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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 June 30, 2023

OR

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.)

Blocks A & B, Portway Building, Granta Park
Great Abington, Cambridge, United Kingdom

CB21 6GS

(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 July 31, 2023, the registrant had 36,714,816 ordinary shares, nominal value £0.01 per share, and 4,705,882 non-voting 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

35

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

50

Item 4.

Controls and Procedures

51

PART II - OTHER INFORMATION

52

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

109

Item 3.

Defaults Upon Senior Securities

109

Item 4.

Mine Safety Disclosures

109

Item 5.

Other Information

109

Item 6.

Exhibits

109

SIGNATURES

i

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

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 “will,” “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:

the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;
our ability to advance our product candidates into, and successfully complete, clinical trials;
our reliance on the success of our product candidates in our Bicycle® Toxin Conjugate, or BTCTM, Bicycle tumor-targeted immune cell agonist®, or Bicycle TICATM and other pipeline programs;
our ability to utilize our screening platform to identify and advance additional product candidates into clinical development;
the timing or likelihood of regulatory filings and approvals;
the commercialization of our product candidates, if approved;
our ability to develop sales and marketing capabilities;
the pricing, coverage and reimbursement of our product candidates, if approved;
the implementation of our business model, strategic plans for our business, product candidates and technology;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;
our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;
costs associated with defending intellectual property infringement, product liability and other claims;
regulatory development in the United States, the United Kingdom and other jurisdictions and changes to laws and regulations of England and Wales, and other jurisdictions;
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
the amount of and our ability to satisfy interest and principal payments under our debt facility with Hercules Capital, Inc., or Hercules;
the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

ii

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our ability to maintain and establish collaborations or obtain additional grant funding;
the rate and degree of market acceptance of any approved products;
developments relating to our competitors and our industry, including competing therapies;
our ability to effectively manage our anticipated growth;
our ability to attract and retain qualified employees and key personnel;
future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance;
the impact of public health crises and other adverse global economic conditions on our operations and the potential disruption in the operations and business of our third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business;
recent adverse developments affecting the financial services industry;
potential business interruptions resulting from geo-political actions, such as war and terrorism or the perception that such hostilities may be imminent;
our failure or perceived failure to comply with existing or future laws, regulations, contracts, self-regulatory schemes, standards, and other obligations related to data privacy and security (including security incidents) that could harm our business, increase the costs of our products or services, limit their use or adoption, and otherwise negatively affect our operating results and business; and
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.

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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)

June 30, 

December 31,

    

2023

    

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

340,433

$

339,154

Accounts receivable

 

45,090

 

2,045

Prepaid expenses and other current assets

 

10,023

 

9,022

Research and development incentives receivable

 

12,884

 

19,162

Total current assets

 

408,430

 

369,383

Property and equipment, net

 

17,572

 

19,110

Operating lease right-of-use assets

 

16,022

 

13,658

Other assets

 

12,146

 

8,458

Total assets

$

454,170

$

410,609

Liabilities and shareholders’ equity

 

  

 

  

Current liabilities:

 

 

Accounts payable

$

5,250

$

6,472

Accrued expenses and other current liabilities

 

37,262

 

26,452

Deferred revenue, current portion

 

29,754

 

20,418

Total current liabilities

 

72,266

 

53,342

Long-term debt, net of discount

30,513

30,315

Operating lease liabilities, net of current portion

 

11,881

 

10,885

Deferred revenue, net of current portion

115,083

41,455

Other long‑term liabilities

 

4,330

 

3,829

Total liabilities

 

234,073

 

139,826

Commitments and contingencies (Note 11)

 

  

 

  

Shareholders’ equity:

 

  

 

  

Ordinary shares, £0.01 nominal value; 59,612,613 and 57,820,181 shares authorized at June 30, 2023 and December 31, 2022, respectively; 30,585,940 and 29,873,893 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively

 

396

 

387

Additional paid-in capital

 

633,341

 

601,105

Accumulated other comprehensive (loss) income

 

(877)

 

387

Accumulated deficit

 

(412,763)

 

(331,096)

Total shareholders’ equity

 

220,097

 

