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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,  DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2020

OR

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

For the transition period from                to               

Commission File Number:  001‑38916

Bicycle Therapeutics plc

(Exact Name of Registrant as Specified in its Charter)

England and Wales	Not Applicable
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
B900,  Babraham Research Campus Cambridge,  United Kingdom	CB22 3AT
(Address of principal executive offices)	(Zip Code)

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

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

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

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

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

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

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

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

As of May 4, 2020, the registrant had 18,087,657 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	33
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	46
Item 4.	Controls and Procedures	47
PART II - OTHER INFORMATION		48
Item 1.	Legal Proceedings	48
Item 1A	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	105
Item 3.	Defaults Upon Senior Securities	105
Item 4.	Mine Safety Disclosures	105
Item 5.	Other Information	105
Item 6.	Exhibits	105
SIGNATURES		107

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Forward-looking Information

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

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

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

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

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

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· 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;

· 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 Jumpstart Our Business Startups Act, or 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.

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PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

Bicycle Therapeutics plc

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

(Unaudited)

	March 31,		December 31,
	2020		2019
Assets
Current assets:
Cash	$	109,637	$	92,117
Accounts receivable		1,002		201
Prepaid expenses and other current assets		4,248		4,884
Research and development incentives receivable		8,503		6,944
Total current assets		123,390		104,146
Property and equipment, net		2,203		2,292
Operating lease right‑of‑use assets		1,815		2,056
Other assets		1,874		1,700
Total assets	$	129,282	$	110,194
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	4,434	$	1,949
Accrued expenses and other current liabilities		5,716		6,144
Deferred revenue, current portion		6,047		728
Total current liabilities		16,197		8,821
Operating lease liabilities		1,056		1,251
Deferred revenue, net of current portion		28,206		4,929
Other long‑term liabilities		2,010		1,995
Total liabilities		47,469		16,996
Commitments and contingencies (Note 12)
Shareholders’ equity:
Ordinary shares, £0.01 nominal value; 31,995,653 shares authorized at March 31, 2020 and December 31, 2019; 18,016,207 and 17,993,701 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively		227		227
Additional paid‑in capital		197,179		195,056
Accumulated other comprehensive loss		(3,719)		(1,535)
Accumulated deficit		(111,874)		(100,550)
Total shareholders’ equity		81,813		93,198
Total liabilities and shareholders’ equity	$	129,282	$	110,194

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

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Bicycle Therapeutics plc

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

	Three Months Ended
	March 31,
	2020		2019
Collaboration revenues	$	1,129	$	6,384
Operating expenses:
Research and development		7,774		6,276
General and administrative		4,998		3,402
Total operating expenses		12,772		9,678
Loss from operations		(11,643)		(3,294)
Other income (expense):
Interest and other income		212		64
Other expense, net		—		(3,193)
Total other income (expense), net		212		(3,129)
Net loss before income tax provision		(11,431)		(6,423)
(Benefit from) provision for income taxes		(107)		80
Net loss	$	(11,324)	$	(6,503)
Net loss attributable to ordinary shareholders	$	(11,324)	$	(6,503)
Net loss per share attributable to ordinary shareholders, basic and diluted	$	(0.63)	$	(7.80)
Weighted average ordinary shares outstanding, basic and diluted		17,997,929		834,043
Comprehensives Loss:
Net loss	$	(11,324)	$	(6,503)
Other comprehensive income (loss):
Foreign currency translation adjustment		(2,184)		1,080
Total comprehensive loss	$	(13,508)	$	(5,423)

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

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Bicycle Therapeutics plc

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

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

															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)

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

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Bicycle Therapeutics plc

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended
	Ended
	March 31,
	2020		2019
Cash flows from operating activities:
Net loss	$	(11,324)	$	(6,503)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		2,121		276
Depreciation and amortization		305		213
Change in fair value of warrant liability		—		3,197
Changes in operating assets and liabilities:
Accounts receivable		(846)		4,860
Research and development incentives receivable		(2,097)		(1,650)
Prepaid expenses and other current assets		347		(215)
Operating lease right‑of‑use assets		187		176
Other assets		(215)		125
Accounts payable		2,702		415
Accrued expenses and other current liabilities		(464)		(783)
Lease liabilities		191		(176)
Deferred revenue		30,103		(5,327)
Other long-term liabilities		152		191
Net cash provided by (used in) operating activities		21,162		(5,201)
Cash used in investing activities:
Purchases of property and equipment		(320)		(418)
Net cash used in investing activities		(320)		(418)
Cash flows from financing activities:
Proceeds from issuance of series B2 convertible preferred shares, net of issuance costs		—		1,334
Payments of initial public offering costs		—		(1,300)
Proceeds from the exercise of share options and sale of ordinary shares		2		—
Net cash provided by financing activities		2		34
Effect of exchange rate changes on cash		(3,324)		1,569
Net increase (decrease) in cash		17,520		(4,016)
Cash at beginning of period		92,117		63,380
Cash at end of period	$	109,637	$	59,364
Supplemental disclosure of cash flow information
Cash paid for income taxes		11		—
Cash paid for amounts included in the measurement of operating lease liabilities		—		224
Purchases of property and equipment included in accounts payable and accrued expenses		71		—
Deferred initial public offering costs accrued but not paid		—		431

