Bicycle Therapeutics(BCYC) - 2023 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements This section details the company's forward-looking statements, emphasizing their inherent risks and uncertainties and the company's limited obligation to update them Forward-Looking Statements This quarterly report contains numerous forward-looking statements regarding the company's future business development, including clinical trials, product candidates, regulatory approvals, commercialization, intellectual property, financial condition, and market acceptance - Forward-looking statements cover various aspects of the company's business, including the initiation, timing, progress, and results of clinical trials, the ability to advance product candidates, reliance on pipeline programs such as Bicycle® Toxin Conjugate (BTCTM) and Bicycle tumor-targeted immune cell agonist® (Bicycle TICATM), and the ability to use screening platforms to identify and advance additional product candidates[8] - Other forward-looking statements relate to the timing or likelihood of regulatory filings and approvals, commercialization of product candidates, development of sales and marketing capabilities, pricing, coverage, and reimbursement of product candidates, implementation of business models, scope of intellectual property protection, and the ability to operate without infringing third-party intellectual property[8] - The company explicitly states that despite reasonable grounds, these statements are based on estimates and projections, and actual results may differ materially due to risks, uncertainties, and other important factors described in the "Risk Factors" section. The company undertakes no obligation to publicly update these forward-looking statements unless required by applicable law[10][11] PART I - FINANCIAL INFORMATION This section presents the company's condensed consolidated financial statements and management's discussion and analysis of financial condition, operating results, market risks, and controls Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of shareholders' equity, and statements of cash flows, along with related notes Condensed Consolidated Balance Sheets As of June 30, 2023, the company's total assets increased to $454,170 thousand, primarily driven by increases in cash and cash equivalents and accounts receivable, while total liabilities also significantly rose, mainly due to deferred revenue (non-current portion), and shareholders' equity decreased Condensed Consolidated Balance Sheets | Indicator | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :---------------------- | :---------------------- | | Assets | | | | Cash and cash equivalents | 340,433 | 339,154 | | Accounts receivable | 45,090 | 2,045 | | Prepaid expenses and other current assets | 10,023 | 9,022 | | R&D incentive receivables | 12,884 | 19,162 | | Total current assets | 408,430 | 369,383 | | Property and equipment, net | 17,572 | 19,110 | | Operating lease right-of-use assets | 16,022 | 13,658 | | Other assets | 12,146 | 8,458 | | Total assets | 454,170 | 410,609 | | Liabilities and Shareholders' Equity | | | | Accounts payable | 5,250 | 6,472 | | Accrued expenses and other current liabilities | 37,262 | 26,452 | | Deferred revenue, current portion | 29,754 | 20,418 | | Total current liabilities | 72,266 | 53,342 | | Long-term debt, net of discount | 30,513 | 30,315 | | Operating lease liabilities, net of current portion | 11,881 | 10,885 | | Deferred revenue, net of current portion | 115,083 | 41,455 | | Other long-term liabilities | 4,330 | 3,829 | | Total liabilities | 234,073 | 139,826 | | Shareholders' Equity | | | | Ordinary shares | 396 | 387 | | Additional paid-in capital | 633,341 | 601,105 | | Accumulated other comprehensive (loss) income | (877) | 387 | | Accumulated deficit | (412,763) | (331,096) | | Total shareholders' equity | 220,097 | 270,783 | | Total liabilities and shareholders' equity | 454,170 | 410,609 | - As of June 30, 2023, cash and cash equivalents were $340,433 thousand, a slight increase from $339,154 thousand as of December 31, 2022[14] - Accounts receivable significantly increased from $2,045 thousand as of December 31, 2022, to $45,090 thousand as of June 30, 2023[14] - Deferred revenue (non-current portion) increased from $41,455 thousand as of December 31, 2022, to $115,083 thousand as of June 30, 2023, being a primary driver of the increase in total liabilities[14] Condensed Consolidated Statements of Operations and Comprehensive Loss For the three and six months ended June 30, 2023, the company experienced significant growth in collaboration revenue, but net loss