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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 September 30, 2022

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 October 31, 2022, the registrant had 29,689,471 ordinary shares, nominal value £0.01 per share, outstanding.

Table of Contents

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

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

48

Item 4.

Controls and Procedures

49

PART II - OTHER INFORMATION

50

Item 1.

Legal Proceedings

50

Item 1A.

Risk Factors

51

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

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 BTC®, Bicycle tumor-targeted immune cell agonist®, or Bicycle TICA® 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 European Union, the United Kingdom 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

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;
statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance;
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;
business interruptions resulting from geo-political actions, including war or the perception that hostilities may be imminent, including, the ongoing war in Ukraine and terrorism, or natural disasters and public health epidemics; 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.

iii

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

Bicycle Therapeutics plc

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

September 30, 

December 31,

    

2022

    

2021

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

361,469

$

438,680

Accounts receivable

 

 

1,000

Prepaid expenses and other current assets

 

8,448

 

7,965

Research and development incentives receivable

 

11,368

 

10,910

Total current assets

 

381,285

 

458,555

Property and equipment, net

 

16,220

 

3,123

Operating lease right-of-use assets

 

13,484

 

14,666

Other assets

 

6,159

 

3,448

Total assets

$

417,148

$

479,792

Liabilities and shareholders’ equity

 

  

 

  

Current liabilities:

 

 

Accounts payable

$

7,057

$

2,721

Accrued expenses and other current liabilities

 

18,091

 

14,244

Deferred revenue, current portion

 

16,404

 

19,273

Total current liabilities

 

41,552

 

36,238

Long-term debt, net of discount

30,232

29,873

Operating lease liabilities, net of current portion

 

10,997

 

12,081

Deferred revenue, net of current portion

41,736

52,067

Other long‑term liabilities

 

3,157

 

3,279

Total liabilities

 

127,674

 

133,538

Commitments and contingencies (Note 11)

 

  

 

  

Shareholders’ equity:

 

  

 

  

Ordinary shares, £0.01 nominal value; 57,820,181 and 55,295,420 shares authorized at September 30, 2022 and December 31, 2021, respectively; 29,678,431 and 29,579,364 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

385

 

384

Additional paid-in capital

 

589,679

 

567,637

Accumulated other comprehensive loss

 

528

 

(3,388)

Accumulated deficit

 

(301,118)

 

(218,379)

Total shareholders’ equity

 

289,474

 

346,254

Total liabilities and shareholders’ equity

$

417,148

$

479,792

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

1

Bicycle Therapeutics plc

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Collaboration revenues

$

3,040

$

4,333

$

11,278

$

7,926

Operating expenses:

 

 

 

 

  

Research and development

 

22,752

 

10,513

 

56,890

 

31,924

General and administrative

 

10,047

 

8,114

 

38,830

 

23,596

Total operating expenses

 

32,799

 

18,627

 

95,720

 

55,520

Loss from operations

 

(29,759)

 

(14,294)

 

(84,442)

 

(47,594)

Other income (expense):

 

 

  

 

 

  

Interest income

 

1,991

 

24

 

3,117

 

61

Interest expense

(817)

(823)

(2,518)

(2,164)

Total other income (expense), net

 

1,174

 

(799)

 

599

 

(2,103)

Net loss before income tax provision

 

(28,585)

 

(15,093)

 

(83,843)

 

(49,697)

Benefit from income taxes

 

(238)

 

(415)

 

(1,104)

 

(915)

Net loss

$

(28,347)

$

(14,678)

$

(82,739)

$

(48,782)

Net loss per share, basic and diluted

$

(0.96)

$

(0.59)

$

(2.79)

$

(2.06)

Weighted average ordinary shares outstanding, basic and diluted

 

29,676,021

 

25,039,990

 

29,643,502

 

23,719,124

Comprehensives loss:

 

 

  

 

 

  

Net loss

$

(28,347)

$

(14,678)

$

(82,739)

$

(48,782)

Other comprehensive income (loss):

 

 

  

 

 

  

Foreign currency translation adjustment

 

902

 

313

 

3,916

 

Total comprehensive loss

$

(27,445)

$

(14,365)

$

(78,823)

$

(48,782)

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

2

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, 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

Issuance of ADSs upon exercise of share options

12,114

159

159

Share-based compensation expense

5,368

5,368

Foreign currency translation adjustment

902

902

Net loss

(28,347)

(28,347)

Balance at September 30, 2022

29,678,431

$

385

$

589,679

$

528

$

(301,118)

$

289,474

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

3

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, 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

Issuance of ADSs upon exercise of share options

125,666

2

1,573

1,575

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

482,299

7

13,970

13,977

Share-based compensation expense

2,575

2,575

Foreign currency translation adjustment

(255)

(255)

Net loss

(17,913)

(17,913)

Balance at June 30, 2021

24,124,552

309

330,911

(3,506)

(185,664)

