UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from                      to                      

Commission File Number:  001-38916

Bicycle Therapeutics plc

(Exact Name of Registrant as Specified in its Charter)

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

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

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

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

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

* 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  o    No  x

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  x    No  o

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 o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company x
	Emerging growth company x

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.  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes oNo x

As of August 7, 2019, the registrant had 17,900,731 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 Convertible Preferred Shares and Shareholders’ Equity (Deficit)	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	49
Item 4.	Controls and Procedures	49
PART II - OTHER INFORMATION		50
Item 1.	Legal Proceedings	50
Item 1A	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	105
Item 3.	Defaults Upon Senior Securities	106
Item 4.	Mine Safety Disclosures	106
Item 5.	Other Information	106
Item 6.	Exhibits	107
SIGNATURES		109

i

Forward-looking Information

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

·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 (“BTC”) program and our 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;

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

·regulatory development in the United States, under the 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 potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

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

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

ii

·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;

·our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act;

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

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 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)

	June 30,			December 31,
	2019			2018
Assets
Current assets:
Cash	$	108,536		$	63,380
Accounts receivable	160			5,021
Prepaid expenses and other current assets	2,021			2,076
Research and development incentives receivable	9,735			6,292
Total current assets	120,452			76,769
Property and equipment, net	2,002			1,818
Operating lease right-of-use assets	2,386			—
Other assets	1,406			3,039
Total assets	$	126,246		$	81,626
Liabilities, convertible preferred shares and shareholders’ equity (deficit)
Current liabilities:
Accounts payable	$	2,569		$	1,887
Accrued expenses and other current liabilities	5,859			7,032
Deferred revenue, current portion	1,012			10
Total current liabilities	9,440			8,929
Warrant liability	—			4,804
Deferred revenue, net of current portion	9,358			14,625
Operating lease liabilities	1,628			—
Other long-term liabilities	1,261			897
Total liabilities	21,687			29,255
Commitments and contingencies (Note 12)
Series A convertible preferred shares, £0.01 nominal value; no shares and 3,000,001 shares authorized at June 30, 2019 and December 31, 2018, respectively; no shares and 2,800,001 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	—			41,820
Series B1 convertible preferred shares, £0.01 nominal value: no shares and 4,690,485 shares authorized at June 30, 2019 and December 31, 2018, respectively; no shares and 3,947,198 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	—			54,621
Series B2 convertible preferred shares, £0.01 nominal value: no shares and 1,403,633 shares authorized at June 30, 2019 and December 31, 2018, respectively; no shares and 1,323,248 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively	—			25,756
Shareholders’ equity (deficit):
Ordinary shares, £0.01 nominal value; 31,995,653 and 15,452,420 shares authorized at June 30, 2019 and December 31, 2018, respectively; 17,900,731 shares issued and outstanding at June 30, 2019; 898,678 shares issued and 814,728 shares outstanding at December 31, 2018 , respectively	226			10
Additional paid-in capital	193,178			1,857
Accumulated other comprehensive loss	(2,183		)	(1,751		)
Accumulated deficit	(86,662		)	(69,942		)
Total shareholders’ equity (deficit)	104,559			(69,826		)
Total liabilities, convertible preferred shares and shareholders’ equity (deficit)	$	126,246		$	81,626

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Collaboration revenues	$	1,522		$	1,661		$	7,906		$	4,469
Operating expenses:
Research and development	6,537			4,917			12,813			8,626
General and administrative	2,973			1,702			6,375			3,690
Total operating expenses	9,510			6,619			19,188			12,316
Loss from operations	(7,988		)	(4,958		)	(11,282		)	(7,847		)
Other income (expense):
Interest and other income	90			52			154			49
Other expense, net	(2,184		)	(73		)	(5,377		)	(111		)
Total other expense, net	(2,094		)	(21		)	(5,223		)	(62		)
Net loss before income tax provision	(10,082		)	(4,979		)	(16,505		)	(7,909		)
Provision for (benefit from) income taxes	135			—			215			(396		)
Net loss	$	(10,217	)	$	(4,979	)	$	(16,720	)	$	(7,513	)
Net loss attributable to ordinary shareholders	$	(10,217	)	$	(4,979	)	$	(16,720	)	$	(7,513	)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(1.40	)	$	(11.85	)	$	(4.08	)	$	(18.38	)
Weighted average ordinary shares outstanding, basic and diluted	7,298,139			420,063			4,101,564			408,807
Comprehensives Loss:
Net loss	$	(10,217	)	$	(4,979	)	$	(16,720	)	$	(7,513	)
Other comprehensive income (loss):
Foreign currency translation adjustment	(1,512		)	(2,657		)	(432		)	(861		)
Total comprehensive loss	$	(11,729	)	$	(7,636	)	$	(17,152	)	$	(8,374	)

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

2

Bicycle Therapeutics plc

Condensed Consolidated Statements of Convertible Preferred Shares and Shareholders’ Equity (Deficit)

(In thousands, except share and per share data)

(Unaudited)

																					Accumulated
	Series A					Series B1					Series B2										Other						Total
	Convertible					Convertible					Convertible								Additional		Comprehensive						Shareholders’
	Preferred Shares					Preferred Shares					Preferred Shares					Ordinary Shares			Paid-in		Income			Accumulated			Equity
	Shares		Amount			Shares		Amount			Shares		Amount			Shares	Amount		Capital		(Loss)			Deficit			(Deficit)
Balance at December 31, 2018	2,800,001		$	41,820		3,947,198		$	54,621		1,323,248		$	25,756		814,728	$	10	$	1,857	$	(1,751	)	$	(69,942	)	$	(69,826	)
Issuance of convertible preferred shares	—		—			—		—			80,385		1,583			—	—		—		—			—			—
Issuance of restricted share awards	—		—			—		—			—		—			27,304	1		103		—			—			104
Issuance of ordinary shares upon exercise of share options	—		—			—		—			—		—			3	—		—		—			—			—
Share-based compensation expense	—		—			—		—			—		—			—	—		172		—			—			172
Foreign currency translation adjustment	—		—			—		—			—		—			—	—		—		1,080			—			1,080
Net loss	—		—			—		—			—		—			—	—		—		—			(6,503		)	(6,503		)
Balance at March 31, 2019	2,800,001		41,820			3,947,198		54,621			1,403,633		27,339			842,035	11		2,132		(671		)	(76,445		)	(74,973		)
Conversion of convertible preferred shares to ordinary shares	(2,800,001	)	(41,820		)	(3,947,198	)	(54,621		)	(1,403,633	)	(27,339		)	11,647,529	146		123,634		—			—			123,780
Reclassification of warrant liability to additional paid-in capital and exercise of warrants	—		—			—		—			—		—			702,557	9		10,018		—			—			10,027
Issuance of ADSs in initial public offering, net of underwriting discounts, commissions and offering expenses of $8.4 million	—		—			—		—			—		—			4,637,666	59		56,469		—			—			56,528
Issuance of restricted share awards	—		—			—		—			—		—			56,643	1		292		—			—			293
Issuance of ordinary shares upon exercise of share options	—		—			—		—			—		—			14,301	—		21		—			—			21
Share-based compensation expense	—		—			—		—			—		—			—	—		612		—			—			612
Foreign currency translation adjustment	—		—			—		—			—		—			—	—		—		(1,512		)	—			(1,512		)
Net loss	—		—			—		—			—		—			—	—		—		—			(10,217		)	(10,217		)
Balance at June 30, 2019	—		$	—		—		$	—		—		$	—		17,900,731	$	226	$	193,178	$	(2,183	)	$	(86,662	)	$	104,559
Balance at December 31, 2017	2,800,001		$	41,820		3,947,198		$	54,621		—		$	—		368,995	$	5	$	838	$	69		$	(48,096	)	$	(47,184	)
Issuance of restricted share awards	—		—			—		—			—		—			35,725	1		53		—			—			54
Issuance of ordinary shares upon exercise of share options	—		—			—		—			—		—			9,002	—		—		—			—			—
Share-based compensation expense	—		—			—		—			—		—			—	—		198		—			—			198
Foreign currency translation adjustment	—		—			—		—			—		—			—	—		—		1,796			—			1,796
Net loss	—		—			—		—			—		—			—	—		—		—			(2,534		)	(2,534		)
Balance at March 31, 2018	2,800,001		41,820			3,947,198		54,621			—		—			413,722	6		1,089		1,865			(50,630		)	(47,670		)
Issuance of restricted share awards	—		—			—		—			—		—			12,757	—		26		—			—			26
Issuance of ordinary shares upon exercise of share options	—		—			—		—			—		—			359	—		—		—			—			—
Share-based compensation expense	—		—			—		—			—		—			—	—		309		—			—			309
Foreign currency translation adjustment	—		—			—		—			—		—			—	—		—		(2,657		)	—			(2,657		)
Net loss	—		—			—		—			—		—			—	—		—		—			(4,979		)	(4,979		)
Balance at June 30, 2018	2,800,001		$	41,820		3,947,198		$	54,621		—		$	—		426,838	$	6	$	1,424	$	(792	)	$	(55,609	)	$	(54,971	)

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

3

Bicycle Therapeutics plc

Condensed Consolidated Statements of Cash Flows

(In thousands, except share and per share data)

(Unaudited)

	Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(16,720	)	$	(7,513	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	1,181			587
Depreciation and amortization	443			355
Change in fair value of warrant liability	5,381			111
Changes in operating assets and liabilities:
Accounts receivable	4,955			(1,539		)
Research and development incentives receivable	(3,518		)	(1,821		)
Prepaid expenses and other current assets	(60		)	(462		)
Operating lease right-of-use assets	352			—
Other assets	(124		)	(314		)
Accounts payable	530			155
Accrued expenses and other current liabilities	(978		)	(177		)
Lease liabilities	(351		)	—
Deferred revenue	(4,329		)	(2,211		)
Other long-term liabilities	429			263
Net cash used in operating activities	(12,809		)	(12,566		)
Cash used in investing activities:
Purchases of property and equipment	(881		)	(650		)
Net cash used in investing activities	(881		)	(650		)
Cash flows from financing activities:
Proceeds from issuance of series B2 convertible preferred shares, net of issuance costs	1,334			—
Proceeds from issuance of ADSs in initial public offering, net of issuance costs	57,768			—
Proceeds from the exercise of share options	21			—
Proceeds from the exercise of warrants	6			—
Net cash provided by financing activities	59,129			—
Effect of exchange rate changes on cash	(283		)	(1,043		)
Net increase (decrease) in cash	45,156			(14,259		)
Cash at beginning of period	63,380			67,663
Cash at end of period	$	108,536		$	53,404
Supplemental disclosure of cash flow information
Cash paid for income taxes	73			—
Initial public offering costs accrued but not paid	664			—
Cash paid for amounts included in the measurement of operating lease liabilities	447			—
Advance billings on deferred revenue included in accounts receivable	—			5,103
Conversion of convertible preferred shares to ordinary shares upon closing of the initial public offering	123,780			—
Reclassification of warrant liability to additional paid-in capital	10,021			—

