UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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 August 2, 2021, the registrant had 25,509,312 ordinary shares, nominal value £0.01 per share, outstanding.

Table of Contents

		Page
PART I - FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Shareholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
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	107
Item 3.	Defaults Upon Senior Securities	107
Item 4.	Mine Safety Disclosures	108
Item 5.	Other Information	108
Item 6.	Exhibits	108
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, 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 ongoing COVID-19 pandemic and its effects on our operations, research and development and clinical trials and potential disruption in the operations and business of third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business;

● 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;

● costs 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;

ii

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

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

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

iii

RISK FACTOR SUMMARY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

iv

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

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

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

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

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

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

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

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

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

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

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

● COVID-19 could impact our business.

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

v

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,
	2021		2020
Assets
Current assets:
Cash	$	198,738	$	135,990
Accounts receivable		-		5,456
Prepaid expenses and other current assets		4,792		5,100
Research and development incentives receivable		14,258		9,177
Total current assets		217,788		155,723
Property and equipment, net		2,353		2,317
Operating lease right-of-use assets		3,528		1,290
Other assets		2,379		1,822
Total assets	$	226,048	$	161,152
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	3,471	$	1,365
Accrued expenses and other current liabilities		11,063		11,629
Deferred revenue, current portion		8,739		10,135
Total current liabilities		23,273		23,129
Long-term debt, net of discount		29,628		14,505
Operating lease liabilities, net of current portion		2,801		426
Deferred revenue, net of current portion		25,335		25,021
Other long‑term liabilities		2,961		2,611
Total liabilities		83,998		65,692
Commitments and contingencies (Note 11)
Shareholders’ equity:
Ordinary shares, £0.01 nominal value; 55,295,420 and 31,995,653 shares authorized at June 30, 2021 and December 31, 2020, respectively; 24,124,552 and 21,094,557 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively		309		266
Additional paid-in capital		330,911		249,947
Accumulated other comprehensive loss		(3,506)		(3,193)
Accumulated deficit		(185,664)		(151,560)
Total shareholders’ equity		142,050		95,460
Total liabilities and shareholders’ equity	$	226,048	$	161,152

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				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Collaboration revenues	$	1,785	$	1,571	$	3,593	$	2,700
Operating expenses:
Research and development		11,722		7,958		21,415		15,728
General and administrative		7,340		6,196		15,479		11,197
Total operating expenses		19,062		14,154		36,894		26,925
Loss from operations		(17,277)		(12,583)		(33,301)		(24,225)
Other income (expense):
Interest income		23		371		38		583
Interest expense		(819)		—		(1,341)		—
Total other income (expense), net		(796)		371		(1,303)		583
Net loss before income tax provision		(18,073)		(12,212)		(34,604)		(23,642)
Benefit from income taxes		(160)		(97)		(500)		(204)
Net loss	$	(17,913)	$	(12,115)	$	(34,104)	$	(23,438)
Net loss per share, basic and diluted	$	(0.74)	$	(0.67)	$	(1.48)	$	(1.30)
Weighted average ordinary shares outstanding, basic and diluted		24,052,168		18,077,770		23,047,745		18,024,314
Comprehensives Loss:
Net loss	$	(17,913)	$	(12,115)	$	(34,104)	$	(23,438)
Other comprehensive income (loss):
Foreign currency translation adjustment		(255)		(1)		(313)		(2,185)
Total comprehensive loss	$	(18,168)	$	(12,116)	$	(34,417)	$	(25,623)

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

2

Bicycle Therapeutics plc

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands, except share data)

(Unaudited)

						Accumulated
				Additional		Other				Total
	Ordinary Shares			Paid‑in		Comprehensive		Accumulated		Shareholders’
	Shares	Amount		Capital		Loss		Deficit		Equity
Balance at December 31, 2020	21,094,557	$	266	$	249,947	$	(3,193)	$	(151,560)	$	95,460
Issuance of ADSs upon exercise of share options	63,545		1		283		—		—		284
Issuance of ADSs, net of commissions and offering expenses of $1.8 million	2,358,485		33		58,742		—		—		58,775
Share-based compensation expense	—		—		3,821		—		—		3,821
Foreign currency translation adjustment	—		—		—		(58)		—		(58)
Net loss	—		—		—		—		(16,191)		(16,191)
Balance at March 31, 2021	23,516,587	$	300	$	312,793	$	(3,251)	$	(167,751)	$	142,091
Issuance of ADSs upon exercise of share options	125,666		2		1,573		—		—		1,575
Issuance of ADSs, net of commissions and offering expenses of $0.4 million	482,299		7		13,970		—		—		13,977
Share-based compensation expense	—		—		2,575		—		—		2,575
Foreign currency translation adjustment	—		—		—		(255)		—		(255)
Net loss	—		—		—		—		(17,913)		(17,913)
Balance at June 30, 2021	24,124,552	$	309	$	330,911	$	(3,506)	$	(185,664)	$	142,050