142,050

Issuance of ADSs upon exercise of share options

257,389

4

3,045

3,049

Issuance of ADSs, net of commissions and offering expenses of $0.9 million

930,900

12

29,831

29,843

Issuance of ordinary shares pursuant to the Ionis share purchase agreement

282,485

4

7,554

7,558

Share-based compensation expense

2,688

2,688

Foreign currency translation adjustment

313

313

Net loss

(14,678)

(14,678)

Balance at September 30, 2021

25,595,326

$

329

$

374,029

$

(3,193)

$

(200,342)

$

170,823

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

4

Bicycle Therapeutics plc

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Nine Months

Ended

September 30, 

    

2022

    

2021

Cash flows from operating activities:

 

  

Net loss

$

(82,739)

$

(48,782)

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

 

 

  

Share-based compensation expense

 

21,239

 

9,084

Depreciation and amortization

 

2,303

 

1,002

Non-cash interest

359

347

Changes in operating assets and liabilities:

 

Accounts receivable

 

348

 

5,544

Research and development incentives receivable

 

(3,064)

 

1,318

Prepaid expenses and other current assets

 

(2,137)

 

(719)

Operating lease right‑of‑use assets

 

2,015

 

(2,024)

Other assets

 

(2,640)

 

(955)

Accounts payable

 

4,931

 

270

Accrued expenses and other current liabilities

 

5,495

 

(521)

Operating lease liabilities

 

(1,446)

 

2,123

Deferred revenue

 

(969)

 

28,473

Other long-term liabilities

 

503

 

481

Net cash used in operating activities

 

(55,802)

 

(4,359)

Cash used in investing activities:

 

 

  

Purchases of property and equipment

 

(17,539)

 

(963)

Net cash used in investing activities

 

(17,539)

 

(963)

Cash flows from financing activities:

 

 

  

Proceeds from the issuance of ADSs, net of issuance costs

102,595

Issuance of ordinary shares pursuant to the Ionis share purchase agreement

7,558

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

804

4,908

Proceeds from issuance of debt

15,000

Net cash provided by financing activities

 

804

 

130,061

Effect of exchange rate changes on cash and cash equivalents

 

(4,674)

 

(1,205)

Net (decrease) increase in cash and cash equivalents

 

(77,211)

 

123,534

Cash and cash equivalents at beginning of period

 

438,680

 

135,990

Cash and cash equivalents at end of period

$

361,469

$

259,524

Supplemental disclosure of cash flow information

 

 

  

Cash paid for interest

$

2,099

$

1,753

Cash paid for income taxes

$

1,203

$

87

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

$

2,245

$

676

Purchases of property and equipment included in accounts payable and accrued expenses

$

318

$

298

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

$

3,120

$

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

5

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, 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 TICA®”) 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 and organizations in immuno-oncology, anti-infective, cardiovascular, ophthalmology, dementia, central nervous system, neuromuscular 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

As of September 30, 2022, the Company had cash and cash equivalents of $361.5 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 with proceeds from the sale of its ordinary shares and American Depositary Shares (“ADSs”), including in its initial public offering (“IPO”) completed in May 2019 and follow-on offering completed in October 2021, offerings pursuant to its at-the-market offering program (“ATM”), and prior to its IPO, offerings of its convertible preferred shares, as well as proceeds received from its collaboration arrangements (Note 9) and proceeds from a loan agreement with Hercules Capital, Inc. (“Hercules”) (Note 6). The Company has incurred recurring losses since inception, including net losses of $28.3 million and $82.7 million for the three and nine months ended September 30, 2022, respectively, and $14.7 million and $48.8 million for the three and nine months ended September 30, 2021, respectively. As of September 30, 2022, the Company had an accumulated deficit of $301.1 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.

6

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 one or more of 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, 2021 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (the “SEC”), on March 1, 2022 (the “2021 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 ongoing COVID-19 pandemic, domestic and global monetary and fiscal policy, 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

7

read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s 2021 Annual Report.

The accompanying condensed consolidated balance sheet as of September 30, 2022, 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 nine months ended September 30, 2022 and 2021, 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, 2021, 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 September 30, 2022, and the results of its operations and its cash flows for the three and nine months ended September 30, 2022 and 2021. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, 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 September 30, 2022, the Company had no accounts receivable. 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 September 30, 2022.

Government grants

From time to time, the Company may enter into arrangements with governmental entities for the purpose of obtaining funding for research and development activities. The Company is reimbursed for costs incurred that are associated with specified research and development activities included in the grant application approved by the government authority. 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, and accrued but unpaid grant income is included in other current assets. The Company analyzes each arrangement on a case-by-case basis, and income is recognized when the Company concludes that it has reasonable assurance that it will comply with the conditions attached to the grant and the expenses have been incurred. There are no significant performance criteria other than to maintain satisfactory progress on the specified project, and there are no significant acceptance or recapture provisions associated with the government grants for the three and nine month periods ended September 30, 2022 and 2021, respectively. For the three and nine months ended September 30, 2022, the Company recognized $0.3 million and $1.1 million, respectively, and for the three and nine months ended September 30, 2021, the Company recognized $1.0 million and $2.9 million, respectively, as a reduction of research and development expense related to government grant arrangements. As of September 30, 2022, the Company has approximately $1.3 million of government grant funding remaining for future cost reimbursement through February of 2024.