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

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Bicycle Therapeutics plc

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Nature of the business and basis of presentation

Bicycle Therapeutics plc (collectively with its subsidiaries, the “Company”) is a clinical-stage biopharmaceutical company developing a novel class of medicines, which the Company refers to as Bicycles, for diseases that are underserved by existing therapeutics. Bicycles® are a unique therapeutic modality combining the pharmacology usually associated with a biologic with the manufacturing and pharmacokinetic properties of a small molecule. The Company’s initial internal programs are focused on oncology indications with high unmet medical need. The Company’s lead product candidate, BT1718, is a Bicycle Toxin Conjugate (“BTC”) that is being developed to target tumors that express Membrane Type 1 matrix metalloproteinase. 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 evaluating BT5528, a second-generation BTC targeting Ephrin type‑A receptor 2 (“EphA2”), in a Company-sponsored Phase I/II study as a monotherapy and in combination with nivolumab, and is conducting Investigational New Drug application (“IND”) ‑enabling activities for BT8009, a BTC targeting Nectin-4.  The Company’s discovery pipeline in oncology includes Bicycle-based systemic immune cell agonists and Bicycle tumor-targeted immune cell agonists (TICAs™). Beyond oncology, the Company is collaborating with biopharmaceutical companies and organizations in therapeutic areas that include anti-bacterial, cardiovascular, ophthalmology, dementia and respiratory indications.

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

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

Liquidity

On May 28, 2019, the Company completed its initial public offering (“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 $56.4 million, after deducting underwriting discounts and commissions of $4.5 million and offering expenses of $4.0 million.

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

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital. The Company has funded its operations with proceeds from sales of convertible preferred shares (Note 6) and proceeds received from its collaboration arrangements (Note 10),

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and most recently, with proceeds from the IPO completed in May 2019. The Company has incurred recurring losses since inception, including $11.3 million for the three months ended March 31, 2020. As of March 31, 2020, the Company had an accumulated deficit of $111.9 million. The Company expects to continue to generate operating losses in the foreseeable future. The Company expects that its cash will be sufficient to fund its operating expenses and capital expenditure requirements through at least twelve months from the issuance date of these interim condensed consolidated financial statements.

The Company expects its expenses to increase substantially in connection with ongoing activities, particularly as the Company advances its preclinical activities and clinical trials for its product candidates in development. Accordingly, the Company will need to obtain 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, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission (the “SEC”), on March 10, 2020 (the “2019 Annual Report”). Since the date of such consolidated financial statements, there have been no changes to the Company’s significant accounting policies, other than those disclosed below.

Use of estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, revenue recognition, the fair value of ordinary shares and the valuation of the warrant liability prior to the Company’s IPO, share-based compensation expense, and income taxes. The Company bases its estimates on historical experience, known trends and other market‑specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are periodically reviewed in light of reasonable changes in circumstances, facts and experience and may be changed as new events occur and additional information is obtained. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates or assumptions, and any such differences may be material to the Company’s financial statements.

Significant Risks and Uncertainties

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

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risks and uncertainties associated with the pandemic could have a material adverse effect on the Company’s business, financial condition, results of operations and growth prospects.

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

Unaudited Interim Financial Information

Certain information in the footnote disclosures of the financial statements has been condensed or omitted pursuant to the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s 2019 Annual Report.

The accompanying condensed consolidated balance sheet at March 31, 2020, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of convertible preferred shares and shareholders’ equity (deficit) and condensed consolidated statements of cash flows for the three months ended March 31, 2020 and 2019, 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, 2019, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2020, the results of its operations for the three months ended March 31, 2020 and 2019, and its cash flows for the three months ended March 31, 2020 and 2019. The results for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, 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 (“USD”) 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 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 a foreign

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exchange gain of $1.3 million and an exchange loss of $0.3 million during the three months ended March 31, 2020 and 2019, 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 foreign currency 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).

Recently issued accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 will change how companies account for credit losses for most financial assets and certain other instruments. For trade receivables, loans and held-to-maturity debt securities, companies will be required to recognize an allowance for credit losses rather than reducing the carrying value of the asset. ASU 2016-13 was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments — Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates to amend the effective date of ASU 2016-13, for entities eligible to be smaller reporting companies as defined by the SEC, to be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of ASU 2016-13 will have on the Company’s financial position and results of operations.