Balance at December 31, 2019	17,993,701	$	227	$	195,056	$	(1,535)	$	(100,550)	$	93,198
Issuance of ADSs upon exercise of share options	1,071		—		2		—		—		2
Issuance of ordinary shares upon exercise of warrants	21,435		—		—		—		—		—
Share-based compensation expense	—		—		2,121		—		—		2,121
Foreign currency translation adjustment	—		—		—		(2,184)		—		(2,184)
Net loss	—		—		—		—		(11,324)		(11,324)
Balance at March 31, 2020	18,016,207	$	227	$	197,179	$	(3,719)	$	(111,874)	$	81,813
Issuance of ADSs upon exercise of share options	4,000		—		9		—		—		9
Issuance of ordinary shares upon exercise of warrants	71,450		1		—		—		—		1
Share-based compensation expense	—		—		1,319		—		—		1,319
Foreign currency translation adjustment	—		—		—		(1)		—		(1)
Net loss	—		—		—		—		(12,115)		(12,115)
Balance at June 30, 2020	18,091,657	$	228	$	198,507	$	(3,720)		(123,989)	$	71,026

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)

(Unaudited)

	Six Months Ended
	Ended
	June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(34,104)	$	(23,438)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		6,396		3,440
Depreciation and amortization		665		615
Non-cash interest		223		—
Changes in operating assets and liabilities:
Accounts receivable		5,544		(332)
Research and development incentives receivable		(4,982)		(4,446)
Prepaid expenses and other current assets		278		267
Operating lease right‑of‑use assets		(2,229)		374
Other assets		(554)		(292)
Accounts payable		2,225		1,325
Accrued expenses and other current liabilities		(603)		2,050
Operating lease liabilities		2,296		4
Deferred revenue		(1,549)		29,013
Other long-term liabilities		317		233
Net cash (used in) provided by operating activities		(26,077)		8,813
Cash used in investing activities:
Purchases of property and equipment		(794)		(621)
Net cash used in investing activities		(794)		(621)
Cash flows from financing activities:
Proceeds from the issuance of ADSs, net of issuance costs		72,752		—
Proceeds from the exercise of share options and sale of ordinary shares		1,859		11
Proceeds from issuance of debt		15,000		—
Proceeds from the exercise of warrants		—		1
Net cash provided by financing activities		89,611		12
Effect of exchange rate changes on cash		8		(3,411)
Net increase in cash		62,748		4,793
Cash at beginning of period		135,990		92,117
Cash at end of period	$	198,738	$	96,910
Supplemental disclosure of cash flow information
Cash paid for interest	$	1,074	$	—
Cash paid for income taxes	$	53	$	38
Public offering costs accrued but not paid	$	—	$	274
Cash paid for amounts included in the measurement of operating lease liabilities	$	200	$	406
Purchases of property and equipment included in accounts payable and accrued expenses	$	36	$	12

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

4

Bicycle Therapeutics plc

Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Nature of the business and basis of presentation

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

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

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

Liquidity

On June 5, 2020, the Company entered into a Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. and Oppenheimer & Co. Inc. (the “Sales Agents”) with respect to an at-the-market offering program (“ATM”) pursuant to which the Company may offer and sell through the Sales Agents, from time to time at the Company’s sole discretion, American Depositary Shares (“ADSs”), each ADS representing one ordinary share. As of June 30, 2021, the Company had issued and sold 5,769,597 ADSs, representing the same number of ordinary shares for gross proceeds of $125.0 million, resulting in net proceeds of $120.9 million after deducting sales commissions and offering expenses of $4.1 million.