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

4

Bicycle Therapeutics plc

Notes to Unaudited Condensed Consolidated Financial Statements

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’s lead product candidate, BT1718, is a Bicycle Toxin Conjugate (“BTC”) that is being developed to target tumors that express Membrane Type 1 matrix metalloprotease. BT1718 is being investigated for safety, tolerability and efficacy in an ongoing Phase I/IIa clinical trial in collaboration with, and fully funded by, the Centre for Drug Development of Cancer Research UK. The Company is also developing BT5528 and BT8009, which are BTCs targeting Ephrin type-A receptor 2 and Nectin-4, respectively, for oncology indications. The Company is currently conducting Investigational New Drug application-enabling activities for BT5528 and BT8009. The Company’s discovery pipeline in oncology includes Bicycle-targeted innate immune activators, as well as T-cell modulators. Beyond oncology, the Company is collaborating with biopharmaceutical companies and organizations in therapeutic areas that include anti-bacterial, cardiovascular, hematology, ophthalmology, dementia and respiratory indications.

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

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

Share capital reorganization

On May 9, 2019, the Company’s board of directors and shareholders approved the reorganization of the Company’s share capital (the “Share Capital Reorganization”) by issuing ordinary shares as bonus shares to each holder of ordinary shares on the basis of 1.429 bonus shares for each ordinary share in issue (having the effect of a one for 1.429 share split (without having an impact on the nominal value of the ordinary shares)), which was effected on May 13, 2019. All issued and outstanding share and per share amounts of ordinary shares and share options included in the accompanying condensed consolidated financial statements have been adjusted to reflect this the Share Capital Reorganization for all periods presented. The number of ordinary shares that were issued to the holders of the Company’s convertible preferred shares (Note 6) and warrants to subscribe for Series A and Series B1 convertible preferred shares (Note 7) in conjunction with the closing of the Company’s initial public offering (“IPO”) were adjusted accordingly, as well as the number of ordinary shares over which options and outstanding warrants have been granted.

On May 22, 2019, Bicycle Therapeutics Limited (“BTL”) re-registered as a public limited company, and changed its name to Bicycle Therapeutics plc. The Company historically conducted its business through BTL and its wholly owned subsidiaries, BicycleTx Limited, BicycleRD Limited and Bicycle Therapeutics Inc., and, therefore the historical consolidated financial statements previously presented the consolidated results of operations of BTL. Following the completion of the Company’s re-registration in May 2019, the consolidated financial statements of BTL became the historical consolidated financial statements of the Company.

5

Initial public offering

On May 28, 2019, the Company completed its IPO, pursuant to which it issued and sold 4,333,333 American Depositary Shares (“ADSs”), representing the same number of ordinary shares at a public offering price of $14.00 per ADS. In addition, in June 2019, the Company issued and sold an additional 304,333 ADSs, pursuant to the partial exercise of the underwriters’ option to purchase additional ADSs. The aggregate net proceeds received by the Company from the IPO were $56.5 million, after deducting underwriting discounts and commissions of $4.5 million and offering expenses of $3.9 million. Upon the closing of the IPO, all of the Company’s outstanding convertible preferred shares automatically converted into 11,647,529 ordinary shares, on a 1:1.429 basis. In addition, warrants to subscribe for Series A and Series B1 convertible preferred shares that were not exercised in conjunction with the IPO automatically became warrants to subscribe for ordinary shares, and meet the criteria to be classified as shareholders’ equity (deficit). As such, following the final remeasurement on May 28, 2019, the Company reclassified the carrying value of the warrant liability to additional paid-in-capital in the condensed consolidated balance sheet.

Liquidity

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

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital. The Company has funded its operations with proceeds from sales of convertible preferred shares (Note 6) and proceeds received from its collaboration arrangements (Note 10), and most recently, with proceeds from the IPO completed in May 2019. The Company has incurred recurring losses since inception, including $16.7 million for the six months ended June 30, 2019. As of June 30, 2019, the Company had an accumulated deficit of $86.7 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 the interim condensed consolidated financial statements.

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

2. Summary of significant accounting policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2018 included in the Company’s final prospectus for the IPO filed pursuant to Rule 424(b) under the Securities Act, with the Securities and Exchange Commission (“SEC”), on May 23, 2019. 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.

6

Unaudited Interim Financial Information

Certain information in the footnote disclosures of the financial statements has been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2018 included in the Company’s final prospectus for the IPO filed pursuant to Rule 424(b) under the Securities Act, with the SEC, on May 23, 2019.

The accompanying condensed consolidated balance sheet at June 30, 2019, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of convertible preferred shares and shareholders’ equity (deficit) for the three and six months ended June 30, 2019 and 2018, and the condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 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, 2018, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2019, the results of its operations for the three and six months ended June 30, 2019 and 2018, and its cash flows for the six months ended June 30, 2019 and 2018. The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period.

Foreign currency and currency translation

The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. On June 1, 2019, Bicycle Therapeutics plc adopted the U.S. dollar as its functional currency. Bicycle Therapeutics plc is a holding company that has no operating activities and its primary functions are to serve as a financing vehicle to fund the operations of the Company’s operating entities, to serve as the listing company needed to access U.S. capital markets, and to hold investments. Therefore, its financing source is the primary indicator of its cash flows and its functional currency. The change in functional currency from the British Pound Sterling is due to a change in the source of Bicycle Therapeutics plc’s financing and cash flows, which following the completion of the IPO is now primarily the U.S. dollar. Historically its financing had been in British Pound Sterling.

The functional currency of Bicycle Therapeutics plc’s wholly owned non-U.S. subsidiaries, BicycleTx Limited and BicycleRD Limited, is the British Pound Sterling and the functional currency of its U.S. subsidiary, Bicycle Therapeutics Inc. is the U.S. dollar (“USD”). The functional currency of the Company’s subsidiaries is the same as the local currency.

Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are remeasured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss as incurred. The Company recorded foreign exchange gains of $0.7 million and $0.4 million during the three months ended June 30, 2019 and 2018, respectively, and foreign exchange gains of $0.4 million and $0.2 million for the six months ended June 30, 2019 and 2018, respectively.

The Company translates the assets and liabilities of BicycleTx Limited and BicycleRD Limited into USD at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during the period. Unrealized translation gains and losses are recorded as a cumulative translation adjustment, which is included in the condensed consolidated statements of convertible preferred shares and shareholders’ equity (deficit) as a component of accumulated other comprehensive income (loss).

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Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in the Company’s condensed consolidated balance sheet. The Company has not entered into any financing leases.

ROU assets represent the Company’s right to use and control an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes lease payments made before the lease commencement date and excludes any lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The components of a lease shall be split into three categories, if applicable: lease components (e.g., land, building, etc.), non-lease components (e.g., common area maintenance, maintenance, consumables, etc.), and non-components (e.g., property taxes, insurance, etc.). The fixed and in-substance fixed contract consideration (including any related to non-components) must then be allocated based on fair values to the lease components and non-lease components. The Company’s facilities operating leases may have lease and non-lease components to which the Company has elected to apply a practical expedient to account for each lease component and related non-lease component as one single component. The lease component results in a right-of-use asset being recorded on the balance sheet. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Government grants

From time to time, the Company may enter into arrangements with governmental entities for the purposes of obtaining funding for research and development activities. The Company recognizes government grant funding in the condensed consolidated statements of operations and comprehensive loss as the related expenses being funded are incurred. The Company classifies government grants received under these arrangements as a reduction to the related research and development expense incurred. The Company analyzes each arrangement on a case-by-case basis. For the three and six months ended June 30, 2019, the Company recognized $0.1 and $0.2 million, respectively, as a reduction of research and development expense related to government grant arrangements. There were no grant proceeds recognized for the three and six month periods ended June 30, 2018.

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). This guidance revises existing practice related to accounting for leases under ASC Topic 840 Leases (“ASC 840”). ASU 2016-02 requires lessees to recognize most leases on their balance sheet as a right-of-use asset and a lease liability. The lease liability is equal to the present value of lease payments and the right-of-use asset is based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840). In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) Targeted Improvements, which provides an additional transition method that allows entities to initially apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without restating prior periods. The guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those fiscal years, and early adoption is permitted. The Company adopted the new standard on January 1, 2019 by applying the new lease requirements at the adoption date without restating prior periods. In connection with the adoption of ASU 2016-02 the Company recorded an impact of approximately $2.7 million on its unaudited condensed consolidated balance sheet to record right-of-use-assets and $2.6 million to record lease liabilities on January 1, 2019, which are primarily related to the lease of the Company’s corporate headquarters in the

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U.K. and the lease of its office and laboratory space in Lexington, Massachusetts. The adoption of ASU 2016-02 did not have a material impact on the Company’s results of operations or cash flows.

In June 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”) to simplify the accounting for share-based payments to non-employees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of ASC 718, Compensation — Stock Compensation, to include share-based payments granted to non-employees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC Topic 505-50, Equity-Based Payments to Non-Employees. The guidance is effective for public business entities in annual periods beginning after December 15, 2018 and interim periods within those years. Early adoption is permitted. The Company adopted the new standard on January 1, 2019. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles (Topic 350): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standard also requires customers to amortize the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The Company early adopted this standard, as of April 1, 2019, on a prospective basis for applicable implementation costs. The adoption of this standard would not have had a material impact to historical accounting periods, but will impact implementation costs that are incurred for the remainder of 2019 and in future periods.

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of ASU 2016-13 will have on the Company’s financial position and results of operations.

3. Fair value of financial assets and liabilities

The warrant liability was initially recorded at fair value upon the date of the warrants’ issuance and was subsequently remeasured to fair value at each reporting date (Note 7). Upon the closing of the IPO on May 28, 2019, warrants that were not exercised in conjunction with the IPO automatically became warrants to subscribe for ordinary shares, and meet the criteria to be classified as shareholders’ equity (deficit). As such, following the final remeasurement on May 28, 2019, the Company reclassified the carrying value of the outstanding warrant liability to additional paid-in-capital in the condensed consolidated balance sheet. As such, there is no warrant liability at June 30, 2019.