Recently adopted accounting pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The standard amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. 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. The Company

8

adopted ASU 2016-13 as of January 1, 2022, on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements.

In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which requires additional disclosures regarding the nature and terms of government assistance. ASU No. 2021-10 was effective for financial statements issued for annual periods beginning after December 15, 2021. The adoption of ASU 2021-10 did not have a material impact on the Company’s condensed consolidated financial statements.

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. As of September 30, 2022, and December 31, 2021, 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 September 30, 2022, and December 31, 2021, 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 the date of purchase to be cash equivalents. The Company had $276.1 million and $100.0 million of cash equivalents as of September 30, 2022, and December 31, 2021, respectively.

4. Property and equipment, net

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

September 30, 

December 31,

    

2022

    

2021

Laboratory equipment

$

11,385

$

6,746

Leasehold improvements

 

9,630

 

809

Computer equipment and software

 

403

 

143

Furniture and office equipment

 

822

 

225

 

22,240

 

7,923

Less: Accumulated depreciation and amortization

 

(6,020)

 

(4,800)

$

16,220

$

3,123

Depreciation expense was $1.3 million and $2.2 million for the three and nine months ended September 30, 2022, respectively, and $0.3 million and $1.0 million for the three and nine months ended September 30, 2021, respectively.

9

5. Accrued expenses and other current liabilities

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

September 30, 

December 31,

    

2022

    

2021

Accrued employee compensation and benefits

$

6,328

$

6,429

Accrued external research and development expenses

 

7,223

 

3,980

Accrued professional fees

 

1,052

 

882

Current portion of operating lease liabilities

 

2,811

 

2,383

Other

 

677

 

570

$

18,091

$

14,244

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 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, among other amendments, (a) the rate at which the borrowings under the Loan Agreement bear interest was decreased and capped at an annual rate equal to the lesser of (x) the greater of (i) 8.05% and (ii) the Wall Street Journal prime rate plus 4.55% and (y) 9.05%, (b) the interest-only period was extended to April 1, 2025, (c) the Maturity Date was extended to July 1, 2025, and (d) the Borrowers may request 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.

10

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 September 30, 2022.

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 nine months ended September 30, 2022, was $0.8 million and $2.5 million, respectively, and for the three and nine months ended September 30, 2021, was $0.8 million and $2.1 million, respectively.

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

September 30, 

December 31,

    

2022

    

2021

Term loan payable

$

30,000

$

30,000

End of term charge

624

376

Unamortized debt issuance costs

(392)

(503)

Carrying value of term loan

$

30,232

$

29,873

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

Year Ending December 31, 

2022

$

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 September 30, 2022, and December 31, 2021, the Company had not declared any dividends.

11

As of September 30, 2022, and December 31, 2021, the Company’s authorized share capital consisted of 57,820,181 and 55,295,420 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.

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 (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 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, 2022, the number of shares reserved for issuance under the 2020 Plan was increased by 1,478,968 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 September 30, 2022, there were 1,210,588 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.

In 2022, the Company granted 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 vest immediately upon grant.

As of September 30, 2022, there were options to purchase 3,050,532 shares and RSUs for 187,725 shares outstanding under the 2020 Plan.

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2019 Share Option Plan

In May 2019, the Company adopted the 2019 Plan, which became effective in conjunction with the IPO. As of September 30, 2022, there were 2,137,910 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.

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 295,793 shares effective January 1, 2022. As of September 30, 2022, the total number of shares available for issuance under the ESPP was 901,675 ordinary shares. As of September 30, 2022, 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

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Research and development expenses

$

2,637

$

1,238

$

7,643

$

3,535

General and administrative expenses

 

2,731

 

1,450

 

13,596

 

5,549

$

5,368

$

2,688

$

21,239

$

9,084

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Share options

The following table summarizes the Company’s option activity since December 31, 2021:

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, 2021

 

4,603,486

$

14.97

 

8.13

$

207,009

Granted

 

1,398,517

 

46.83

 

 

Exercised

 

(64,067)

 

12.55

 

 

Forfeited

 

(153,355)

 

25.86

 

 

Outstanding as of September 30, 2022

 

5,784,581

$

22.41

 

7.82

$

43,632

Vested and expected to vest as of September 30, 2022

 

5,784,581

$

22.41

7.82

$

43,632

Options exercisable as of September 30, 2022

 

3,177,177

$

13.51

 

7.06

$

35,164

The weighted average grant-date fair value of share options granted during the nine months ended September 30, 2022 and 2021 was $32.91 per share and $13.83 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 $1.3 million for the three and nine months ended September 30, 2022, respectively, and was $5.7 million and $9.4 million for the three and nine months ended September 30, 2021, respectively.

Total share-based compensation expense for share options granted was $4.7 million and $17.1 million for the three and nine months ended September 30, 2022, respectively, and was $2.7 million and $9.1 million for the three and nine months ended September 30, 2021, respectively. Expense for non-employee consultants for the three and nine months ended September 30, 2022 and 2021 was immaterial.

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

Nine Months Ended