expanded due to substantial increases in research and development and general and administrative expenses, partially offset by higher interest income Condensed Consolidated Statements of Operations and Comprehensive Loss | Indicator (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Collaboration revenue | 11,397 | 4,378 | 16,293 | 8,238 | | Research and development expenses | 39,720 | 19,854 | 71,931 | 34,138 | | General and administrative expenses | 14,788 | 11,824 | 29,276 | 28,783 | | Total operating expenses | 54,508 | 31,678 | 101,207 | 62,921 | | Operating loss | (43,111) | (27,300) | (84,914) | (54,683) | | Interest income | 812 | 908 | 3,741 | 1,126 | | Interest expense | (821) | (883) | (1,629) | (1,701) | | Net loss | (42,603) | (26,828) | (81,667) | (54,392) | | Net loss per share (basic and diluted) | (1.41) | (0.90) | (2.71) | (1.84) | | Weighted-average ordinary shares (basic and diluted) | 30,191,693 | 29,648,564 | 30,097,234 | 29,626,974 | - For the three months ended June 30, 2023, collaboration revenue increased by $7,019 thousand to $11,397 thousand from $4,378 thousand in the same period of 2022[15][259][260] - For the six months ended June 30, 2023, research and development expenses increased by $37,793 thousand to $71,931 thousand from $34,138 thousand in the same period of 2022[15][269][273] - For the six months ended June 30, 2023, net loss increased to $81,667 thousand from $54,392 thousand in the same period of 2022[15][269] Condensed Consolidated Statements of Shareholders' Equity As of June 30, 2023, total shareholders' equity was $220,097 thousand, a decrease from $270,783 thousand as of December 31, 2022, primarily due to net loss and foreign currency translation adjustments during the reporting period, partially offset by an increase in additional paid-in capital Condensed Consolidated Statements of Shareholders' Equity | Indicator (in thousands) | December 31, 2022 | June 30, 2023 | | :----------------------------------- | :------------- | :------------- | | Number of ordinary shares | 29,873,893 | 30,585,940 | | Amount of ordinary shares | 387 | 396 | | Additional paid-in capital | 601,105 | 633,341 | | Accumulated other comprehensive (loss) income | 387 | (877) | | Accumulated deficit | (331,096) | (412,763) | | Total shareholders' equity | 270,783 | 220,097 | - As of June 30, 2023, the number of ordinary shares increased to 30,585,940 and the amount to $396 thousand[19] - Additional paid-in capital increased from $601,105 thousand as of December 31, 2022, to $633,341 thousand as of June 30, 2023, primarily due to ADS issuance and share-based compensation expenses[19] - Accumulated deficit increased from ($331,096 thousand) as of December 31, 2022, to ($412,763 thousand) as of June 30, 2023, reflecting the net loss during the reporting period[19] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2023, net cash outflow from operating activities significantly decreased, primarily due to changes in accounts receivable and R&D incentive receivables, while net cash outflow from investing activities also decreased, and net cash inflow from financing activities substantially increased, mainly from ADS issuance Condensed Consolidated Statements of Cash Flows | Indicator (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :---------------------- | :---------------------- | | Net cash outflow from operating activities | (12,315) | (49,931) | | Net cash outflow from investing activities | (2,376) | (14,555) | | Net cash inflow from financing activities | 15,010 | 645 | | Effect of exchange rate changes on cash and cash equivalents | 960 | (2,070) | | Net increase (decrease) in cash and cash equivalents | 1,279 | (65,911) | | Cash and cash equivalents at beginning of period | 339,154 | 438,680 | | Cash and cash equivalents at end of period | 340,433 | 372,769 | - For the six months ended June 30, 2023, net cash outflow from operating activities was $12,315 thousand, a significant decrease from $49,931 thousand in the same period of 2022, primarily due to changes in accounts receivable and R&D incentive receivables[22][278][279] - Net cash outflow from investing activities decreased from $14,555 thousand in the same period of 2022 to $2,376 thousand in the same period of 2023, mainly due to reduced purchases of property and equipment[22][279][280] - Net cash inflow from financing activities increased from $645 thousand in the same period of 2022 to $15,010 thousand in the same period of 2023, primarily driven by net proceeds from ADS issuance under the ATM program[22][279][280] Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the condensed