270,783

Total liabilities and shareholders’ equity

$

454,170

$

410,609

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

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Collaboration revenues

$

11,397

$

4,378

$

16,293

$

8,238

Operating expenses:

 

 

 

 

  

Research and development

 

39,720

 

19,854

 

71,931

 

34,138

General and administrative

 

14,788

 

11,824

 

29,276

 

28,783

Total operating expenses

 

54,508

 

31,678

 

101,207

 

62,921

Loss from operations

 

(43,111)

 

(27,300)

 

(84,914)

 

(54,683)

Other income (expense):

 

 

  

 

 

  

Interest income

 

812

 

908

 

3,741

 

1,126

Interest expense

(821)

(883)

(1,629)

(1,701)

Total other income (expense), net

 

(9)

 

25

 

2,112

 

(575)

Net loss before income tax provision

 

(43,120)

 

(27,275)

 

(82,802)

 

(55,258)

Benefit from income taxes

 

(517)

 

(447)

 

(1,135)

 

(866)

Net loss

$

(42,603)

$

(26,828)

$

(81,667)

$

(54,392)

Net loss per share, basic and diluted

$

(1.41)

$

(0.90)

$

(2.71)

$

(1.84)

Weighted average ordinary shares outstanding, basic and diluted

 

30,191,693

 

29,648,564

 

30,097,234

 

29,626,974

Comprehensives loss:

 

 

  

 

 

  

Net loss

$

(42,603)

$

(26,828)

$

(81,667)

$

(54,392)

Other comprehensive income (loss):

 

 

  

 

 

  

Foreign currency translation adjustment

 

(948)

 

2,094

 

(1,264)

 

3,014

Total comprehensive loss

$

(43,551)

$

(24,734)

$

(82,931)

$

(51,378)

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

Paidin

Comprehensive

Accumulated

Shareholders’

  

Shares

  

Amount

  

Capital

  

Income (Loss)

  

Deficit

  

Equity

Balance at December 31, 2022

29,873,893

$

387

$

601,105

$

387

$

(331,096)

$

270,783

Issuance of ADSs upon exercise of share options

877

1

1

Issuance of ADSs, net of commissions and offering expenses of $0.1 million

100,000

1

2,715

2,716

Issuance of ADSs upon vesting of restricted share units

56,988

1

1

Share-based compensation expense

9,042

9,042

Foreign currency translation adjustment

(316)

(316)

Net loss

(39,064)

(39,064)

Balance at March 31, 2023

30,031,758

389

612,863

71

(370,160)

243,163

Issuance of ADSs upon exercise of share options

12,389

165

165

Issuance of ADSs, net of commissions and offering expenses of $0.4 million

520,000

7

12,120

12,127

Issuance of ADSs upon vesting of restricted share units

21,793

Share-based compensation expense

8,193

8,193

Foreign currency translation adjustment

(948)

(948)

Net loss

(42,603)

(42,603)

Balance at June 30, 2023

30,585,940

$

396

$

633,341

$

(877)

$

(412,763)

$

220,097

Balance at December 31, 2021

29,579,364

$

384

$

567,637

$

(3,388)

$

(218,379)

$

346,254

Issuance of ADSs upon exercise of share options

30,074

1

449

450

Issuance of ADSs upon vesting of restricted share units

35,000

Share-based compensation expense

10,198

10,198

Foreign currency translation adjustment

920

920

Net loss

(27,564)

(27,564)

Balance at March 31, 2022

29,644,438

385

578,284

(2,468)

(245,943)

330,258

Issuance of ADSs upon exercise of share options

21,879

195

195

Share-based compensation expense

5,673

5,673

Foreign currency translation adjustment

2,094

2,094

Net loss

(26,828)

(26,828)

Balance at June 30, 2022

29,666,317

$

385

$

584,152

$

(374)

$

(272,771)

$

311,392

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)

Six Months Ended

Ended

June 30, 

    

2023

    

2022

Cash flows from operating activities:

 

  

Net loss

$

(81,667)

$

(54,392)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Share-based compensation expense

 

17,235

 

15,871

Depreciation and amortization

 

3,202

 

1,039

Non-cash interest

198

271

Deferred income tax benefit

 

(3,683)

