Bicycle Therapeutics(BCYC) - 2019 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides a detailed overview of the company's financial performance and position, including statements, management's analysis, market risks, and internal controls Item 1. Financial Statements The company's financial position strengthened significantly due to its Initial Public Offering (IPO) in May 2019, which raised net proceeds of $56.5 million. As of June 30, 2019, cash increased to $108.5 million from $63.4 million at year-end 2018. The company continues to be in a net loss position, with a net loss of $16.7 million for the first six months of 2019, driven by increased research and development and general administrative expenses. Collaboration revenues are a key source of income, though they fluctuated compared to the prior year. The IPO also resulted in the conversion of all outstanding convertible preferred shares into ordinary shares, simplifying the capital structure Condensed Consolidated Balance Sheets This section presents the company's financial position, highlighting significant increases in cash and total equity following the IPO and the conversion of preferred shares Balance Sheet Summary (in thousands) | Balance Sheet Items | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash | $108,536 | $63,380 | | Total current assets | $120,452 | $76,769 | | Total assets | $126,246 | $81,626 | | Liabilities & Equity | | | | Total liabilities | $21,687 | $29,255 | | Convertible preferred shares | $0 | $122,197 | | Total shareholders' equity (deficit) | $104,559 | $(69,826) | - The company's cash position increased by $45.2 million, primarily due to the IPO proceeds[12] - All convertible preferred shares were converted into ordinary shares upon the IPO, resulting in a significant shift from mezzanine equity to shareholders' equity[12][28] Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's financial performance, showing increased net losses primarily due to higher operating expenses and a warrant liability charge Statement of Operations Summary (in thousands) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Collaboration revenues | $1,522 | $1,661 | $7,906 | $4,469 | | Research and development | $6,537 | $4,917 | $12,813 | $8,626 | | General and administrative | $2,973 | $1,702 | $6,375 | $3,690 | | Loss from operations | $(7,988) | $(4,958) | $(11,282) | $(7,847) | | Net loss | $(10,217) | $(4,979) | $(16,720) | $(7,513) | | Net loss per share | $(1.40) | $(11.85) | $(4.08) | $(18.38) | - Net loss for the six months ended June 30, 2019, increased to $16.7 million from $7.5 million in the same period of 2018, driven by higher R&D and G&A expenses, and a $5.4 million charge related to the change in fair value of the warrant liability[15][21] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash movements, with a significant increase in cash from financing activities, primarily driven by IPO proceeds Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,809) | $(12,566) | | Net cash used in investing activities | $(881) | $(650) | | Net cash provided by financing activities | $59,129 | $0 | | Net increase (decrease) in cash | $45,156 | $(14,259) | - Financing activities provided $59.1 million in cash for the first six months of 2019, primarily from the IPO proceeds of $57.8 million and $1.3 million from the issuance of Series B2 convertible preferred shares[21] Notes to Condensed Consolidated Financial Statements This section provides essential disclosures on the company's business, IPO impact, financial condition, and ongoing legal matters - The company is a clinical-stage biopharmaceutical firm focused on a novel class of medicines called Bicycles. Its lead product candidate, BT1718, is in a Phase I/IIa clinical trial for advanced solid tumors, fully funded by Cancer Research UK[23] - On May 28, 2019, the company completed its IPO, issuing 4,333,333 ADSs and raising net proceeds of $56.5 million after commissions and expenses. Upon closing, all outstanding convertible preferred shares automatically converted into 11,647,529 ordinary shares[28] - The company has incurred recurring losses since inception, totaling $86.7 million as of June 30, 2019. Management expects existing cash to be sufficient to fund operations for at least twelve months from the report's issuance date[30] - The company is involved in a legal proceeding with Pepscan Systems B.V. regarding the termination of a patent license agreement. The company does not believe a loss is probable or estimable at this time[190] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on its novel 'Bicycle' therapeutic modality, with lead oncology candidate BT1718 in a Phase I/IIa trial. The analysis of financial results highlights a significant increase in operating losses for the first half of 2019 compared to 2018, driven by higher R&D spending on advancing pipeline candidates