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair Value Measurement as of December 31, 2018 using:
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	—	$	—	$	4,804	$	4,804
	$	—	$	—	$	4,804	$	4,804

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During the six months ended June 30, 2019 and the year ended December 31, 2018,  there were no transfers between levels.

4. Property and equipment, net

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

	June 30,			December 31,
	2019			2018
Laboratory equipment	$	3,884		$	3,356
Leasehold improvements	142			75
Computer equipment and software	225			221
Furniture and office equipment	116			99
	4,367			3,751
Less: Accumulated depreciation and amortization	(2,365		)	(1,933		)
	$	2,002		$	1,818

Depreciation expense was $0.2 million and $0.4 million for the three and six months ended June 30, 2019, and $0.2 million and $0.4 million for the three and six months ended June 30, 2018, respectively.

5. Accrued expenses and other current liabilities

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

	June 30,		December 31,
	2019		2018
Accrued employee compensation and benefits	$	1,161	$	1,610
Accrued external research and development expenses	2,843		3,814
Income taxes payable	269		15
Accrued professional fees	753		1,494
Current portion of operating lease liabilities	594		—
Other	239		99
	$	5,859	$	7,032

6. Convertible preferred shares

The Company had issued Series A convertible preferred shares (“Series A Preferred Shares”), Series B1 convertible preferred shares (“Series B1 Preferred Shares”), and Series B2 convertible preferred shares (“Series B2 Preferred Shares”) (collectively the “Preferred Shares”).

On May 26, 2017 the Company completed the issue of 3,562,583 Series B1 Preferred Shares at a price per share of £11.2278, for gross cash proceeds of $51.9 million. In addition, on October 27, 2017, an additional unaffiliated investor subscribed for a further 384,615 Series B1 Preferred Shares at a price per share of £13.00, for gross cash proceeds of $6.6 million. These two transactions are collectively referred to as “the Series B1 Financing”. In conjunction with the Series B1 Financing, the Company also issued warrants to subscribe for 743,287 Series B1 Preferred Shares to the subscribers of the Series B1 Preferred Shares (Note 7). The Company allocated a portion of the proceeds equal to the fair value of the warrants at the date of grant to the warrant liability, and the remaining amount was allocated to the Series B1 Preferred Shares.

On December 20, 2018, the Company completed the issue of 1,323,248 Series B2 preferred shares at a price per Series B2 preferred share of £15.55, for gross cash proceeds of $26.1 million (the “Series B2 Financing”). In conjunction with the Series B2 Financing, the existing holders of warrants to subscribe for Series B1 preferred shares surrendered 194,911 warrants to subscribe for the same number of Series B1 preferred shares and the Company issued a further 194,911 warrants to subscribe for the same number of Series B1 preferred shares to the new investor. In conjunction with the Series B2 Financing, the Company designated all previously outstanding

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Series B preferred shares as Series B1 preferred shares. On January 3, 2019, the Company completed the issue of 80,385 Series B2 preferred shares at a price per share of £15.55, for gross cash proceeds of $1.6 million.

Upon the closing of the IPO in May 2019, all of the Company’s outstanding convertible preferred shares automatically converted into 11,647,529 ordinary shares, on a 1:1.429 basis.

7. Warrant liability

On May 26, 2017, the Company issued 200,000 warrants to subscribe for Series A Preferred Shares at £0.01 each, which are exercisable at any time after May 26, 2017 provided that they have not otherwise lapsed in accordance with their terms. The warrants to subscribe for Series A Preferred Shares expire upon the earlier of (i) 10 years from their issuance date, or (ii) upon an IPO or exit unless an exercise delay notice is provided by the Series A warrant holder, in which case they will expire 12 months following an IPO or exit. On May 28, 2019, in conjunction with the completion of the IPO, 120,000 warrants to subscribe for Series A Preferred Shares were exercised for 171,480 ordinary shares. The holders of the remaining 80,000 warrants provided the Company with an exercise delay notice, which are exercisable into 114,320 ordinary shares following the completion of the IPO, as adjusted for the impact of the Share Capital Reorganization (Note 1).

On May 26, 2017, in conjunction with the issuance of 3,562,583 Series B1 Preferred Shares at a price per share of £11.2278, the Company issued 627,903 warrants to subscribe for Series B1 Preferred Shares with an exercise price of £0.01. In addition, on October 27, 2017, in conjunction with the issuance of 384,615 Series B1 Preferred Shares the Company issued a further 115,384 warrants to subscribe for Series B1 Preferred Shares with an exercise price of £0.01. In conjunction with the Series B2 Financing, the existing holders of warrants to subscribe for Series B1 preferred shares surrendered 194,911 warrants to subscribe for the same number of Series B1 preferred shares and the Company issued a further 194,911 warrants to subscribe for the same number of Series B1 preferred shares to the new investor. The transfer of warrants between investors did not have an impact to the valuation of the warrant liability, as this represents a transaction between shareholders and the Company did not issue any new instruments or change the rights and preferences of the underlying warrants to subscribe for Series B1 preferred shares.

On March 7, 2019, the holders of the Series B1 warrants to subscribe for Series B1 Preferred Shares agreed that 50% of the warrants would be exercised in conjunction with the IPO and 50% of the warrants would expire. The Company assessed this event as a modification to the terms of the Series B1 warrants and, remeasured the warrant liability immediately before and immediately after the modification, which resulted in an incremental change in fair value of $0.1 million, which is included in other expense for the six months ended June 30, 2019. On May 28, 2019, in conjunction with the completion of the IPO, all Series B1 Preferred share warrants were exercised for 531,077 ordinary shares, as adjusted for the impact of the Share Capital Reorganization (Note 1).

Prior to the completion of the IPO, the warrants to subscribe for Series A and Series B1 Preferred Shares were recorded as a liability and remeasured to fair value at each reporting date (Note 3). Changes in the fair value of the warrant liability were recognized as other expense, net in the consolidated statements of operations and comprehensive loss. Upon the closing of the IPO on May 28, 2019, warrants that were not exercised in conjunction with the IPO automatically became warrants to subscribe for ordinary shares, and meet the criteria to be classified as shareholders’ equity (deficit). As such, following the final remeasurement on May 28, 2019, the Company reclassified the carrying value of the warrant liability to additional paid-in-capital in the condensed consolidated balance sheet.

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The following table provides a roll-forward of the fair values of the Company’s warrant liability for which fair value was determined by Level 3 inputs (in thousands):

	Warrant Liability
Fair value at December 31, 2018	$	4,804
Change in fair value of warrant liability recorded as other expense	5,381
Conversion of warrant liability to equity upon closing of IPO and exercise of warrants	(10,021		)
Impact of exchange rates on translation of warrant liability to USD included in accumulated other comprehensive income (loss)	(164		)
Fair value at June 30, 2019	$	—

The warrant liability in the table above consisted of the fair value of warrants to subscribe for Series A and Series B1 Preferred Shares (see Note 6) and, prior to the IPO, was based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the warrants to subscribe for Series A and Series B1 Preferred Shares utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the warrant liability. The Company assessed these assumptions and estimates on a quarterly basis prior to the closing of the IPO in May 2019.

The quantitative elements associated with the Company’s Level 3 inputs impacting the fair value measurement of the warrant liability included the fair value per share of the underlying Series A and Series B1 preferred shares or ordinary shares at the time of final remeasurement, into which the warrants were exercisable, the remaining contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying convertible preferred shares.

The most significant assumption in the Black-Scholes option-pricing model impacting the fair value of the warrant liability was the fair value of the Series A and Series B1 preferred shares, or ordinary shares at the time of final remeasurement, into which the warrant is exercisable as of each remeasurement date. Given the absence of an active market for the Company’s equity securities prior to the IPO, the Company determined the fair value per share of the convertible preferred shares underlying the warrants by taking into consideration the implied value derived from an independent third-party valuation of the Company’s ordinary shares, adjusted for certain restrictions on the exercise of the B1 warrants per their contractual terms. Assumptions related to the remaining term, risk-free interest rate, expected dividend yield and expected volatility did not have an impact to the fair value of the warrants because the exercise price of the warrants was £0.01, and the fair value of the warrant was equal to the difference between the exercise price and the fair value regardless of the assumptions. The Company historically had been a private company and lacked company-specific historical and implied volatility information of its shares. Therefore, it estimated its expected share volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. The Company had estimated a 0% dividend yield based on the expected dividend yield and the fact that the Company has never paid or

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declared dividends. The following table presents the unobservable inputs to the fair value measurement of the warrant liability:

	Remeasurement upon closing of the IPO on May 28, 2019						December 31, 2018
	Series A Warrants			Series B1 Warrants			Series A Warrants			Series B1 Warrants(1)
Risk free rate	2.2		%	2.1		%	2.6		%	2.5		%
Expected dividend yield	—		%	—		%	—		%	—		%
Expected term (years)	8.0			5.8			8.4			6.25
Expected volatility	74.7		%	78.2		%	75.4		%	79.6		%
Exercise price	£	0.01		£	0.01		£	0.01		£	0.01
Fair value of preferred shares or ordinary shares underlying the warrant	$	12.28		$	12.28		$	8.61		$	4.15

(1)The fair value of the Series B1 preferred shares underlying the warrants to purchase Series B1 preferred shares at December 31, 2018 includes a 50% probability that the warrants will be not be exercisable prior to the IPO, based on their contractual terms. On March 7, 2019, the holders of the Series B1 warrants to subscribe for Series B1 Preferred Shares agreed that 50% of the warrants would be exercised in conjunction with the IPO and 50% of the warrants would expire

8. 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 December 31, 2018 and June 30, 2019, the Company has not declared any dividends.

As of June 30, 2019 and December 31, 2018, the Company’s authorized capital share consisted of 31,995,653 ordinary shares and 15,452,420 ordinary shares, respectively, with a nominal value of £0.01 per share.

9. Share-based compensation

Employee incentive pool

2019 Share Option Plan

In May 2019, the Company adopted the 2019 Share Option Plan (the “2019 Plan”), which became effective in conjunction with the IPO. The 2019 Plan provides for the grant of options to purchase ordinary shares, share appreciation rights, restricted shares, restricted share units, and other share-based awards to officers, employees, directors and other key persons (including consultants).