consolidated financial statements, covering key financial information such as the nature of business, accounting policies, liquidity, fair value measurements, balance sheet item details, long-term debt, equity, share-based compensation, significant collaboration agreements, income taxes, commitments and contingencies, net loss per share, related party transactions, geographic information, and subsequent events 1. Nature of the business and basis of presentation The company is a clinical-stage biopharmaceutical company focused on developing novel Bicycle drugs, primarily for oncology indications, and has incurred continuous losses since inception, with an accumulated deficit of $412.8 million as of June 30, 2023, but expects existing cash to support operations for at least the next 12 months - The company focuses on developing Bicycle drugs, a novel therapeutic modality combining the pharmacology of biologics with the manufacturing and pharmacokinetic properties of small molecules, with primary internal programs concentrated in oncology indications[26] - As of June 30, 2023, the company had $340.4 million in cash and cash equivalents, which is expected to be sufficient to fund operating expenses and capital expenditure requirements for at least the next 12 months[28][29] Net Loss | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :------------------- | :------------------- | :------------------- | :------------------- | | Net loss (in millions) | 42.6 | 26.8 | 81.7 | 54.4 | - As of June 30, 2023, the company had an accumulated deficit of $412.8 million and expects to continue to incur operating losses for the foreseeable future[29] 2. Summary of significant accounting policies This section outlines the company's accounting policies, which have not materially changed since the 2022 annual report, emphasizing management's estimates and assumptions in financial statement preparation and the potential impact of current economic uncertainties on operations, while also disclosing accounts receivable accounting and the absence of significant new accounting standard adoptions - The company's significant accounting policies have not changed since its 2022 annual report, but deferred income tax benefit in the condensed consolidated statements of cash flows was reclassified to conform to current presentation[27][32] - The preparation of financial statements requires management to make estimates and assumptions, primarily involving research and development expenses, revenue recognition, share-based compensation expense, valuation of right-of-use assets and liabilities, and income taxes (including valuation allowance for deferred tax assets)[33] - The company currently faces economic uncertainties, including global health crises, monetary and fiscal policies, bank failures, geopolitical instability, inflation, rising interest rates, and foreign currency fluctuations, and continuously monitors their potential impact on its business[34] - Accounts receivable primarily arise from collaboration agreements, and the company estimates credit losses based on its judgment of collectability and review of all significant outstanding invoices; as of June 30, 2023, accounts receivable primarily stemmed from the Bayer Consumer Care AG collaboration agreement, with no write-offs or credit loss provisions recorded[39] 3. Fair value of financial assets and liabilities This section describes the fair value measurement of the company's financial assets and liabilities, categorized by fair value hierarchy, noting that most short-term assets and liabilities have book values approximating their fair values, and long-term debt fair value is determined using unobservable Level 3 inputs, with no recurring fair value measurements at the reporting period end - Financial assets and liabilities are categorized into three levels based on the fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[41] - The carrying amounts of cash and cash equivalents, accounts receivable, R&D incentive receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities approximate their fair values due to their short-term nature[42] - As of June 30, 2023, and December 31, 2022, the carrying value of long-term debt approximated its fair value, which was determined using unobservable Level 3 inputs, including quoted interest rates from lenders with similar terms[42] Cash Equivalents Composition | Period | Cash Equivalents (in thousands) | | :--- | :------------------ | | June 30, 2023 | 3,800 | | December 31, 2022 | 276,100 | 4. Property and equipment, net As of June 30, 2023, the company's property and equipment, net, was $17,572 thousand, a