like BT5528 and BT8009, and increased G&A costs associated with operating as a public company. Collaboration revenue increased in the six-month period, mainly due to the recognition of deferred revenue from the Sanofi agreement. The company's liquidity was substantially improved by the IPO, providing an expected cash runway of at least 12 months Overview This section introduces the company's clinical-stage biopharmaceutical focus on 'Bicycles' and its lead oncology product candidates - The company is a clinical-stage biopharmaceutical company developing a novel class of medicines called Bicycles, which combine the pharmacology of a biologic with the properties of a small molecule[206] - The lead product candidate, BT1718, is a Bicycle Toxin Conjugate (BTC) in an ongoing Phase I/IIa clinical trial for tumors expressing MT1-MMP, fully funded by Cancer Research UK (CRUK). Preliminary data from the Phase I part is expected in the second half of 2019[208] - Other pipeline programs include BTCs BT5528 (targeting EphA2) and BT8009 (targeting Nectin-4), for which the company is conducting IND-enabling activities[208] Results of Operations This section analyzes the company's financial performance, detailing changes in revenue, expenses, and net loss for the reporting periods Comparison of Results for the Three Months Ended June 30 (in thousands) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Collaboration revenues | $1,522 | $1,661 | $(139) | | Research and development | $6,537 | $4,917 | $1,620 | | General and administrative | $2,973 | $1,702 | $1,271 | | Net loss | $(10,217) | $(4,979) | $(5,238) | Comparison of Results for the Six Months Ended June 30 (in thousands) | Metric | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Collaboration revenues | $7,906 | $4,469 | $3,437 | | Research and development | $12,813 | $8,626 | $4,187 | | General and administrative | $6,375 | $3,690 | $2,685 | | Net loss | $(16,720) | $(7,513) | $(9,207) | - For the six months ended June 30, 2019, collaboration revenue increased by $3.4 million, primarily due to recognizing $5.3 million from the Sanofi agreement upon termination of the sickle cell program[251] - R&D expenses for the six months ended June 30, 2019 increased by $4.2 million year-over-year, driven by increased spending on IND-enabling studies for the BT5528 and BT8009 programs[252] Liquidity and Capital Resources This section discusses the company's funding sources, cash position, and ability to meet its financial obligations, highlighting the impact of the IPO - The company has financed operations primarily through sales of equity securities and payments from collaboration agreements[258] - Net cash provided by financing activities was $59.1 million for the six months ended June 30, 2019, mainly from the IPO which yielded net proceeds of $57.8 million[263] - Management expects existing cash will be sufficient to fund operating expenses for at least the next twelve months[269] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company's primary market risks are interest rate sensitivity and foreign currency exchange risk. Cash is held in interest-bearing savings accounts, and management does not believe interest rate changes would have a material effect. The company has significant international operations, with functional currencies in both U.S. dollars and British Pound Sterling, exposing it to fluctuations in exchange rates. The company does not currently use currency hedging - The company's cash of $108.5 million is held in interest-bearing accounts, but due to the conservative, short-term nature of these investments, interest rate changes are not expected to have a material effect[287] - The company is exposed to foreign currency exchange risk as its operations and transactions are conducted in both U.S. dollars and British Pound Sterling. Foreign exchange gains of $0.4 million were recorded for the six months ended June 30, 2019[288][289] Item 4. Controls and Procedures Management concluded that as of June 30, 2019, the company's disclosure controls and procedures were not effective. This was due to a previously identified material weakness in internal control over financial reporting related to the valuation of the warrant liability, which led to a restatement of prior period financial statements. The company is actively implementing remediation measures, including hiring additional qualified accounting personnel and formalizing review processes - Management concluded that disclosure controls and procedures were not effective as of the end of the period covered by the report[292] - A material weakness was identified in internal control over financial reporting related to the valuation of the warrant liability, which required a restatement of financial statements for periods in 2017 and 2018[293][294] - Remediation efforts are underway, including hiring a corporate