The Company has initially reserved 2,470,583 ordinary shares for future issuance under the 2019 Plan. The number of ordinary shares reserved for issuance of the 2019 Plan will automatically increase on the first day of January, commencing on January 1, 2020, in an amount equal to 4% of the total number of 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, subject to adjustment in the event of a share split, share dividend or other change in capitalization. As of June 30, 2019, there were 1,092,902 shares available for issuance under the 2019 Plan.

Share options issued under the 2019 Share Option Plan have a 10 year contractual life, and either vest monthly over a three year service period, or over a four-year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments. The exercise price

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of share options issued under the 2019 Share Option Plan shall not be less than the fair value of ordinary shares as of the date of grant.

Pre-IPO Share Options and restricted shares

Prior to the IPO, the Company issued share options and ordinary shares, as administered by the board of directors, using standardized share option and share subscription agreements. To the extent such incentives were in the form of share options, the options may have been granted pursuant to a potentially tax-favored Enterprise Management Incentive, or EMI, scheme available to U.K. employees, directors and consultants of the Company. Upon completion of the IPO, shares reserved for future issuance outside of the 2019 Share Option Plan were cancelled.

Options granted, as well as restricted shares granted as employee incentives prior to the IPO, typically vest over a four-year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments and expire no later than 10 years from the date of grant.

Certain equity awards were issued in 2017 and 2018 for which 20% of the award vests upon the first anniversary of the vesting start date, 60% vests thereafter in 36 equal monthly installments, and 20% vest upon the earlier of the fourth anniversary of the vesting start date, or the achievement of a specified revenue threshold from the Company’s collaboration arrangements.

Options issued to U.K. employees prior to the IPO had an exercise price of £0.01 per share. The exercise price for share options granted to U.S. employees, had an exercise price that was not less than the fair value of ordinary shares as determined by the board of directors as of the date of grant. Prior to the IPO, the Company’s board of directors valued the Company’s ordinary shares based on input from management, considering the most recently available valuation of ordinary share performed by an independent third-party valuation firm as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

Employee Share Purchase Plan (“ESPP”)

In May 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective in conjunction with the IPO. The Company initially reserved 215,000 ordinary shares for future issuance under this plan. Each offering to the employees to purchase shares under the ESPP will begin on each June 1 and December 1 and will end on the following November 30 and May 31, respectively. On each purchase date, which falls on the last date of each offering period, ESPP participants will purchase ordinary shares at a price per share equal to 85% of the lesser of (1) the fair market value of the shares on the offering date or (2) the fair market value of the shares on the purchase date. The occurrence and duration of offering periods under the ESPP are subject to the determinations of the Company’s compensation committee. As of June 30, 2019, 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 June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Research and development expenses	$	291	$	171	$	399	$	298
General and administrative expenses	614		164		782		288
	$	905	$	335	$	1,181	$	587

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Share options

The following table summarizes the Company’s option activity since December 31, 2018:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Contractual Term	Aggregate Intrinsic Value
					(in years)	(in thousands)
Outstanding as of December 31, 2018	863,712		$	1.01	8.75	$	3,292
Granted	1,875,820		12.13
Exercised	(14,304	)	1.49
Forfeited	(109,279	)	1.61
Outstanding as of June 30, 2019	2,615,949		$	8.96	9.39	$	8,313
Vested and expected to vest as of June 30, 2019	2,615,949		$	8.96	9.39	$	8,313
Options exercisable as of June 30, 2019	326,708		$	3.03	8.27	$	2,441

The weighted average grant-date fair value of share options granted during the six months ended June 30, 2019 and 2018 was $8.26 per share and $1.83 per share, respectively.

Total share-based compensation expense for share options granted was $0.6 million and $0.8 million for the three and six months ended June 30, 2019, respectively, and $0.3 million and $0.5 million, for the three and six months ended June 30, 2018, respectively. Expense for non-employee consultants for the three and six months ended June 30, 2019 and 2018 was immaterial.

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares. The aggregate intrinsic value of share options exercised was $0.1 million and $0.1 million during the three and six months ended June 30, 2019, respectively, and was immaterial during the three and six months ended June 30, 2018.

The Company granted options for the purchase of an aggregate of 0 and 18,719 ordinary shares during the six months ended June 30, 2019 and 2018, respectively, for which 20% of the award vests upon the first anniversary of the vesting start date, 60% vests thereafter in 36 equal monthly installments, and 20% on the earlier of the fourth anniversary of the vesting start date, or the achievement of a specified revenue threshold from the Company’s collaboration arrangements. In May 2018, the Company determined that the performance condition became probable of achievement and recorded a cumulative catch up to reflect the expense as if the vesting condition was probable of achievement at the time of the grant of the award. The Company recorded expense of $0 and $43,000 during the three and six months ended June 30, 2019, respectively, and $0.3 million and $0.5 million during the six months ended June 30, 2018 related to these awards, which includes the acceleration of vesting expense.

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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 June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Risk-free interest rate	2.2	%	1.3	%	2.2	%	1.3	%
Expected volatility	78.0	%	75.1	%	78.1	%	75.1	%
Expected dividend yield	—		—		—		—
Expected term (in years)	5.83		6.07		5.85		6.07

As of June 30, 2019, total unrecognized compensation expense related to the unvested employee and director share-based awards was $15.9 million, which is expected to be recognized over a weighted average period of 3.0 years.

Restricted shares

The Company had granted restricted shares with service-based vesting conditions. Shares of unvested restricted shares may not be sold or transferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award. These restricted shares are subject to repurchase rights, for aggregate consideration of £1.00. Accordingly, the Company has recorded the proceeds from the issuance of restricted shares as a liability in the condensed consolidated balance sheets included as a component of accrued expenses and other current liabilities. The restricted share liability is reclassified into shareholders’ equity (deficit) as the restricted shares vested.

The following table summarizes the Company’s restricted ordinary share award activity since December 31, 2018:

	Shares		Weighted Average Grant-Date Fair Value
Unvested restricted ordinary shares as of December 31, 2018	83,947		$	1.93
Issued	—		—
Forfeited	—		—
Vested	(83,947	)	1.93
Unvested restricted ordinary shares as of June 30, 2019	—		$	—

In conjunction with the IPO in May 2019, the board of directors modified the vesting terms to accelerate vesting for all unvested restricted shares. As a result, the Company recorded incremental share based compensation expense of $0.2 million upon the modification of the restricted shares during the three and six month periods ended June 30, 2019.

Total share-based compensation for unvested restricted shares granted was $0.3 million and $0.4 million for the three and six months ended June 30, 2019, respectively, and $27,000 and $0.1 million for the three and six months ended June 30, 2018, respectively.

The fair value of employee restricted share awards vested, based on estimated fair values of the ordinary shares underlying the restricted share awards on the day of vesting, was and $0.6 million and $0.7 million during the three and six months ended June 30, 2019, respectively, and $34,000 and $0.1 million during the three and six months ended June 30, 2018, respectively

As of June 30, 2019, there was no unrecognized compensation cost related to the unvested employee and director restricted share awards.

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10. Significant agreements

For the three and six months ended June 30, 2019 and 2018, the Company had collaboration agreements with AstraZeneca AB (“AstraZeneca”), Sanofi (formerly Bioverativ), Oxurion (formerly ThromboGenics) and the Dementia Discovery Fund. The following table summarizes the revenue recognized in the Company’s condensed consolidated statements of operations and comprehensive loss from these arrangements (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Collaboration revenues
AstraZeneca	$	362	$	391	$	787	$	691
Sanofi	57		1,093		6,016		2,219
Oxurion	—		177		—		1,559
Dementia Discovery Fund	103		—		103		—
Material transfer agreement	1,000		—		1,000		—
Total collaboration revenues	$	1,522	$	1,661	$	7,906	$	4,469

AstraZeneca Collaboration Agreement

Summary of Agreement — 2016 Agreement

In November 2016, the Company entered into a Research Collaboration Agreement (the “AstraZeneca Collaboration Agreement”) with AstraZeneca. The collaboration is focused on the research and development of Bicycle peptides that bind to up to six biological targets. After discovery and initial optimization of such Bicycle peptides, AstraZeneca will be responsible for all research and development, including lead optimization and drug candidate selection. AstraZeneca has option rights, at drug candidate selection, which allow it to obtain development and exploitation license rights with regard to such drug candidate. The initial research obligation focuses on two targets within respiratory, cardiovascular and metabolic disease. AstraZeneca also has an option to nominate up to four additional targets at any point up to the second anniversary of the agreement (“Additional Four Target Option”). The exercise of this option right results in an option fee payable to the Company of $5.0 million and the research obligations and rights are consistent with the obligations and rights related to the initial two targets discussed below.

Under the AstraZeneca Collaboration Agreement, the Company is obligated to use commercially reasonable efforts to perform research activities on the initial two targets, under mutually agreed upon research plans. The research plans includes two discrete parts, on a research program by research program basis: (i) the Bicycle Research Term, which is focused on the generation of Bicycle peptide libraries using the Company’s peptide drug discovery platform, to be screened against selected biological targets and optimization of promising compounds, with the goal of identifying compounds that meet the criteria set by the parties, and (ii) the AZ Research Term, during which AstraZeneca may select certain compounds and continue research activities on those compounds, at its sole expense, with the goal of identifying compounds that satisfy the relevant pharmacological and pharmaceutical criteria for clinical testing. AstraZeneca may, at its sole discretion, approve any compound to be progressed into drug development and, upon the selection of each drug candidate, AstraZeneca is to pay $8.0 million as an option fee, in order to obtain worldwide development and exploitation rights.

Each research program is to continue for an initial period of three years (the “Research Term”), including one year for the Bicycle Research Term and two for the AZ Research Term. AstraZeneca may extend the Research Term for each research program by twelve months (or fifteen months, if needed to complete certain toxicology studies). The Research Term for a specific program can be shorter if it is ceased due to a screening failure, a futility determination, abandonment by AstraZeneca, or upon selection of a drug candidate. AstraZeneca has certain substitution rights should a screening failure or futility determination be reached but is obligated to fund these additional efforts related to substitution.

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Under the terms of the AstraZeneca Collaboration Agreement, the Company granted to AstraZeneca, for each research program, a right and license (with the right to sublicense) to certain background and platform intellectual property, for the duration of the applicable Research Term, to the extent necessary or useful for AstraZeneca to conduct the activities assigned to it in the applicable research plan, but for no other purpose.