decrease from $19,110 thousand as of December 31, 2022, with laboratory equipment and leasehold improvements being major components, and depreciation expense significantly increasing during the reporting period Property and Equipment, Net | Category (in thousands) | June 30, 2023 | December 31, 2022 | | :------------------- | :------------- | :------------- | | Laboratory equipment | 15,763 | 14,872 | | Leasehold improvements | 10,917 | 10,736 | | Computer equipment and software | 484 | 441 | | Furniture and office equipment | 850 | 924 | | Total | 28,014 | 26,973 | | Less: Accumulated depreciation and amortization | (10,442) | (7,863) | | Property and equipment, net | 17,572 | 19,110 | - As of June 30, 2023, approximately $0.4 million of laboratory equipment was not yet in use, compared to $2.3 million as of December 31, 2022[47] Depreciation Expense | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :------------------- | :------------------- | :------------------- | :------------------- | | Depreciation expense (in millions) | 1.6 | 0.6 | 3.2 | 1.0 | 5. Accrued expenses and other current liabilities As of June 30, 2023, the company's total accrued expenses and other current liabilities were $37,262 thousand, a significant increase from $26,452 thousand as of December 31, 2022, primarily driven by increases in accrued external research and development expenses and the current portion of operating lease liabilities Accrued Expenses and Other Current Liabilities | Category (in thousands) | June 30, 2023 | December 31, 2022 | | :----------------------- | :------------- | :------------- | | Accrued employee compensation and benefits | 7,131 | 9,928 | | Accrued external R&D expenses | 20,629 | 10,859 | | Accrued professional fees | 1,911 | 1,068 | | Current portion of operating lease liabilities | 4,680 | 3,125 | | Accrued income taxes | 1,906 | 970 | | Other | 1,005 | 502 | | Total | 37,262 | 26,452 | - Accrued external R&D expenses increased from $10,859 thousand as of December 31, 2022, to $20,629 thousand as of June 30, 2023, being the main factor in the growth of total accrued expenses[49] - The current portion of operating lease liabilities increased from $3,125 thousand as of December 31, 2022, to $4,680 thousand as of June 30, 2023[49] 6. Long-term debt The company's loan agreement with Hercules Capital, Inc. has been amended multiple times, extending the interest-only period to April 1, 2025, and the maturity date, resulting in a long-term debt carrying value of $30,513 thousand as of June 30, 2023, with an effective interest rate of 10.8%, secured by most of the company's personal property and assets, excluding intellectual property, and without financial covenants - The company's loan agreement with Hercules Capital, Inc. has been amended multiple times, extending the interest-only period to April 1, 2025, and the maturity date to July 1, 2025[54] - The loan bears interest at the Wall Street Journal Prime Rate plus 4.55%, with a minimum annual interest rate of 8.05% and a maximum of 9.05%[54] - As of June 30, 2023, the effective interest rate for the Hercules loan was 10.8%[56] Long-term Debt Composition | Category (in thousands) | June 30, 2023 | December 31, 2022 | | :------------------- | :------------- | :------------- | | Term loan payable | 30,000 | 30,000 | | End of term fee | 818 | 682 | | Unamortized debt issuance costs | (305) | (367) | | Term loan carrying value | 30,513 | 30,315 | Future Principal Repayment Schedule | Year Ending December 31 | Amount (in thousands) | | :------------------- | :------------- | | 2023 | — | | 2024 | — | | 2025 | 31,500 | | Total | 31,500 | 7. Ordinary shares As of June 30, 2023, the company had 30,585,940 ordinary shares issued and outstanding, having issued and sold American Depositary Shares (ADSs) through its ATM program, generating net proceeds of $12.1 million and $14.8 million for the three and six months ended June 30, 2023, respectively, and has not declared any dividends - As of June 30, 2023, the company had 30,585,940 ordinary shares issued and outstanding, with a nominal value of £0.01 per share[14] - As of June 30, 2023, the company's authorized share capital was 59,612,613 ordinary shares, compared to 57,820,181 ordinary shares as of December 31, 2022[62] ADS Issuance under ATM Program | Period | Number of ADSs Issued | Gross Proceeds (in millions) | Net Proceeds (in millions) | | :--- | :---------- | :---------------- | :---------------- | | Three Months Ended June 30, 2023 | 520,000 | 12.5 | 12.1 | | Six Months Ended June 30, 2023 | 620,000 | 15.3 | 14.8 | - The company has not declared any dividends[61] 