(1,616)

Changes in operating assets and liabilities:

 

Accounts receivable

 

52,358

 

(9,346)

Research and development incentives receivable

 

7,199

 

(6,850)

Prepaid expenses and other assets

 

(638)

 

(2,418)

Operating lease right‑of‑use assets

 

2,054

 

1,343

Accounts payable

 

21

 

1,341

Accrued expenses and other current liabilities

 

8,416

 

3,209

Operating lease liabilities

 

(1,867)

 

(789)

Deferred revenue

 

(15,454)

 

2,072

Other long-term liabilities

 

311

 

334

Net cash used in operating activities

 

(12,315)

 

(49,931)

Cash used in investing activities:

 

  

 

  

Purchases of property and equipment

 

(2,376)

 

(14,555)

Net cash used in investing activities

 

(2,376)

 

(14,555)

Cash flows from financing activities:

 

  

 

  

Proceeds from the issuance of ADSs, net of issuance costs

14,843

Proceeds from the exercise of share options and sale of ordinary shares

167

645

Net cash provided by financing activities

 

15,010

 

645

Effect of exchange rate changes on cash and cash equivalents

 

960

 

(2,070)

Net increase (decrease) in cash and cash equivalents

 

1,279

 

(65,911)

Cash and cash equivalents at beginning of period

 

339,154

 

438,680

Cash and cash equivalents at end of period

$

340,433

$

372,769

Supplemental disclosure of cash flow information

 

  

 

  

Cash paid for interest

$

1,365

$

1,390

Cash paid for income taxes

$

664

$

749

Cash paid for amounts included in the measurement of operating lease liabilities

$

2,771

$

1,336

Changes in purchases of property and equipment in accounts payable and accrued expenses

$

(1,401)

$

1,209

Advance billings on deferred revenue included in accounts receivable

$

45,000

$

Non-cash impact right-of-use asset and operating lease liabilities

$

4,004

$

3,120

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 (“BTCTM”) targeting Ephrin type-A receptor 2 (“EphA2”), in a Company-sponsored Phase I/II clinical trial, BT8009, a second-generation BTC targeting Nectin-4, in a Company-sponsored Phase I/II clinical trial, and BT7480, a Bicycle tumor-targeted immune cell agonist® (“Bicycle TICATM”) targeting Nectin-4 and agonizing CD137, 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 TICAs. Beyond the Company’s wholly owned oncology portfolio, the Company is collaborating with biopharmaceutical companies.

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”). The Company has reclassified the deferred income tax benefit within its condensed consolidated statements of cash flows in prior periods to conform to current period presentation.

Liquidity

As of June 30, 2023, the Company had cash and cash equivalents of $340.4 million.

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 primarily with proceeds from the sale of its ordinary shares, convertible preferred shares and American Depositary Shares (“ADSs”), including offerings pursuant to its at-the-market offering program (“ATM”), proceeds received from its collaboration arrangements (Note 9) and borrowings from the Loan Agreement with Hercules Capital, Inc. (“Hercules”) (Note 6). The Company has incurred recurring losses since inception, including net losses of $42.6 million and $81.7 million for the three and six months ended June 30, 2023, respectively, and $26.8 million and $54.4 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, the Company had an accumulated deficit of $412.8 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.

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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 funding 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. 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.

The Company is subject to risks common to companies in the biotechnology industry, 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, if approved, 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.

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, 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”), on February 28, 2023 (the “2022 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 of 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. 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

The Company currently operates in a period of economic uncertainty which has been significantly impacted by the global health crises, domestic and global monetary and fiscal policy, bank failures, geopolitical instability, the ongoing war in Ukraine, rising inflation and interest rates, and fluctuations in monetary exchange rates. While the Company has experienced limited financial impacts at this time, the Company continues to monitor these factors and events and the potential effects each may have on the Company’s business, financial condition, results of operations and growth prospects.

Unaudited interim financial information

Certain information in the footnote disclosures of these financial statements has been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be

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read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s 2022 Annual Report.

The accompanying condensed consolidated balance sheet as of June 30, 2023, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of shareholders’ equity, and condensed consolidated statements of cash flows for the three and six months ended June 30, 2023 and 2022, 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, 2022, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2023, and the results of its operations and its cash flows for the three and six months ended June 30, 2023 and 2022. The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period.