The activities under the AstraZeneca Collaboration Agreement are governed by a joint steering committee (“JSC”) formed by an equal number of representatives from the Company and AstraZeneca. The JSC oversees and reviews each research program. Among other responsibilities, the JSC monitors and reports on research progress and it is responsible to ensure open and frequent exchange between the parties regarding research program activities.

AstraZeneca is obligated to fund two full time equivalents (“FTE”) during the Bicycle Research Term, for each research program, based on an agreed upon FTE reimbursement rate. Payment is made quarterly in advance of services being provided.

AstraZeneca has the option to obtain development and commercialization licenses associated with each designated drug candidate in return for a fee of $8.0 million per drug candidate. In addition, AstraZeneca is required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial milestones. More specifically, for each research program, the Company is eligible to receive up to $29.0 million in development milestone payments and up to $23.0 million in regulatory milestone payments. The Company is also eligible for up to $110.0 million in commercial milestone payments, on a research program by research program basis. Development milestone payments are triggered upon initiation of a defined phase of clinical research for a drug candidate. Regulatory milestone payments are triggered upon approval to market a product candidate by the United States Food and Drug Administration (“FDA”) or other global regulatory authorities. Commercial milestone payments are triggered when an approved pharmaceutical product reaches certain defined levels of net sales by the licensee. In addition, to the extent any of the product candidates covered by the licenses conveyed to AstraZeneca are commercialized, the Company would be entitled to receive tiered royalty payments of mid-single digits based on a percentage of net sales. Royalty payments are subject to certain reductions, including in certain countries where AstraZeneca faces generic competition. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any additional milestone payments or royalty payments from AstraZeneca.

Either party may terminate the AstraZeneca Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period. Either party may terminate the AstraZeneca Collaboration Agreement in the event of the commencement of any proceeding in or for bankruptcy, insolvency, dissolution or winding up by or against the other party that is not dismissed or otherwise disposed of within a specified time period. AstraZeneca may terminate the AstraZeneca Collaboration Agreement, entirely or on a licensed product by licensed product or country by country basis, for convenience.

Accounting Analysis

The Company has identified the following performance obligations:

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

(ii)research license and the related research and development services during the Bicycle Research Term for the second target (the “Target Two Research License and Related Services”).

The Company concluded that the Additional Four Target Option is not a material right, as the option does not provide a discount that AstraZeneca otherwise would not have received. The Company’s participation in the joint steering committee was assessed as immaterial in the context of the contract. The Company has concluded that the research license is not distinct from the research and development services during the Bicycle Research Term as AstraZeneca cannot obtain the benefit of the research license without the Company performing the research and development services. The services incorporate proprietary technology and unique skills and specialized expertise,

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particularly as it relates to constrained peptide technology that is not available in the marketplace. As a result, for each research program, the research license has been combined with the research and development services into a single performance obligation.

The total transaction price was initially determined to be $1.2 million, consisting solely of research and development funding. The Company utilizes the most likely amount method to determine the amount of research and development funding to be received. Additional consideration to be paid to the Company upon the exercise of the license options by AstraZeneca or upon reaching certain milestones is excluded from the transaction price as they relate to option fees and milestones that can only be achieved subsequent to the option exercise or are outside of the initial contact term.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. The estimated standalone selling prices for the Target One Research License and Related Services and the Target Two Research License and Related Services are primarily based on the nature of the services to be performed and estimates of the associated effort and costs of the services, adjusted for a reasonable profit margin what would be expected to be realized under similar contracts. The transaction price allocated to each performance obligation was initially $0.6 million.

The Company will recognize revenue related to amounts allocated to the Research License and Related Services as the underlying services are performed over the one year Research Term using a proportional performance model over the period of service using input-based measurements of total full-time equivalent effort incurred to date as a percentage of total full-time equivalent time expected and will remeasure its progress towards completion at the end of each reporting period, which best reflects the progress towards satisfaction of the performance obligation.

In October 2017, AstraZeneca selected a replacement target for the first target, and as such a new Research Term was started related to the Target One Research License and Related Services. In addition, both programs were extended. The total transaction price under the arrangement increased to $2.0 million for the additional research and development funding to be received.

For the three months and six months ended June 30, 2019, the Company recognized $25,000 and $0.2 million, respectively, and for the three and six months ended June 30, 2018, the Company recognized $0.3 million and $0.6 million, respectively, of collaboration revenue related to the Target One and Target Two Research License and Related Services for its Collaboration Agreement with AstraZeneca. As of June 30, 2019 and December 31, 2018, the Company recorded no deferred revenue and $24,000 of deferred revenue, respectively, in connection with the 2016 AstraZeneca Collaboration Agreement.

May 2018 AstraZeneca Option Exercise — Additional Four Targets

Under the AstraZeneca Collaboration Agreement, AstraZeneca was granted an option to nominate up to four additional targets at any point up to the second anniversary of the agreement (“Additional Four Target Option”). In May 2018, AstraZeneca made an irrevocable election to exercise the Additional Four Target Option. As a result, AstraZeneca is entitled to obtain research and development services with respect to Bicycle peptides that bind to up to four additional targets, along with license rights to those selected targets, in exchange for an option fee of $5.0 million, which was paid by AstraZeneca to the Company in January, 2019. AstraZeneca is obligated to fund two FTEs during the Bicycle Research Term, for each research program, based on an agreed upon FTE reimbursement rate. Payment is made quarterly in advance of services being provided. AstraZeneca has the option to obtain worldwide development and commercialization licenses associated with each designated drug candidate in return for a fee of $8.0 million per drug candidate, upon the selection of such drug candidate, after which AstraZeneca would be required to fund development and commercialization costs, and to pay regulatory and commercial milestone payments and royalties to the Company as for the other products developed under the AstraZeneca Collaboration Agreement.

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Accounting Analysis

Upon the execution of the agreement, the Company has identified the following five performance obligations associated with the AstraZeneca May 2018 Agreement:

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

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

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

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

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

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

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

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

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

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

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The Company will recognize revenue related to amounts allocated to the Target Three Research License and Related Services as the underlying services are performed using a proportional performance model over the period of service using input-based measurements of total full-time equivalent effort incurred to date as a percentage of total full-time equivalent time expected, which best reflects the progress towards satisfaction of the performance obligation. The amount allocated to the material rights is recorded as deferred revenue and the Company will commence revenue recognition upon exercise of or upon expiry of the option. The optional future research license and the related research and development services related to the fourth, fifth and sixth targets reflect their standalone selling prices and do not provide the customer with a material right and, therefore, are not considered performance obligations and are accounted for as separate contracts. In June 2019, AstraZeneca selected a replacement target for the third target, and as such a new Research Term was started related to the Target Three Research License and Related Services. The total transaction price under the arrangement increased to $6.3 million for the additional research and development funding to be received. During the six months ended June 30, 2019, the Company commenced research and development services related to the fourth target.

For the three and six months ended June 30, 2019, the Company recognized $0.3 million and $0.6 million of revenue, respectively, and for the three and six months ended June 30, 2018, the Company recognized $0.1 million and $0.1 million of revenue for the Target Three Research License and Related Service and research and development services for the fourth target related to the May 2018 AstraZeneca Option Exercise.  As of June 30, 2019 and December 31, 2018, the Company recorded $4.7 million and $4.7 million of deferred revenue, respectively, in connection with the May 2018 AstraZeneca Option Exercise and related contracts.

Sanofi Collaboration Agreement (formerly Bioverativ)

Summary of Agreement

In August 2017, the Company entered into a Collaboration Agreement with Bioverativ Inc., which was acquired by Sanofi in March 2018 (“Sanofi”). Under the collaboration agreement with Sanofi (the “Sanofi Collaboration Agreement”), the Company will provide for research and development services focused on up to three collaboration programs; (i) Sickle cell disease, (ii) Hemophilia, and (iii) and a third program (“Program 3”), which is an optional program, to be defined. The Company will use its bicyclic peptide screening platform to perform research and development services for the programs and Sanofi has the ability to select a collaboration product for each program and obtain a license to develop and exploit the selected collaboration product for an additional option fee.

Under the Sanofi Collaboration Agreement, the Company is obligated to perform research activities on the initial two named collaboration programs, under mutually agreed upon research plans. The research and development services for each program consist of two stages. The first is an initial stage of screening for high affinity binders and affinity maturation of such binders to identify lead compounds led by the Company (the “BV Bicycle Research Term”). Upon the conclusion of the BV Bicycle Research Term, Sanofi can, at its sole discretion, select a certain number of collaboration compounds to move forward into the Joint Research Term. Upon selection of the collaboration compounds, Sanofi is required to pay an option fee. During the Joint Research Term, the Company and Sanofi will jointly conduct research and development activities which will include lead optimization of lead compounds, in preparation for lead collaboration product nomination (“Joint Research Term”). Sanofi may, at its sole discretion, approve any compound to be progressed into drug development and upon the selection of each collaboration product candidate, Sanofi shall pay $5.0 million as an option fee, in order to obtain worldwide development and exploitation rights for that collaboration product.

Each research program shall continue for an initial period of three years (the “Research Term”) unless a program is abandoned by Sanofi or extended for up to one year. The first year of each Research Term shall be the BV Bicycle Research Term and the remaining part of the Research Term, including any extensions of the Research Term, shall be the Joint Research Term.

Under the terms of the Sanofi Collaboration Agreement, the Company granted to Sanofi, for each collaboration program, a non-exclusive, sublicensable (through multiple tiers), worldwide license under certain intellectual property of the Company to conduct the activities assigned to Sanofi in the applicable research plan for the duration of the applicable Research Term, but for no other purpose.

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The activities under the Sanofi Collaboration Agreement is governed by a joint steering committee (“JSC”) formed by an equal number of representatives from the Company and Sanofi. The JSC oversees, review and recommends direction of each collaboration program and variations of or modifications to the research plans.