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

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

5

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

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

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital. The Company has funded its operations with proceeds from the sale of its ordinary shares and ADSs, convertible preferred shares, and proceeds received from its collaboration arrangements (Note 9), and proceeds from the Loan Agreement with Hercules (Note 6). The Company has incurred recurring losses since inception, including net losses of $17.9 million and $34.1 million, for the three and six months ended June 30, 2021, respectively. As of June 30, 2021, the Company had an accumulated deficit of $185.7 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 these interim condensed consolidated financial statements.

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

2. Summary of significant accounting policies

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

Use of estimates

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

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

Significant Risks and Uncertainties

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

Unaudited Interim Financial Information

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

The accompanying condensed consolidated balance sheet at June 30, 2021, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of shareholders’ equity for the three and six months ended June 30, 2021 and 2020, the condensed consolidated statements of cash flows for the six months ended June 30, 2021 and 2020, and the related financial information disclosed in these notes are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements for the year ended December 31, 2020, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2021, the results of its operations for the three and six months ended June 30, 2021 and 2020, and its cash flows for the six months ended June 30, 2021 and 2020. The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.

Government grants

From time to time, the Company may enter into arrangements with governmental entities for the purpose 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, 2021, the Company recognized $0.8 million and $1.9 million, respectively, and for the three and six months ended June 30, 2020, the Company recognized zero and $0.1 million, respectively, as a reduction of research and development expense related to government grant arrangements.

Recently adopted accounting pronouncements

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

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Recently issued accounting pronouncements

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

3. Fair value of financial assets and liabilities

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

The carrying values of accounts receivable, research and development incentives receivable, other current assets, accounts payable and accrued expenses and other current liabilities approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the long-term debt approximates its fair value as the debt arrangement is based on interest rates the Company believes it could obtain for borrowings with similar terms. As of June 30, 2021, and December 31, 2020, there were no assets or liabilities measured at fair value on a recurring basis.

Cash and cash equivalents

The Company considers all highly liquid investments with original maturities of three months or less at date of purchase to be cash equivalents. The Company had no cash equivalents at June 30, 2021 and December 31, 2020.

4. Property and equipment, net

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

	June 30,		December 31,
	2021		2020
Laboratory equipment	$	6,119	$	5,583
Leasehold improvements		386		383
Computer equipment and software		143		188
Furniture and office equipment		206		195
		6,854		6,349
Less: Accumulated depreciation and amortization		(4,501)		(4,032)
	$	2,353	$	2,317

Depreciation expense was $0.3 million and $0.7 million for the three and six months ended June 30, 2021, respectively, and $0.3 million and $0.6 million for the three and six months ended June 30, 2020, respectively.

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5. Accrued expenses and other current liabilities

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

	June 30,		December 31,
	2021		2020
Accrued employee compensation and benefits	$	2,820	$	4,390
Accrued external research and development expenses		5,520		4,428
Accrued professional fees		1,886		1,759
Current portion of operating lease liabilities		773		844
Other		64		208
	$	11,063	$	11,629

6. Long-term debt

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

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

At the Borrowers’ option, the Borrowers may prepay all or any portion greater than $5.0 million of the outstanding borrowings, subject to a prepayment premium equal to (i) 2.0% of the principal amount outstanding if the prepayment occurs during the first year following the Closing Date, (ii) 1.5% of the principal amount outstanding if the prepayment occurs during the second year following the Closing Date, and (iii) 1.0% of the principal amount outstanding if the prepayment occurs thereafter but prior to the Maturity Date. The Loan Agreement also provides for an end of term charge (the “End of Term Charge”), payable upon maturity or the repayment of obligations under the Loan Agreement, equal to 5.0% of the principal amount repaid. Borrowings under the Loan Agreement are collateralized by substantially all of the Borrower’s personal property and other assets, other than their intellectual property.  Hercules has a perfected first-priority security interest in certain cash accounts. The Loan Agreement contains customary affirmative and restrictive covenants and representations and warranties, including a covenant against the occurrence of a change in control, as defined in the agreement. There are no financial covenants. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period, cross acceleration to third-party indebtedness, certain events relating to bankruptcy or insolvency, and the occurrence of certain events that could reasonably be expected to have a material adverse effect. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to the outstanding principal and interest payments due, and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. The Company has determined that the risk of subjective acceleration under the material adverse events clause is not probable and therefore has classified the outstanding principal in long-term liabilities based on scheduled principal payments.