Accounts receivable

Accounts receivable generally represents amounts due under the Company’s collaboration agreements. The Company makes judgments as to its ability to collect outstanding receivables and estimates credit losses at the reporting date resulting from the inability of its customers to make required payments. Provisions are made based upon a specific review of all significant outstanding invoices and the overall quality and age of those invoices. As of June 30, 2023, accounts receivable consists of amounts due under the collaboration agreement between BicycleTx Limited and Bayer Consumer Care AG (“Bayer”). To date, the Company has not had any write-offs of bad debt, and the Company did not have an allowance for credit losses as of June 30, 2023.

Recently adopted accounting pronouncements

There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the three and six months ended June 30, 2023, that are of significance or potential significance to the Company.

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 cash and cash equivalents, accounts receivable, research and development incentives receivable, prepaid expenses 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. As of June 30, 2023, and December 31, 2022, the carrying value of the long-term debt approximates its fair value, which was determined using unobservable Level 3 inputs, including quoted interest rates from a lender for borrowings with similar terms. As of June 30, 2023, and December 31, 2022, 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 that are readily convertible to known amounts of cash with original maturities of three months or less at the date of purchase to be cash equivalents. As of June 30, 2023 and December 31, 2022, the Company’s cash equivalents consisted of interest-bearing money market funds and 30-day term

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deposits, which are considered Level 1 assets. The Company had $3.8 million and $276.1 million of cash equivalents as of June 30, 2023 and December 31, 2022, respectively.

4. Property and equipment, net

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

June 30, 

December 31,

    

2023

    

2022

Laboratory equipment

$

15,763

$

14,872

Leasehold improvements

 

10,917

 

10,736

Computer equipment and software

 

484

 

441

Furniture and office equipment

 

850

 

924

 

28,014

 

26,973

Less: Accumulated depreciation and amortization

 

(10,442)

 

(7,863)

$

17,572

$

19,110

As of June 30, 2023 and December 31, 2022, approximately $0.4 million and $2.3 million, respectively, of laboratory equipment was not yet placed in service. Depreciation expense was $1.6 million and $3.2 million for the three and six months ended June 30, 2023, respectively, and $0.6 million and $1.0 million for the three and six months ended June 30, 2022, respectively.

5. Accrued expenses and other current liabilities

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

June 30, 

December 31,

    

2023

    

2022

Accrued employee compensation and benefits

$

7,131

$

9,928

Accrued external research and development expenses

 

20,629

 

10,859

Accrued professional fees

 

1,911

 

1,068

Current portion of operating lease liabilities

 

4,680

 

3,125

Accrued income tax

1,906

970

Other

 

1,005

 

502

$

37,262

$

26,452

6. Long-term debt

On September 30, 2020 (the “Closing Date”), Bicycle Therapeutics plc and its subsidiaries (the “Borrowers”) entered into a loan and security agreement (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.

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 were interest-only until the first payment was 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 achieved certain performance milestones, the interest-only period could 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 Amendment to LSA, the Company borrowed the additional term loan of $15.0 million that had been

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available from September 30, 2020 to March 15, 2021. In November 2021, the performance milestones were achieved, and the interest only period was extended until February 1, 2024. On March 15, 2022, the additional term loan of $10.0 million expired unexercised.

On July 15, 2022, the Borrowers entered into the Second Amendment to the Loan and Security Agreement (the “Second Amendment to LSA”) with Hercules. Pursuant to the Second Amendment to LSA, the rate at which the borrowings under the Loan Agreement bear interest was decreased and capped. Under the Second Amendment to LSA, interest is paid at an annual rate of the Wall Street Journal prime rate plus 4.55%, with a minimum annual rate of at least 8.05%, capped at a rate no greater than 9.05%. In addition, among other amendments, the Second Amendment to LSA extended the interest-only period to April 1, 2025, extended the Maturity Date to July 1, 2025, and provided the Borrowers, at their request, the potential for additional term loans, subject to satisfaction of customary conditions, in an aggregate principal amount of up to $45.0 million, and as such the aggregate maximum borrowings under the Loan Agreement increased to $75.0 million.