controller, engaging financial consultants, and planning to hire additional senior accounting staff[295] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and exhibits, providing additional context beyond financial statements Item 1. Legal Proceedings The company is involved in litigation with Pepscan Systems B.V. in the District Court of The Hague. The dispute concerns Pepscan's right to terminate a non-exclusive patent license agreement from 2009/2010. The company does not believe the outcome will have a material adverse effect on its business - The company is in a legal dispute with Pepscan Systems B.V. over the termination of a non-exclusive patent license agreement[297] - Management does not expect the outcome of the litigation to have a material adverse effect on the business, as of June 30, 2019[297] Item 1A. Risk Factors The company faces substantial risks, including a history of significant operating losses and the need for additional capital to fund its development programs. The success of its novel 'Bicycle' therapeutic modality is unproven in late-stage trials, and the company is heavily dependent on its lead BTC program candidates. Development and commercialization are subject to significant regulatory hurdles, competition, and reliance on third parties for clinical trials and manufacturing. Intellectual property risks, including ongoing litigation, and risks associated with being an early-stage public company with international operations, are also significant Risks Related to Financial Position and Need for Additional Capital This section details risks associated with the company's financial stability, including historical losses and the ongoing need for substantial additional funding - The company has a history of significant operating losses ($16.7 million for the six months ended June 30, 2019) and an accumulated deficit of $86.7 million, and may never achieve profitability[301] - Substantial additional funding will be needed to advance clinical trials and development programs, and failure to raise capital could force delays or elimination of programs[311][312] Risks Related to Discovery, Development and Regulatory Approval This section outlines risks inherent in the drug development process, from clinical trial success to regulatory approval and patient enrollment challenges - The company is substantially dependent on the success of its Bicycle Toxin Conjugate (BTC) program, which may not successfully complete clinical trials or receive regulatory approval[320] - Bicycles represent a new therapeutic modality and may be subject to heightened regulatory scrutiny. The company has not yet demonstrated efficacy and safety in late-stage clinical trials[326][327] - Potential challenges in enrolling patients in clinical trials could delay or prevent the advancement of product candidates[337] Risks Related to Dependence on Third Parties This section addresses risks arising from the company's reliance on external collaborators, CROs, and manufacturers for its development and production activities - The company depends on collaborators like AstraZeneca, Sanofi, and CRUK for the development and commercialization of certain product candidates. The Phase I/IIa trial for the lead candidate, BT1718, is sponsored and funded by CRUK[482][484] - The company relies on third-party CROs to conduct preclinical studies and clinical trials, and failure by these parties to perform their duties could delay or impair regulatory approval[494][495] - All manufacturing is outsourced to third parties, creating risks related to supply sufficiency, quality, cost, and regulatory compliance (cGMP)[504][505] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Upon the IPO closing on May 28, 2019, all outstanding convertible preferred shares converted into 11,647,529 ordinary shares. Additionally, 702,557 ordinary shares were issued upon warrant exercises. During the quarter, options to purchase 1,753,504 ordinary shares were granted to employees and advisors. The net proceeds from the IPO were approximately $56.5 million, and there has been no material change in the planned use of these funds - Upon the IPO closing, 11,647,529 ordinary shares were issued from the conversion of preferred shares, and 702,557 ordinary shares were issued from warrant exercises[652] - The IPO and subsequent partial exercise of the underwriters' option generated aggregate net proceeds of approximately $56.5 million[655] - There has been no material change in the planned use of IPO proceeds as described in the final prospectus[656] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, material contracts, and certifications by the Principal Executive Officer and Principal Financial Officer - The exhibits include the company's Articles of Association, various employee share and option plans, employment agreements with key executives, and required SEC certifications[660][662]