3. Fair value of financial assets and liabilities

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

The carrying values of accounts receivable, research and development incentives receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short‑term nature of these assets and liabilities. As of March 31, 2020 and December 31, 2019, there were no assets or liabilities measured at fair value on a recurring basis.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. The Company had no cash equivalents at March 31, 2020 and December 31, 2019.

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4. Property and equipment, net

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

	March 31,		December 31,
	2020		2019
Laboratory equipment	$	4,256	$	4,326
Leasehold improvements		363		300
Computer equipment and software		222		229
Furniture and office equipment		184		120
		5,025		4,975
Less: Accumulated depreciation and amortization		(2,822)		(2,683)
	$	2,203	$	2,292

Depreciation expense was $0.3 million and $0.2 million for the three months ended March 31, 2020 and 2019, respectively.

5. Accrued expenses and other current liabilities

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

	March 31,		December 31,
	2020		2019
Accrued employee compensation and benefits	$	1,081	$	2,514
Accrued external research and development expenses		3,142		2,055
Income taxes payable		7		1
Accrued professional fees		717		867
Current portion of operating lease liabilities		636		640
Other		133		67
	$	5,716	$	6,144

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 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.

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In May 2019, the Company’s board of directors and shareholders approved the reorganization of the Company’s share capital 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 (the “Share Capital Reorganization”). All issued and outstanding share and per share amounts of ordinary shares and share options included in the accompanying consolidated financial statements have been adjusted to reflect this share split for all periods presented. 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 were exercisable at any time after May 26, 2017 provided that they had not otherwise lapsed in accordance with their terms. The warrants to subscribe for Series A Preferred Shares expired upon the earlier of (i) 10 years from their issuance date, or (ii) upon an IPO or exit unless an exercise delay notice was provided by the Series A warrant holder, in which case they 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, which were exercisable into 114,320 ordinary shares following the completion of the IPO, as adjusted for the impact of the Share Capital Reorganization (Note 6),  provided the Company with an exercise delay notice.

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 three months ended March 31, 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 6).

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. Changes in the fair value of the warrant liability were recognized as other expense, net in the condensed 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 met 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. The Company recorded other expense of zero and $3.2 million related to the remeasurement of the warrant liability during the three months ended March 31, 2020 and 2019, respectively.

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

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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 March 31, 2020 and December 31, 2019, the Company has not declared any dividends.

As of March 31, 2020 and December 31, 2019, the Company’s authorized capital share consisted of 31,995,653 ordinary shares 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. In September 2019, the Compensation Committee of the Company’s Board of Directors approved immaterial clarifying amendments to the 2019 Plan which did not have an impact to the condensed consolidated financial statements. The 2019 Plan provides for the grant of options to purchase ordinary shares and other share-based awards to officers, employees, directors and other key persons (including consultants).

The Company 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. The number of shares reserved for issuance under the 2019 Plan was increased by 719,748 shares effective January 1, 2020. As of March 31, 2020, there were 567,433 shares available for issuance under the 2019 Plan.

Share options issued under the 2019 Share Option Plan have a 10 year contractual life, and generally either vest monthly over a three year service period, or over a four‑year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments. Certain awards granted to our directors are fully vested on the date of grant. The exercise price 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 (“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 generally 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

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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 (the “ESPP”), which became effective in conjunction with the IPO. The Company initially reserved 215,000 ordinary shares for future issuance under this plan. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020 and each January 1 thereafter through January 1, 2029, by the least of (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31; (ii) 430,000 ordinary shares or (iii) such lesser number of shares as determined by the Compensation Committee. The number of shares reserved under the ESPP is subject to adjustment in the event of a split-up, share dividend or other change in our capitalization. On January 1, 2020, the total number of shares available for issuance under the ESPP was increased by 179,937 ordinary shares pursuant to this provision.

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 March 31, 2020, there have been no offering periods to employees under ESPP.

Share‑based compensation

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

	Three Months Ended
	March 31,
	2020		2019
Research and development expenses	$	675	$	108
General and administrative expenses		1,446		168
	$	2,121	$	276

Share options

The following table summarizes the Company’s option activity since December 31, 2019:

				Weighted
		Weighted		Average	Aggregate
	Number of	Average		Contractual	Intrinsic
	Shares	Exercise Price		Term	Value
				(in years)	(in thousands)
Outstanding as of December 31, 2019	2,634,346	$	9.57	9.04	$	2,868
Granted	1,030,361		10.17	—		—
Exercised	(1,071)		1.47	—		—
Forfeited	(8,748)		8.67	—		—
Outstanding as of March 31, 2020	3,654,888	$	9.74	9.17	$	14,973
Vested and expected to vest as of March 31, 2020	3,654,888	$	9.74	9.17	$	14,973
Options exercisable as of March 31, 2020	984,491	$	7.71	8.79	$	5,993

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The weighted average grant‑date fair value of share options granted during the three months ended March 31, 2020 and 2019 was $6.68 per share and $3.68 per share, respectively.