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) 1.5% of the principal amount outstanding if the prepayment occurs after the first anniversary of the Closing Date but on or prior to December 31, 2023, and (ii) 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 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 the Second Amendment to LSA and concluded that these amendments represent modifications to the Loan Agreement, and as such, the fees and transaction costs associated with term loan will continue to be amortized to interest expense through the Maturity Date. The effective interest rate of the Hercules borrowings was 10.8% at June 30, 2023.

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 associated with the Loan Agreement for the three and six months ended June 30, 2023 was $0.8 million and $1.6 million, respectively, and for the three and six months ended June 30, 2022, was $0.9 million and $1.7 million, respectively.

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

June 30, 

December 31,

    

2023

    

2022

Term loan payable

$

30,000

$

30,000

End of term charge

818

682

Unamortized debt issuance costs

(305)

(367)

Carrying value of term loan

$

30,513

$

30,315

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

Year Ending December 31, 

2023

$

2024

2025

31,500

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 shares, other than the rights that they have pursuant to the deposit agreement with the depositary. As of June 30, 2023, and December 31, 2022, the Company had not declared any dividends.

As of June 30, 2023, and December 31, 2022, the Company’s authorized share capital consisted of 59,612,613 and 57,820,181 ordinary shares, respectively, with a nominal value of £0.01 per share. Authorized share capital, or shares authorized, comprises (i) the currently issued and outstanding ordinary shares, (ii) the remaining ordinary shares available for allotment under the existing authority granted to the Board at the annual general meeting held on June 28, 2021, (iii) ordinary shares issuable on the exercise of outstanding options and (iv) ordinary shares reserved for issuance under the Bicycle Therapeutics plc 2020 Equity Incentive Plan and/or the Bicycle Therapeutics plc 2019 Employee Share Purchase Plan.

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 ATM program pursuant to which the Company may offer and sell through the Sales Agents, from time to time at the Company’s sole discretion, ADSs, each ADS representing one ordinary share. During the three and six months ended June 30, 2023, the Company issued and sold 520,000 and 620,000 ADSs, respectively, representing the same number of ordinary shares, for gross proceeds of $12.5 million and $15.3 million, respectively, resulting in net proceeds of $12.1 million and $14.8 million, respectively, after deducting sales commissions and offering expenses of $0.4 million and $0.5 million, respectively. No ADSs were issued or sold pursuant to the Sales Agreement during the three or six months ended June 30, 2022.

8. Share-based compensation

Employee incentive pool

2020 Equity Incentive Plan

In June 2020, the Company’s shareholders first approved the Bicycle Therapeutics plc 2020 Equity Incentive Plan with Non-Employee Sub-Plan (the “2020 Plan”), under which the Company may grant market value options, market value stock appreciation rights or restricted shares, restricted share units (“RSUs”), performance RSUs and other

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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.

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. On June 27, 2022, the Company’s shareholders approved an amendment to the 2020 Plan (the “Amendment”) which increased the number of ordinary shares reserved for future issuance by 750,000 shares. 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, initially 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. Pursuant to this “evergreen” provision, on January 1, 2023, the number of shares reserved for issuance under the 2020 Plan was increased by 1,493,694 shares. The Amendment extended the final date upon which an “evergreen” increase may occur under this provision from January 1, 2030, to January 1, 2032. As of June 30, 2023, there were 860,637 shares available for issuance.

Share options issued under the 2020 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 vesting 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 or over a one-year service period in four equal quarterly installments.

The Company grants RSUs to non-employee directors and certain employees under the 2020 Plan. Each RSU represents the right to receive one of the Company’s ordinary shares upon vesting. RSUs granted to employees vest over a four-year service period with 25% of the award vesting on the first anniversary of the vesting commencement date and the remaining RSUs vest in 12 equal quarterly installments. Certain RSUs granted to the Company’s non-employee directors either vest immediately upon grant or over a one-year service period in four equal quarterly installments.