The Company incurred fees and transaction costs totaling $0.6 million associated with the initial term loan, which are recorded as a reduction to the carrying value of the long-term debt in the condensed consolidated balance

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sheets. The fees, transaction costs, and the End of Term Charge are amortized to interest expense through the Maturity Date using the effective interest method. The Company evaluated the First Amendment to LSA, and concluded that the amendment represented a modification, as such, the fees and transaction costs associated with the initial term loan will continue to be amortized to interest expense through the Maturity Date. The effective interest rate of the Hercules borrowings was 11.4% at June 30, 2021.

The Company assessed all terms and features of the Loan Agreement in order to identify any potential embedded features that would require bifurcation. As part of this analysis, the Company assessed the economic characteristics and risks of the debt. The Company determined that all features of the Loan Agreement are clearly and closely associated with a debt host and, as such, do not require separate accounting as a derivative liability. Interest expense for the three and six months ended June 30, 2021 was $0.8 million and $1.3 million, respectively.

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

	June 30,
	2021
Term loan payable	$	30,000
End of term charge		207
Unamortized debt issuance costs		(579)
Carrying value of term loan	$	29,628

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

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

​
7. Ordinary shares

Each holder of ordinary shares is entitled to one vote per ordinary share and to receive dividends when and if such dividends are recommended by the board of directors and declared by the shareholders. Holders of ADSs are not treated as holders of the Company’s ordinary shares, unless they withdraw the ordinary shares underlying their ADSs in accordance with the deposit agreement and applicable laws and regulations. The depositary is the holder of the ordinary shares underlying the ADSs. Holders of ADSs therefore do not have any rights as holders of the Company’s ordinary shares, other than the rights that they have pursuant to the deposit agreement with the depositary. As of June 30, 2021, and 2020, the Company has not declared any dividends.

As of June 30, 2021 and December 31, 2020, the Company’s authorized share capital consisted of 55,295,420 and 31,995,653, respectively, ordinary shares with a nominal value of £0.01 per share.

8. Share-based compensation

Employee incentive pool

2020 Share Option Plan

In June 2020, the Company’s shareholders approved the Bicycle Therapeutics plc 2020 Equity Incentive Plan (the “2020 Plan”), under which the Company may grant market value options, market value stock appreciation rights or restricted shares, restricted share units, performance restricted share units and other share-based awards to the Company’s employees. The Company’s non-employee directors and consultants are eligible to receive awards under the

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2020 Non-Employee Sub-Plan to the 2020 Plan. All awards under the 2020 Plan, including the 2020 Non-Employee Sub-Plan, will be set forth in award agreements, which will detail the terms and conditions of awards, including any applicable vesting and payment terms, change of control provisions and post-termination exercise limitations. In the event of a change of control of the Company, as defined in the 2020 Plan, any outstanding awards under the 2020 Plan will vest in full immediately prior to such change of control. Share options issued under the 2020 Share Option Plan have a 10 year contractual life, and generally vest over either a three year service period for non-employee directors, or a four year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments for employees and consultants. Certain options granted to the Company’s non-employee directors vest immediately upon grant.

The Company initially reserved up to 4,773,557 ordinary shares for future issuance under the 2020 Plan, representing 574,679 new shares, 544,866 shares that remained available for future issuance under the Company’s 2019 Share Option Plan (the “2019 Plan”) immediately prior to the effectiveness of the 2020 Plan and up to 3,654,012 shares subject to options that were granted under the 2019 Plan and that were granted pursuant to option contracts granted prior to the Company’s IPO, in each case that expire, terminate, are forfeited or otherwise not issued from time to time, if any. Additionally, the number of ordinary shares reserved for issuance pursuant to the 2020 Plan will automatically increase on the first day of January of each year, commencing on January 1, 2021, in an amount equal to 5% of the total number of the Company’s ordinary shares outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s board of directors. The number of shares reserved for issuance under the 2020 Plan was increased by 1,054,727 shares effective January 1, 2021. As of June 30, 2021, there were 5,564,986 shares available for issuance and options to purchase 1,587,363 shares outstanding under the 2020 Plan.

2019 Share Option Plan

In May 2019, the Company adopted the 2019 Plan, which became effective in conjunction with the IPO. As of June 30, 2021, there were 2,476,037 options to purchase ordinary shares outstanding under the 2019 Plan. In conjunction with the adoption of the 2020 Plan, all shares available for future issuance under the 2019 Plan as of June 29, 2020 became available for issuance under the 2020 Plan and the Company ceased making awards under the 2019 Plan. The 2020 Plan is the successor of the 2019 Plan.