Total share-based compensation expense for share options granted was $2.1 million for the three months ended March 31, 2020, and $0.2 million for the three months ended March 31, 2019. Expense for non-employee consultants for the three months ended March 31, 2020 and 2019 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 immaterial during each of the three months ended March 31, 2020 and 2019.

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

	Three
	Months
	Ended
	March 31,
	2020		2019
Risk-free interest rate	1.6	%	2.7	%
Expected volatility	73.7	%	79.6	%
Expected dividend yield	—		—
Expected term (in years)	5.95		6.07

As of March 31, 2020, total unrecognized compensation expense related to the unvested employee and director share‑based awards was $15.3 million, which is expected to be recognized over a weighted average period of 2.9 years.

Restricted shares

The Company had granted restricted shares with service‑based vesting conditions. In conjunction with the IPO in May 2019, the board of directors modified the vesting terms to accelerate vesting for all then unvested restricted shares. As of March 31, 2020 and December 31, 2019 there are no unvested restricted ordinary shares. Total share-based compensation for unvested restricted shares granted was zero for the three months ended March 31, 2020, and $0.1 million for the three months ended March 31, 2019.

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 zero during the three ended March 31, 2020, and $0.1 million during the three months ended March 31, 2019.

As of March 31, 2020, there was no unrecognized compensation cost related to the unvested employee and director restricted share awards.

10. Significant agreements

For the three months ended March 31, 2020 and 2019, the Company had collaboration agreements with Genentech Inc. (“Genentech”), AstraZeneca AB (“AstraZeneca”), Sanofi (formerly Bioverativ), Oxurion (formerly ThromboGenics), and the Dementia Discovery Fund (“DDF”). The following table summarizes the revenue recognized

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in the Company’s condensed consolidated statements of operations and comprehensive loss from the Company’s collaboration agreements (in thousands):

	Three Months
	Ended
	March 31,
	2020		2019
Collaboration revenues
AstraZeneca	$	412	$	425
Sanofi		—		5,959
Dementia Discovery Fund		56		—
Genentech		661		—
Total collaboration revenues	$	1,129	$	6,384

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 include 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.

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.

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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, 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.

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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 received.

For the three months ended March 31, 2020 and 2019, the Company recognized zero and $0.1 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 March 31, 2020, and December 31, 2019, the Company recorded zero deferred revenue 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.

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”),

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(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):

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

The Company 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

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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 year ended December 31, 2019, the Company commenced research and development services related to the fourth and fifth targets.

For the three months ended March 31, 2020 and 2019, the Company recognized $0.4 million and $0.3 million of revenue, respectively for the Target Three Research License and Related Service, and research and development services for the fourth target and fifth targets related to the May 2018 AstraZeneca Option Exercise. As of March 31, 2020, and as of December 31, 2019, the Company recorded $4.7 million and $4.9 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 provided 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 was an optional program, to be defined. The option expired in November 2018 unexercised. The Company used its bicyclic peptide screening platform to perform research and development services for the programs and Sanofi had 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 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. The activities under the Sanofi Collaboration Agreement were governed by a joint steering committee (“Sanofi JSC”) formed by an equal number of representatives from the Company and Sanofi. The Sanofi JSC oversaw, review and recommends direction of each collaboration program and variations of or modifications to the research plans.

Sanofi could 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 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”),

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

(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 was not a material right, as the option did not provide a discount that Sanofi otherwise would not have received. The Company’s participation in the Sanofi 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 were not performance obligations at the inception of the arrangement, as they were 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 did 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 could 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 were 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):

	Allocation of
Performance Obligations	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 recognized 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 were 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 reflected the progress towards satisfaction of the performance obligation. The amount allocated to the material rights was recorded as deferred revenue and the Company commended revenue recognition when the underlying option was exercised or upon expiry of the option.

During the year ended December 31, 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 three months ended March 31, 2019. The collaboration with Sanofi was terminated effective October 23, 2019, and as a result, deferred revenue related to amounts allocated to the Hemophilia License Option Material Right were recognized in the fourth quarter of 2019.

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The Company recognized zero and $6.0 million of collaboration revenue for the three months ended March 31, 2020 and 2019, respectively, related to its collaboration with Sanofi. As of March 31, 2020 and December 31, 2019 the Company recorded zero deferred revenue related to its collaboration with Sanofi.

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.