As of June 30, 2023, there were options to purchase 4,595,604 shares and RSUs for 402,970 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 June 30, 2023, there were 2,121,705 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 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 vesting 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

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 lower 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 the Company’s capitalization. The number of shares reserved for issuance under the ESPP was increased by 298,738 shares effective January 1, 2023. As of June 30, 2023, the total number of shares available for issuance under the ESPP was 1,200,413 ordinary shares. As of June 30, 2023, 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

Six Months Ended

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Research and development expenses

$

3,988

$

2,642

$

8,584

$

5,006

General and administrative expenses

 

4,205

 

3,031

 

8,651

 

10,865

$

8,193

$

5,673

$

17,235

$

15,871

Share options

The following table summarizes the Company’s option activity since December 31, 2022:

Number of

Weighted

Shares

Weighted

Average

Aggregate

Underlying

Average

Contractual

Intrinsic

    

Share Options

    

Exercise Price

    

Term

    

Value

(in years)

(in thousands)

Outstanding as of December 31, 2022

 

5,898,888

$

22.45

 

7.64

$

71,002

Granted

 

1,571,065

 

27.96

 

 

Exercised

 

(13,266)

 

12.38

 

 

Forfeited

 

(149,760)

 

29.46

 

 

Outstanding as of June 30, 2023

 

7,306,927

$

23.51

 

7.33

$

53,311

Vested and expected to vest as of June 30, 2023

 

7,306,927

$

23.51

7.33

$

53,311

Options exercisable as of June 30, 2023

 

4,080,929

$

17.76

 

6.12

$

45,968

The weighted average grant-date fair value of share options granted during the six months ended June 30, 2023 and 2022 was $20.45 per share and $35.32 per share, respectively.

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 $0.1 million and $0.2 million for the three and six months ended June 30, 2023, respectively and was $0.2 million and $1.2 million for the three and six months ended June 30, 2022, respectively.

Total share-based compensation expense for share options granted was $6.8 million and $14.2 million for the three and six months ended June 30, 2023, respectively, and was $5.0 million and $12.4 million for the three and six months ended June 30, 2022, respectively. Expense for non-employee consultants for the three and six months ended June 30, 2023 and 2022 was immaterial.

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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

Six Months Ended

 

June 30, 

June 30, 

 

    

2023

    

2022

    

2023

    

2022

 

Risk-free interest rate

 

3.6

%  

2.8

%  

3.8

%  

1.8

%

Expected volatility

 

83.7

%  

82.9

%  

83.6

%  

81.9

%

Expected dividend yield

 

 

 

 

Expected term (in years)

 

6.1

 

6.1

 

6.1

 

6.0

As of June 30, 2023, total unrecognized compensation expense related to the unvested employee and director share options was $65.3 million, which is expected to be recognized over a weighted average period of 2.8 years.

Restricted share units

The following table summarizes the Company’s RSU activity under the 2020 Plan since December 31, 2022:

Number of Shares

Weighted-Average

Underlying RSUs

Grant Date Fair Value

Unvested at December 31, 2022

187,725

$

60.86

Granted

321,839

29.59

Vested

(78,781)

52.87

Forfeited

(27,813)

41.18

Unvested at June 30, 2023

402,970

$

38.81

The fair value of RSUs that vested during the three and six months ended June 30, 2023, was $0.5 million and $2.1 million, respectively, and for the three and six months ended June 30, 2022, was zero and $2.1 million, respectively.

Total share-based compensation expense for RSUs granted was $1.4 million and $3.0 million for the three and six months ended June 30, 2023, respectively, and was $0.7 million and $3.5 million for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, the total unrecognized compensation expense related to unvested RSUs was $13.9 million, which is expected to be recognized over a weighted-average period of 2.9 years.

9. Significant agreements

For the three and six months ended June 30, 2023 and 2022, the Company recognized revenue for its collaborations with Ionis Pharmaceuticals, Inc. (“Ionis”), Genentech, Inc. (“Genentech”), the Dementia Discovery Fund (“DDF”), and AstraZeneca AB (“AstraZeneca”). 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 

Six Months

Ended 

Ended 

June 30, 

June 30, 

    

2023

    

2022

    

2023

    

2022

Collaboration revenues

    

  

    

  

    

  

    

  

Ionis

2,557

2,255

5,341