Under the terms of the Sanofi Collaboration Agreement, the Company received a $10.0 million up-front cash payment. Additionally, prior to the initiation of the research plan for each collaboration program, Sanofi made a non-refundable payment of $1.4 million for the Sickle cell program and $2.8 million for the Hemophilia program as payment for the Company’s services during the BV Bicycle Research Term. During the Joint Research Term, Sanofi is obligated to fund a minimum of two FTE’s based on an agreed upon FTE reimbursement rate and fund certain external costs incurred by the Company. Sanofi has the option to obtain development and commercialization licenses associated with each designated collaboration product candidate in return for a fee of $5.0 million per drug candidate. In addition, Sanofi would be required to make certain milestone payments to the Company upon the achievement of specified development, regulatory and commercial events. More specifically, for each collaboration program, the Company is eligible to receive between $47.5 million and $67.0 million in development milestone payments for the Sickle Cell and Hemophilia programs, respectively, and up to $104.0 million in regulatory milestone payments for each program. In addition, the Company is eligible for up to $55.0 million in commercial milestone payments, on a research program by research program basis. Development milestone payments are triggered upon initiation of a defined phase of clinical research for a collaboration product. Regulatory milestone payments are triggered upon approval to market a product candidate by the FDA or other global regulatory authorities. Commercial milestone payments are triggered when an approved collaboration product reaches certain defined levels of net sales by the licensee. In addition, to the extent any of the collaboration products covered by the licenses conveyed to Sanofi are commercialized, the Company would be entitled to receive tiered royalty payments of mid-single digits to low double digits based on a percentage of net sales. Royalty payments are subject to certain reductions, including for instances where Sanofi faces generic competition in certain countries. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any additional milestone payments or royalty payments from Sanofi.

Under the terms of the Collaboration Agreement, Sanofi was also provided with an option to obtain screening services on the additional Program 3 target upon making an option fee payment of $5.0 million in addition to a non-refundable payment of $1.4 million as payment for the Company’s services related to Program 3 during the BV Bicycle Research Term. The option expired in November 2018 unexercised.

Either party may terminate the Sanofi Collaboration Agreement if the other party has materially breached or defaulted in the performance of any of its material obligations and such breach or default continues after the specified cure period. Either party may terminate the Sanofi Collaboration Agreement in the event of the commencement of any proceeding in or for bankruptcy, insolvency, dissolution or winding up by or against the other party that is not dismissed or otherwise disposed of within a specified time period. Sanofi may terminate the Sanofi Collaboration Agreement, entirely or on a program by program, licensed product by licensed product or country by country basis, for convenience upon not less than 30 days prior written notice to the Company.

Accounting Analysis

The Company has identified the following four performance obligations associated with the Sanofi Collaboration Agreement:

(i)Research License and the related research and development services during the BV Bicycle Research Term for Sickle cell program (the “Sickle Cell Research License and Related Services”),

(ii)Research License and the related research and development services during the BV Bicycle Research Term for Hemophilia program (the “Hemophilia Research License and Related Services”),

(iii)Material right associated with the sickle cell program development and exploitation license option (“Sickle Cell License Option Material Right”), and

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(iv)Material right associated with the hemophilia program development and exploitation license option (“Hemophilia License Option Material Right”).

The Company concluded that the option to obtain screening services on the additional Program 3 target is not a material right, as the option does not provide a discount that Sanofi otherwise would not have received. The Company’s participation in the JSC was assessed as immaterial in the context of the contract. Research license and the related research and development services related to the Joint Research Term are not performance obligations at the inception of the arrangement, as they are optional services that will be performed if Sanofi selects collaboration compounds for lead optimization. The amount paid by Sanofi for the services during the Joint Research Team do not reflect a discount that the customer would otherwise receive and do not provide the customer with material rights.

The total transaction price was initially determined to be $14.2 million, consisting of the $10.0 million upfront payment and non-refundable research and development funding of $4.2 million. The Company may receive reimbursement of FTE costs and external costs associated with work under the Joint Research Term, milestone payments during the Joint Research Term, as well as upon exercise of the license options. These variable amounts are excluded from the transaction price as they relate to fees and milestones that can only be achieved subsequent to the exercise of an option.

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

Performance Obligations	Allocation of Transaction Price
Sickle Cell Research License and Related Services	$	1,405
Hemophilia Research License and Related Services	2,811
Sickle Cell License Option Material Right	5,286
Hemophilia License Option Material Right	4,698
	$	14,200

The Company will recognize revenue related to amounts allocated to the Sickle Cell Research License and Related Services and the Hemophilia Research License and Related Services obligations as the underlying services are performed using a proportional performance model, over the period of service using input-based measurements of total full-time equivalent effort incurred to date as a percentage of total full-time equivalent time expected, which best reflects the progress towards satisfaction of the performance obligation. The amount allocated to the material rights is recorded as deferred revenue and the Company will commence revenue recognition when the underlying option is exercised or upon expiry of the option.

During the six months ended June 30, 2019, Sanofi extended the research and development services on both programs. The arrangement consideration increased to $14.9 million. On March 28, 2019, Sanofi notified the Company that it would not exercise the Sickle Cell License Option. As a result, the amount allocated to the Sickle Cell License Option Material Right of $5.3 million was recognized into revenue during the six months ended June 30, 2019.

The Company recognized $0.1 million and $6.0 million of collaboration revenue for the three and six months ended June 30, 2019, respectively, and $1.1 million and $2.2 million of collaboration revenue for the three and six months ended June 30, 2018, respectively, related to its collaboration with Sanofi. As of December 31, 2018 and June 30, 2019, the Company recorded deferred revenue of $9.9 million and $4.7 million, respectively, related to its collaboration with Sanofi, respectively.

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Oxurion Collaboration Agreement

Summary of Agreement

In August 2013, the Company entered into a Research Collaboration and License Agreement  with Oxurion (the “Oxurion Collaboration Agreement”). Under the Oxurion Collaboration Agreement, the Company was responsible for identifying Bicycle peptides related to the collaboration target, plasma kallikrein, for use in various ophthalmic indications. Oxurion is responsible for further development and product commercialization after the defined research screening is performed by the Company.

Under the Oxurion Collaboration Agreement, the Company is obligated to perform specified research activities in accordance with the research plan, which includes two stages. Stage I, now completed, focused on the screening of targets using the Company’s Bicycle peptide discovery platform with the goal of identifying compounds that meet the criteria set by the parties, and Stage II, during which Oxurion has continued research activities on selected Bicycle peptides with the goal of identifying compounds for further development and commercialization. The Company is not obligated or expected to perform any research services during Stage II of the research plan.

The Company granted certain worldwide intellectual property rights to Oxurion for the development, manufacture and commercialization of licensed compounds associated with plasma kallikrein. The Oxurion Collaboration Agreement provided for an upfront payment of €1.0 million and potential additional research and development funding, at an agreed upon FTE rate, should the research effort require more than one FTE or the research plan be amended or extended by Oxurion. In addition, Oxurion is required to make certain milestone payments to the Company upon the achievement of specified research, development, regulatory and commercial events. More specifically, for each collaboration program, the Company is eligible to receive up to €8.3 million in research and development milestones of which €1.8 million has been received as of June 30, 2019. In addition, the Company is eligible to receive up to €16.5 million upon achievement of certain regulatory milestone payments (e.g. €5 million for granting first regulatory approval in either the United States or EU for the first indication). In addition, to the extent any of the collaboration products covered by the licenses granted to Oxurion are commercialized, the Company would be entitled to receive tiered royalty payments of mid-single digits based on a percentage of net sales. Due to the uncertainty of pharmaceutical development and the high historical failure rates generally associated with drug development, the Company may not receive any additional milestone payments or royalty payments from Oxurion.

Either party may terminate the Oxurion Collaboration Agreement if the other party has materially breached any of its material obligations and such breach continues after the specified cure period. Either party may terminate the Oxurion Collaboration Agreement in the event of the commencement of any proceeding in or for bankruptcy, insolvency, dissolution or winding up by or against the other party that is not dismissed or otherwise disposed of within a specified time period. Oxurion may terminate the Oxurion Collaboration Agreement, entirely or on a program by program, licensed product by licensed product or country by country basis, for convenience upon not less than 90 days prior written notice to the Company.

In November 2017, the parties executed the First Deed of Amendment to the Oxurion Collaboration Agreement (“First Amendment”). The First Amendment confirms that THR-149 has been selected as a development compound under the Oxurion Collaboration Agreement and that Stage II of the research plan has been completed. The First Amendment provided for additional research services to be performed by the Company related to the identification of two additional compounds for Oxurion, in its discretion, to select as development compounds. As for the work under the Oxurion Collaboration Agreement, the Company will perform the work under Stage I of the research plan, which will be funded at a specified FTE rate, plus any direct out of pocket expenses, and Oxurion will be responsible for Stage II research and any development after the selection of a development compound. Additional milestones and royalties were added for the potential additional licensed compounds, consistent with those of the initial Oxurion Collaboration Agreement. The Company is not obligated or expected to perform any research services during Stage II of the research plan.

Accounting Analysis

Under the Oxurion Collaboration Agreement, all licenses were granted and research services to be provided by the Company were fully completed and revenue associated with those obligations was fully recognized prior to

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January 1, 2016. Under the First Amendment, the Company has identified a single performance obligation associated with the performance of research services associated with Stage I of the research plan for which the Company will be reimbursed for its services at a specified FTE reimbursement rate plus out of pocket costs which will be recognized on a proportional performance basis as the associated FTE efforts and costs are incurred, which best reflects the progress towards satisfaction of the performance obligation. None of the unpaid development or regulatory milestones have been included in the transaction price, as all milestones are not considered probable at December 31, 2018 and June 30, 2019.

The Company recognized no revenue for the three and six months ended June 30, 2019, and $0.2 million and $1.6 million of revenue for the three and six months ended June 30, 2018, respectively, related to its agreements with Oxurion. As of June 30, 2019, the research services under the First Amendment were complete. The revenue recognized for the three and six months ended June 30, 2018 includes $1.2 million related to the achievement of developmental milestones during the advancement of the research by Oxurion into a Phase I clinical study. There was no deferred revenue recorded as of December 31, 2018 and June 30, 2019 in connection with the agreements with Oxurion.

Dementia Discovery Fund Agreement

In May 2019, the Company entered into a collaboration with the Dementia Discovery Fund (“DDF”) to use Bicycle technology for the discovery and development of novel therapeutics for dementia (the “DDF Collaboration Agreement”). Under the terms of the DDF Collaboration Agreement, the Company and DDF will collaborate to identify Bicycles that bind to clinically validated dementia targets (the “DDF Research Plan”). The Company is obligated to use commercially reasonable efforts to perform research activities under the DDF Research Plan. DDF shall not be directly engaged in the conduct of any research activities under the arrangement. The activities under the DDF Collaboration Agreement will be governed by a project advisory panel, composed of two representatives from each Party. The Research Advisory Panel will oversee, review and recommend direction for the Research Plans and variations of or modifications of research plans.