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

Employee Share Purchase Plan (“ESPP”)

In May 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective in conjunction with the IPO. The Company initially reserved 215,000 ordinary shares for future issuance under this plan. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020 and each January 1 thereafter through January 1, 2029, by the least of (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31; (ii) 430,000 ordinary shares or (iii) such lesser number of shares as determined by the Compensation Committee. The number of shares reserved under the ESPP is subject to adjustment in the event of a split-up, share dividend or other change in our capitalization. The number of shares reserved for issuance under the ESPP was increased by 210,945 shares effective January 1, 2021. As of June 30, 2021, the total number of shares available for issuance under the ESPP was 605,882 ordinary shares.

Once the Company commences offerings under the ESPP, each offering to the employees to purchase shares under the ESPP will begin on each June 1 and December 1 and will end on the following November 30 and May 31, respectively. On each purchase date, which will fall on the last date of each offering period, ESPP participants will purchase ordinary shares at a price per share equal to 85% of the lesser of (1) the fair market value of the shares on the

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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, 2021, there have been no offering periods to employees under ESPP.

Share-based compensation

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Research and development expenses	$	1,089	$	522	$	2,299	$	1,195
General and administrative expenses		1,486		797		4,097		2,245
	$	2,575	$	1,319	$	6,396	$	3,440

Share options

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

				Weighted
		Weighted		Average	Aggregate
	Number of	Average		Contractual	Intrinsic
	Shares	Exercise Price		Term	Value
				(in years)	(in thousands)
Outstanding as of December 31, 2020	3,736,663	$	10.51	8.54	$	27,553
Granted	1,424,999		19.72	—		—
Exercised	(189,211)		9.83	—		—
Forfeited	(51,620)		15.38	—		—
Outstanding as of June 30, 2021	4,920,831	$	13.16	8.69	$	80,172
Vested and expected to vest as of June 30, 2021	4,920,831	$	13.16	8.69	$	80,172
Options exercisable as of June 30, 2021	2,169,250	$	9.90	8.18	$	39,782

The weighted average grant-date fair value of share options granted during the six months ended June 30, 2021 and 2020 was $13.30 per share and $7.08 per share, respectively.

Total share-based compensation expense for share options granted was $2.6 million and $6.4 million for the three and six months ended June 30, 2021, respectively, and $1.3 million and $3.4 million for the three and six months ended June 30, 2020, respectively. Expense for non-employee consultants for the three and six months ended June 30, 2021 and 2020 was immaterial.

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares. The aggregate intrinsic value of share options exercised was $2.2 million and $3.7 million for the three and six months ended June 30, 2021, respectively, and was immaterial and $0.1 million for the three and six months ended June 30, 2020, respectively.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Risk-free interest rate	1.0	%	0.4	%	0.5	%	1.5	%
Expected volatility	80.5	%	76.8	%	79.5	%	74.1	%
Expected dividend yield	—		—		—		—
Expected term (in years)	6.1		6.1		6.0		6.0

As of June 30, 2021, total unrecognized compensation expense related to the unvested employee and director share-based awards was $25.7 million, which is expected to be recognized over a weighted average period of 3.0 years.

9. Significant agreements

For the three and six months ended June 30, 2021 and 2020, the Company recognized revenue for its collaborations with Genentech Inc. (“Genentech”), AstraZeneca AB (“AstraZeneca”), and the Dementia Discovery Fund (“DDF”). The following table summarizes the revenue recognized in the Company’s condensed consolidated statements of operations and comprehensive loss from these arrangements (in thousands):

	Three Months				Six Months
	Ended				Ended
	June 30,				June 30,
	2021		2020		2021		2020
Collaboration revenues
AstraZeneca	$	—	$	319	$	277	$	731
Dementia Discovery Fund		154		56		237		112
Genentech		1,631		1,196		3,079		1,857
Total collaboration revenues	$	1,785	$	1,571	$	3,593	$	2,700

Genentech Collaboration Agreement

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

Under the terms of the Genentech Collaboration Agreement, Bicycle received a $30.0 million upfront, non-refundable payment. The initial discovery and optimization activities will focus on utilizing Bicycle’s phage screening technology to identify product candidates aimed at two immuno-oncology targets (“Genentech Collaboration Programs”), which may also include additional discovery and optimization of Bicycles as targeting elements for each Genentech Collaboration Program (each a “Targeting Arm”). Genentech has the option to nominate up to two additional immuno-oncology targets (each, an “Expansion Option”), which may also include an additional Targeting Arm for each Expansion Option, as additional Genentech Collaboration Programs during a specified period following completion of certain activities under an agreed research plan. If Genentech exercises one or more Expansion Options, Genentech will pay to the Company an expansion fee of $10.0 million per Expansion Option. Genentech also has rights, under certain limited circumstances, to select an alternative target to be the subject of a Genentech Collaboration Program, in some cases subject to payment of an additional target selection fee.

