
BT1718 (MT1)	$	172	$	203	$	(31)
BT5528 (EphA2)		1,338		1,313		25
BT8009 (Nectin‑4)		1,626		565		1,061
Tumor-targeted immune cell agonist		1,240		1,308		(68)
Other discovery and platform related expense		3,280		2,710		570
Employee and contractor related expenses		3,882		2,673		1,209
Share-based compensation		1,211		675		536
Facility expenses		170		264		(94)
Research and development incentives		(3,226)		(1,937)		(1,289)
Total research and development expenses	$	9,693	$	7,774	$	1,919

Research and development expense increased by $1.9 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020, due primarily to an increase of $1.6 million in direct program spend, due to increased clinical program development expenses for BT8009, as well as an increase of $1.2 million in

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personnel-related expenses attributable to increased headcount and $0.5 million of incremental share-based compensation expense. These increases were offset by a $1.3 million increase in the research and development tax credit reimbursement due to the corresponding increase in research and development spending in the United Kingdom.

We begin to separately track program expenses at candidate nomination, at which point we will accumulate all costs to support that program to date. Through March 31, 2021, we have incurred approximately $15.7 million, $13.7 million, $12.7 million, and $6.5 million of direct expenses for the development of the BT5528, BT1718, BT8009, and tumor-targeted immune cell agonist programs, respectively, since their candidate nominations.

General and Administrative Expenses

The table below summarizes our general and administrative expenses for the period:


	Three Months Ended
	March 31,
	2021		2020		Change

	(in thousands)
Personnel related costs	$	1,877	$	1,507	$	370
Professional and consulting fees		2,241		2,205		36
Other general and administration costs		1,368		1,185		183
Share-based compensation		2,610		1,446		1,164
Effect of foreign exchange rates		43		(1,345)		1,388
Total general and administrative expenses	$	8,139	$	4,998	$	3,141

General and administrative expenses increased by $3.1 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020. This is primarily due to an increase of $1.2 million in share-based compensation expense, a $1.3 million unfavorable impact of foreign exchange rates, an increase of $0.4 million in personnel related costs and an increase of $0.2 million in other general and administrative costs, including insurance expense, to support operations as a public company.

Other Income (Expense), net

Other income (expense), net decreased by $0.7 million in the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to interest expense related to our Loan Agreement.

Liquidity and Capital Resources

From our inception through March 31, 2021, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We do not expect to generate significant revenue from sales of any products for several years, if at all.

To date, we have financed our operations primarily with proceeds from the sale of ordinary shares, ADSs and convertible preferred shares, as well as proceeds received from upfront payments, payments for research and development services, and development milestone payments from our collaboration agreements with Genentech, AstraZeneca, Oxurion, Sanofi and DDF and borrowings pursuant to our debt facility.

From our inception in 2009 through March 31, 2021, we have received gross proceeds of $304.2 million from the sale of ordinary shares, ADSs, and convertible preferred shares, including the proceeds from our IPO and our ATM offering; $68.6 million of cash payments under our collaboration revenue arrangements including $31.0 million from Genentech, $10.3 million from AstraZeneca, $6.6 million from Oxurion, $15.0 million from Sanofi, $1.7 million from DDF and $3.0 million from an evaluation and option agreement; and $30.0 in borrowings pursuant to our Loan Agreement. We do not have any products approved for sale and have not generated any revenue from product sales.

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Cash Flows

The following table summarizes our cash flows for each of the periods presented:


	March 31,
	2021		2020
Net cash (used in) provided by operating activities	$	(13,707)	$	21,162
Net cash used in investing activities		(623)		(320)
Net cash provided by financing activities		74,059		2
Effect of exchange rate changes on cash		182 </