The Company received an upfront payment of $1.1 million in May 2019. The Company may receive up to an additional $0.7 million, upon achievement of certain milestones such as the identification of lead bicycle candidates with a certain affinity, which would be used to fund additional research and development services including lead optimization.

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

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

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Accounting Analysis

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

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

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

The transaction price was allocated to the single performance obligation of research and development services. The Company will recognize revenue as the underlying services are performed using a proportional performance model, over the period of service using input-based measurements of total costs, including total full-time equivalent effort incurred to date as a percentage of total costs expected, which best reflects the progress towards satisfaction of the performance obligation.

The Company recognized $0.1 million of revenue for both the three and six months ended June 30, 2019 and recorded deferred revenue of $1.0 million as of June 30, 2019 related to its collaboration with DDF.

Material Transfer Agreement

In October 2018, the Company entered into a Materials Transfer Agreement. Under the terms of the agreement, the Company agreed to transfer bicyclic peptides (the “Materials”) to the recipient for the purpose of testing the materials in order to evaluate the Company’s technology platform. The recipient agreed to pay the Company $1.0 million within 30 business days after receipt of the materials and related data package, which was paid to the Company in May 2019. The agreement has a term of 14 months after delivery of the Materials and data package, and may be terminated upon 45 days’ notice by the recipient. At any point during the term of the agreement and continuing through two months after the completion of the permitted research, the recipient has the option to enter into good faith negotiations to obtain a license to the Company’s background intellectual property and/or the Company’s interest in the new substances or developments for the purpose of continued research and development of collaboration products. The Company recognized $1.0 million of revenue during the three and six months ended June 30, 2019 related to its Materials Transfer Agreement, as the Company concluded that the recipient has the ability to direct the use of and obtain substantially all of the remaining benefit from the Materials upon the delivery of the Materials and the data package.

Summary of Contract Assets and Liabilities

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

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

	Balance at Beginning of Year		Additions		Deductions			Impact of Exchange Rates			Balance at End of Period
Period ended December 31, 2018
Contract assets	$	—	$	91	$	(91	)	$	—		$	—
Contract liabilities:
Deferred revenue
Sanofi collaboration deferred revenue	14,467		—		(4,006		)	(553		)	9,908
AstraZeneca collaboration deferred revenue	—		5,350		(466		)	(157		)	4,727
Total deferred revenue	$	14,467	$	5,350	$	(4,472	)	$	(710	)	$	14,635

	Balance at Beginning of Period		Additions		Deductions			Impact of Exchange Rates			Balance at End of Period
Period ended June 30, 2019
Contract assets	$	—	$	103	$	—		$	—		$	103
Contract liabilities:
Deferred revenue
Sanofi collaboration deferred revenue	9,908		—		(5,286		)	34			4,656
AstraZeneca collaboration deferred revenue	4,727		24		(35		)	(14		)	4,702
DDF collaboration deferred revenue	—		1,114		(103		)	1			1,012
Total deferred revenue	$	14,635	$	1,138	$	(5,424	)	$	21		$	10,370

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

The Sanofi deferred revenue balance at June 30, 2019 is comprised of $4.7 million allocated to the Hemophilia License Option Material Right, which will commence revenue recognition when the respective option is exercised at the end of Joint Research Term or when the option expires.

The AstraZeneca deferred revenue balance at June 30, 2019 includes $4.7 million allocated to the Target 3, Target 4, Target 5 and Target 6 Material Rights, which will commence revenue recognition when the respective option is exercised at the end of AZ Research Term or when the option expires. The remaining balance relates to research and development services billed in advance that will be recognized over the Bicycle Research Term.

During the three and six months ended June 30, 2019 and 2018, the Company recognized the following revenues as a result of changes in the contract asset and the contract liability balances in the respective periods (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue recognized in the period from:
Revenue recognized based on proportional performance	$	(113	)	$	(1,169	)	$	(138	)	$	(2,287	)
Revenue recognized based on expiration of material rights	—			—			(5,286		)	—
Total	$	(113	)	$	(1,169	)	$	(5,424	)	$	(2,287	)

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Cancer Research UK

On December 13, 2016, the Company entered into a Clinical Trial and License Agreement with Cancer Research Technology Limited (“CRTL”) and Cancer Research UK (“CRUK”) (the “CRUK Agreement”). Pursuant to the CRUK Agreement, as amended in March 2017 and June 2018, CRUK’s Centre for Drug Development will sponsor and fund a Phase Ia and Phase IIa clinical trial for the Company’s lead product candidate, BT1718, a Bicycle Toxin Conjugate, in patients with advanced solid tumors.

CRUK is responsible to design, prepare, carry out and sponsor the clinical trial at its cost. The Company is responsible for supplying agreed quantities of GMP materials for the study, the supply of which has been completed. In the event that additional quantities are needed, the Company will provide CRUK with all reasonable assistance to complete the arrangements necessary for the generation and supply of such additional GMP materials but CRUK will be responsible for supplying and paying for such additional quantities of GMP materials.

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

The CRUK Agreement can be terminated by either party upon an insolvency event, material breach of the terms of the contract, or upon a change in control (and the new controlling entity generates its revenue from the sale of tobacco products or is an affiliate of such party). CRUK may terminate the arrangement for safety reasons or if it determines that the objectives of the clinical trial will not be met, in which case, if the study is terminated by CRUK prior to the completion of the Phase 1a dose escalation portion of the study for such reasons or if CRUK refuses release of any additional quantities of GMP materials or if the parties cannot agree upon a plan to supply the additional quantities of GMP materials, the Company will be obligated to refund fifty percent of the costs and expenses incurred or committed by CRUK to perform the clinical trial. If the study is terminated by CRUK for an insolvency event, a material breach by the Company, or if the Company is acquired by an entity that generates its revenue from the sale of tobacco products or is an affiliate of such party, the Company will reimburse CRUK in full for all costs paid or committed in connection with the clinical trial and no further license payments, where applicable, shall be due. In such case where the Company is acquired by an entity that generates its revenue from the sale of tobacco products or is an affiliate of such party, CRUK will not be obliged to grant a license to the Company in respect of the results of the clinical trial and the Company will assign or grant to CRT an exclusive license to develop and commercialize the product without CRT being required to make any payment to the Company.

The Company concluded that the costs incurred by CRUK is a liability in accordance with ASC 730, Research and Development, as the payment is not based solely on the results of the research and development having future economic benefit. As such, the Company recorded a liability of $1.3 million and $0.8 million at June 30, 2019 and December 31, 2018, respectively, which is recorded in other long-term liabilities in the condensed consolidated balance sheets. The liability is recorded as incremental research and development expense in the statements of operations and comprehensive loss.

11. Income Taxes

During the three and six months ended June 30, 2019, the Company recorded an income tax provision of $0.1 million and $0.2 million, respectively. During the three and six months ended June 30, 2018, the Company recorded an income tax provision of $0 and an income tax benefit of $0.4 million, respectively. The Company is subject to United Kingdom corporate taxation. Due to the nature of its business, the Company has generated losses

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since inception and has therefore not paid United Kingdom corporation tax. The Company’s income tax provision in 2019 is mainly the result of profits of Bicycle Therapeutics Inc. in the U.S. from an intercompany service arrangement, which is partially offset by research credits benefitted in the United States that do not have a valuation allowance against them because of profits that will be generated by an intercompany service agreement. The Company’s income tax benefit recorded in 2018 is mainly the result of deferred tax assets benefitted in the United States that do not have a valuation allowance against them because of profits that will be generated by an intercompany service agreement. The benefit from income taxes for the six months ended June 30, 2018 is limited to the total tax benefit the Company expects to realize for the respective year, since the Company incurred losses in the respective year to date periods that exceeds the expected annual loss.

The Company regularly assesses its ability to realize its deferred tax assets. Assessing the realization of deferred tax assets requires significant judgment. In determining whether its deferred tax assets are more likely than not realizable, the Company evaluated all available positive and negative evidence, and weighed the evidence based on its objectivity. After consideration of the evidence, including the Company’s history of cumulative net losses in the U.K., and has concluded that it is more likely than not that the Company will not realize the benefits of its U.K. deferred tax assets and accordingly the Company has provided a valuation allowance for the full amount of the net deferred tax assets in the U.K. The Company has considered the Company’s history of cumulative net profits in the United States, estimated future taxable income and concluded that it is more likely than not that the Company will realize the benefits of its United States deferred tax assets and has not provided a valuation allowance against the net deferred tax assets in the United States. The Company recorded a valuation allowance against all of its U.K. deferred tax assets as of June 30, 2019 and December 31, 2018.

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

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

12. Commitments and Contingencies

Leases

In September 2015, the Company entered into a tenancy agreement for office and laboratory space in Building 260 Babraham Research Campus, Cambridge, U.K. for a period of two years, beginning on October 1, 2015. The annual rent was approximately $0.2 million plus service charges. In October 2017, this agreement was extended until January 2018 with annual rent of approximately $0.2 million.

In September 2017, Bicycle Therapeutics Inc. entered into a lease agreement for office and laboratory space in Lexington, Massachusetts, which commenced on January 1, 2018 and expires on December 31, 2022. Bicycle Therapeutics Inc. has the option to extend for a successive period which is not included in the lease term as it is not reasonably certain that the option will be exercised. In conjunction with the lease agreement, Bicycle Therapeutics Inc. paid a security deposit of $0.2 million as well as prepaid rent of $0.1 million for the first month of the third, fourth, and fifth year of the lease. The deposit is recorded in other assets in the condensed consolidated balance sheets. With the adoption of ASU 2016-02, the Company has recorded a right-of-use asset (inclusive of the impact of prepaid rent) and corresponding lease liability, by calculating the present value of lease payments, discounted at 9%, the incremental borrowing rate, over the lease term.

In October 2017, the Company entered into a lease agreement for office and laboratory space in Building 900, Babraham Research Campus, Cambridge, U.K., which expires on December 21, 2021. The annual rent is approximately $0.5 million. The Company has the right to renew the lease for five years commencing December 21, 2021, which is not included in the lease term as it is not reasonably certain that the right will be exercised. Service charges are also payable based on floor area and are estimated to be approximately $0.1 million per year. In

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conjunction with the 2017 lease agreement, the Company paid a security deposit of $0.6 million, which is recorded in other assets in the condensed consolidated balance sheets. With the adoption of ASC 2016-02, the Company has recorded a right-of-use asset and corresponding lease liability, by calculating the present value of lease payments, discounted at 7.75%, the incremental borrowing rate, over the lease term.