If Genentech elects for Bicycle to perform discovery and optimization services for certain Targeting Arms, the Company will be entitled to receive an additional advance payment for the additional research services. Genentech

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

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

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

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

Accounting Analysis

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

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

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

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

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

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

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

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

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

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

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

In March 2021, the Company achieved specified criteria in accordance with the research plan under the Genentech Collaboration agreement and therefore updated its estimate of the variable consideration to include an additional $2.0 million, that is no longer constrained. The arrangement consideration was increased to $33.0 million.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling prices of each performance obligation. The estimated standalone selling prices for the Genentech Collaboration Programs was based on the nature of the services to be performed and estimates of the associated effort and costs of the services, adjusted for a reasonable profit margin for what would be expected to be realized under similar contracts. The estimated standalone selling price for the material rights was determined based on the fees Genentech would pay to exercise the options, the estimated value of the underlying goods and services, and the probability that Genentech would

15

exercise the option and any underlying options. Based on the relative standalone selling price, the allocation of the transaction price as of June 30, 2021 to the separate performance obligations is as follows (in thousands):

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

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

During the three and six months ended June 30, 2021, the Company recognized revenue of $1.6 million and $3.1 million, respectively, and during the three and six months ended June 30, 2020, the Company recognized revenue of $1.2 million and $1.9 million, respectively. As of June 30, 2021 and December 31, 2020, the Company recorded $26.9 million and $27.6 million, respectively, of deferred revenue in connection with the Genentech Collaboration Agreement.

Dementia Discovery Fund Agreement

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

The Company received an upfront payment of $1.1 million in May 2019. The DDF arrangement provided the Company could receive up to an additional $0.7 million, of which $0.5 million has been received as of June 30, 2021, upon achievement of certain milestones such as the identification of lead Bicycle candidates with a certain affinity, which would be used to fund additional research and development services including lead optimization.

Intellectual property created by the collaboration shall be owned by the Company, and background intellectual property improvements shall be owned by the party from whose background intellectual property they exclusively relate. If promising lead compounds are identified, the Company, ODDI and DDF have the option (the “DDF Option”) to establish a jointly owned new company (“NewCo”) to advance the compounds through further development towards commercialization. NewCo will receive a royalty and milestone-bearing assignment and license of intellectual property from the Company for this purpose. The DDF Option is exercisable at any time until 90 days following the completion

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of the Research Plan and delivery of a final report. If DDF does not elect to exercise the DDF Option during the Option period, then DDF shall have no right in the collaboration intellectual property. NewCo will initially be owned 66% by the Company and 34% by DDF; however, the Company shall not be entitled to exercise more than 50% of the total voting rights related to its ownership interests. After completion of the DDF Option exercise, for a period of two years following the option exercise, NewCo shall have the right to initiate a new research program to develop up to three additional dementia targets, on a target by target basis, and the Company will be entitled to charge NewCo an agreed upon FTE rate for peptide screening and optimization for the active targets.

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

Accounting Analysis

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

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

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

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

For each of the three and six months ended June 30, 2021, the Company recognized $0.2 million of revenue, and for each of the three and six months ended June 30, 2020, the Company recognized $0.1 million of revenue, related to its collaboration with DDF. As of June 30, 2021 and December 31, 2020, the Company recorded deferred revenue of $0.6 million and $0.8 million, respectively, related to its collaboration with DDF.

AstraZeneca Collaboration Agreement

In November 2016, the Company entered into a Research Collaboration Agreement (the “AstraZeneca Collaboration Agreement” with AstraZeneca. The collaboration activities initially focused on two targets within

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respiratory, cardiovascular and metabolic disease, for which collaboration activities were terminated by AstraZeneca in October 2020 and March 2021, respectively.

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

Accounting Analysis

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

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

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