The future minimum lease payments due under the Company’s operating leases as of December 31, 2018 were as follows (in thousands):

Year Ending December 31,
2019	888
2020	901
2021	915
2022	483
2023	—
	$	3,187

Prior to the adoption of ASU 2016-02 and for the three and six months ended June 30, 2018, the Company recognized rent expense on a straight-line basis over the lease period and recorded deferred rent for rent expense incurred but not yet paid. During the three and six months ended June 30, 2018, the Company recognized total rent expense of $0.2 million and $0.5 million, respectively.

The Company identified and assessed the following significant assumptions in recognizing the right-of-use assets and corresponding lease liabilities:

·Expected lease term — The expected lease term includes both contractual lease periods and, when applicable, cancelable option periods when it is reasonably certain that the Company would exercise such options. The Company has not included any option periods in the expected lease term as it is not reasonably certain that the Company will exercise such options.

·Incremental borrowing rate — The Company’s lease agreements do not provide an implicit rate. As the Company does not have any external borrowings for comparable terms of its leases, the Company estimated the incremental borrowing rate by comparing interest rates available in the market for similar borrowings and third-party quotations.

·Lease and non-lease components — In certain cases, the Company is also responsible for certain additional charges for operating costs, including insurance, maintenance, taxes, and other costs incurred, which are billed based on both usage and as a percentage of the Company’s share of total square footage. The amounts paid are considered non-lease components. The Company has elected the practical expedient which allows the non-lease components to be combined with the lease components. The payments for other operating costs are considered variable lease cost and are recognized in the period in which the costs are incurred.

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

	Three Months Ended June 30,			Six Months Ended June 30,
	2019			2019
Operating lease cost	$	224		$	449
Variable lease cost	87			167
Total lease cost	$	311		$	616
Weighted-average remaining operating lease term (years)	3.1			3.1
Weighted-average discount rate	8.50		%	8.50		%

The following table summarizes the maturities of the Company’s operating leases as of June 30, 2019 (in thousands):

Year Ending December 31,
2019	$	555
2020	862
2021	764
2022	443
2023	—
Present value adjustment	(402		)
Total lease liabilities	$	2,222
Less: current lease liabilities	(594		)
Long term lease liabilities	$	1,628

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

Legal proceedings

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

In September 2016, the Company filed a complaint in the District Court of The Hague against Pepscan Systems B.V. (“Pepscan”) to contest the right of Pepscan to terminate a non-exclusive patent license agreement entered into with Pepscan in 2009 and 2010 (“PLA”). In response, Pepscan counterclaimed for injunctive relief and unquantified damages. The Company is vigorously prosecuting its claims and defending against those of Pepscan. The Company does not believe that a loss is probable or estimable at this time, and as such, the Company has not recorded a liability related to the Pepscan litigation as of June 30, 2019 and December 31, 2018. Should the Company not be successful in maintaining its rights to Pepscan’s patent or in the Company’s alternative demand that the patent be invalidated, commercialization of the Company’s lead product could be delayed. As the Pepscan patent expires prior to the expected commercialization date of the product, the Company does not believe that the legal proceedings could have a material adverse effect on the Company’s business and operating results.

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Founder Royalty arrangements

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

In accordance with the terms of the Founder Royalty Agreement, as amended in May 2017, the parties amended the terms of the royalty arrangements to limit the future royalties payments to net sales on future products that could be generated under the collaboration with Oxurion and AstraZeneca, in exchange for the issuance of warrants to subscribe for 200,000 Series A Preferred Shares.

Indemnification obligations

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has indemnification obligations towards members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification arrangements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnification obligations. The Company is not aware of any claims under indemnification arrangements, and therefore it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of June 30, 2019 and December 31, 2018.

13. Net loss per share

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Numerator:
Net loss attributable to ordinary shareholders	$	(10,217	)	$	(4,979	)	$	(16,720	)	$	(7,513	)
Denominator:
Weighted average ordinary shares outstanding, basic and diluted	7,298,139			420,063			4,101,564			408,807
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(1.40	)	$	(11.85	)	$	(4.08	)	$	(18.38	)

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The Company’s potentially dilutive securities, which include share options, warrants to subscribe for ordinary shares, and which prior to the completion of the IPO, included convertible preferred shares, warrants to subscribe for Series A and Series B1 Preferred Shares, and unvested restricted shares, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted average number of ordinary shares outstanding used to calculate both basic and diluted net loss per share attributable to ordinary shareholders is the same. The Company excluded the following potentially dilutive ordinary shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to ordinary shareholders for the periods indicated because including them would have had an anti-dilutive effect:

	Three Months Ended June 30,		Six Months Ended June 30,
	2019	2018	2019	2018
Convertible preferred shares (as converted to ordinary shares)	—	9,641,740	—	9,641,740
Warrants to subscribe for convertible preferred shares (as adjusted to reflect the impact of the share capital reorganization and issuance of bonus shares (Note 1))(1)(2)	114,320	1,347,953	114,320	1,347,953
Restricted ordinary shares	—	123,735	—	123,735
Options to purchase ordinary shares	2,615,949	971,079	2,615,949	971,079
	2,730,269	12,084,507	2,730,269	12,084,507

(1)On March 7, 2019, the holders of the Series B1 warrants to subscribe for Series B1 Preferred Shares agreed that 50% of the warrants would be exercised in conjunction with the IPO and 50% of the warrants would expire.

(2)At June 30, 2019, 80,000 warrants are outstanding which are exercisable into 114,320 ordinary shares.

14. Benefit plans

The Company established a defined-contribution savings plan under Section 401(k) of the United States Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan covers all U.S. employees and allows participants to defer a portion of their annual compensation on a pre-tax basis. Matching contributions to the 401(k) Plan may be made at the discretion of the Company’s board of directors. During the three months ended June 30, 2019 and 2018 the Company made contributions totaling $25,000  and $19,000, respectively, to the 401(k) Plan. During the six months ended June 30, 2019 and 2018, the Company made contributions totaling $0.1 million and $0.1 million, respectively, to the 401(k) Plan.

The Company provides a pension contribution plan for its employees in the United Kingdom, pursuant to which the Company contributes each year amounts of up to 12% of their annual base salary (“U.K Plan”). During the three months ended June 30, 2019 and 2018, the Company made contributions totaling $0.1 million and $0.1 million, respectively, to the U.K. Plan. During the six months ended June 30, 2019 and 2018, the Company made contributions totaling $0.2 million and $0.1 million, respectively, to the U.K. Plan.

15. Related party transactions

The Company has entered into a Founder Royalty Agreement with its founders and initial investors (Note 12). No royalties have been earned or paid under the Founder Royalty Agreement to date.

The former Chairman of the Company’s Board of Directors is associated with 10X Capital Inc., which  provided consultancy services to the Company totaling $50,000 and $50,000 a during the three and six months ended June 30, 2019 and 2018, respectively.

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16. Geographic information

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

	June 30,		December 31,
	2019		2018
United States	$	1,853	$	498
United Kingdom	2,535		1,320
	$	4,388	$	1,818

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

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

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes for the year ended December 31, 2018 included in our final prospectus for our initial public offering filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, on May 23, 2019.  Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions.  Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth under the heading “Risk Factors” in Part II, Item 1A of this report.

Overview

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

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

Our initial internal programs are focused on oncology indications with high unmet medical need.  Our lead product candidate, BT1718, is a Bicycle Toxin Conjugate, or BTC.  This Bicycle is being developed to target tumors that express Membrane Type 1 matrix metalloprotease, or MT1-MMP.  MT1-MMP is expressed in approximately 76% to 96% of the ovarian, bladder, endometrial and triple negative breast cancer samples we have tested, depending on cancer type.  The Bicycle is chemically attached to a toxin that when administered is cleaved from the Bicycle and kills the tumor cells.  BT1718 is being investigated for safety, tolerability and efficacy in an ongoing Phase I/IIa clinical trial in collaboration with, and fully funded by, the Centre for Drug Development of Cancer Research UK, or CRUK. The Phase I part of the clinical trial commenced in early 2018 and this part of the trial remains ongoing. As of August 7, 2019, six cohorts of patients have been dosed and evaluated on the twice-weekly schedule, with doses ranging from 0.6 mg/m2 to 9.6 mg/m2. Four cohorts in the once-weekly schedule have been dosed and evaluated with doses ranging from 9.6 mg/m2 to 25 mg/m2. The escalation is ongoing, and we have not observed dose limiting toxicities in the once weekly escalation. We expect to report preliminary data from the Phase I part of this clinical trial in the second half of 2019.

We are also developing BT5528 and BT8009, which are BTCs targeting Ephrin type-A receptor 2, or EphA2, and Nectin-4, respectively, for oncology indications.  BT5528 and BT8009 are being investigated for safety, activity and to establish a rationale for therapeutic use in preclinical studies.  We are currently conducting Investigational New Drug application, or IND, -enabling activities for BT5528 and BT8009.  Our discovery pipeline in oncology includes Bicycle-targeted innate immune activators as well as T-cell modulators.

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

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Financial Overview

Since our inception, we have devoted substantially all of our resources to developing our Bicycle platform and our lead product candidates, BT1718, BT5528 and BT8009, conducting research and development of our product candidates and preclinical programs, raising capital and providing general and administrative support for our operations.  To date, we have financed our operations primarily with proceeds from the sale of ADS’s and ordinary shares, convertible preferred shares, as well as proceeds received from upfront payments, research and development payments, and development milestone payments from our collaboration agreements with Oxurion, AstraZeneca and Sanofi, and DDF.  From our inception in 2009 through June 30, 2019, we have received gross proceeds of $193.0 million from the sale of ADSs, ordinary shares and convertible preferred shares, including the proceeds from our initial public offering, as well as $29.2 million of cash payments under our collaboration revenue arrangements, including $4.1 million from Oxurion, $8.0 million from AstraZeneca, $14.9 million from Sanofi and $1.1 million from DDF. We do not have any products approved for sale and have not generated any revenue from product sales.

Since our inception, we have incurred significant operating losses.  Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates.  Our net losses were $10.2 million and $16.7 million for the three and six months ended June 30, 2019, respectively. As of June 30, 2019, we had an accumulated deficit of $86.7 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations.  We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future.

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

·continue our development of our product candidates, including conducting future clinical trials of BT1718;

·progress the preclinical and clinical development of BT5528 and BT8009;

·seek to identify and develop additional product candidates;

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

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

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

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

·acquire or in-license other products and technologies;

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

·add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts, and our operation