8. Share-based compensation The company grants share-based compensation to employees and directors through its 2020 Equity Incentive Plan and 2019 Employee Share Purchase Plan, with total unrecognized share-based compensation expenses of $65.3 million (stock options) and $13.9 million (restricted stock units) as of June 30, 2023, expected to be recognized over weighted-average periods of 2.8 and 2.9 years, respectively, and both R&D and G&A share-based compensation expenses increased during the reporting period - Under the 2020 Equity Incentive Plan, as of June 30, 2023, there were 4,595,604 stock options and 402,970 restricted stock units (RSUs) outstanding[69] - The share reserve for the 2020 Plan increased by 1,493,694 shares on January 1, 2023, with 860,637 shares available for issuance as of June 30, 2023[67] Share-based Compensation Expense | Expense Category (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Research and development expenses | 3,988 | 2,642 | 8,584 | 5,006 | | General and administrative expenses | 4,205 | 3,031 | 8,651 | 10,865 | | Total | 8,193 | 5,673 | 17,235 | 15,871 | - As of June 30, 2023, total unrecognized compensation expense for employee and director stock options was $65.3 million, expected to be recognized over a weighted-average period of 2.8 years[79] - As of June 30, 2023, total unrecognized compensation expense for restricted stock units (RSUs) was $13.9 million, expected to be recognized over a weighted-average period of 2.9 years[82] 9. Significant agreements The company has entered into several significant collaboration agreements with biopharmaceutical companies (including Ionis, Genentech, AstraZeneca, Bayer, and Novartis) and Cancer Research UK, involving R&D services, licensing, milestone payments, and royalties, which are primary sources of revenue, and this section details the terms, accounting analysis, and financial impact of these agreements, including substantial deferred revenue from new Bayer and Novartis collaborations Collaboration Revenue Breakdown | Collaborator (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Ionis | 2,557 | 2,255 | 5,341 | 4,569 | | Genentech | 7,636 | 872 | 9,748 | 2,346 | | Dementia Discovery Fund | — | 86 | — | 158 | | AstraZeneca | 1,204 | 1,165 | 1,204 | 1,165 | | Total collaboration revenue | 11,397 | 4,378 | 16,293 | 8,238 | - For the six months ended June 30, 2023, total collaboration revenue was $16,293 thousand, a significant increase from $8,238 thousand in the same period of 2022[84] Bayer Collaboration Agreement On May 4, 2023, the company entered into a collaboration and license agreement with Bayer to develop radiopharmaceutical compounds for two specific targets, with a potential expansion to a third, for which Bayer paid a $45.0 million upfront payment and may pay additional milestone payments and tiered royalties, and the accounting analysis identified multiple performance obligations and significant rights, resulting in $44.5 million of deferred revenue as of June 30, 2023 - On May 4, 2023, the company entered into a collaboration and license agreement with Bayer to develop radiopharmaceutical compounds for two specific targets, with an option to expand to a third target[86] - Bayer paid a $45.0 million upfront payment and may pay up to £534.9 million in development and regulatory/first commercial sale milestone payments, plus tiered royalties ranging from low-single-digit to very-low-double-digit percentages[88][89] - The accounting analysis identified two combined performance obligations related to the license and R&D services, and several significant rights related to target replacement options, radiopharmaceutical candidate development options, non-radiopharmaceutical compound development options, and the option to expand to a third target[94] - As of June 30, 2023, the company recorded $44.5 million in deferred revenue from the Bayer collaboration agreement[100] Novartis Collaboration Agreement On March 27, 2023, the company entered into a collaboration and license agreement with Novartis to develop compounds for two specific targets, for which Novartis paid a $50.0 million non-refundable upfront payment and may pay up to $840.0 million in development and regulatory milestone payments, plus tiered royalties, and the accounting analysis identified multiple performance obligations and significant rights, resulting in $51.6 million of deferred revenue as of June 30, 2023 - On March 27, 2023, the company entered into a collaboration and license agreement with Novartis to develop compounds for two specific targets[101][103] - Novartis paid a $50.0 million non-refundable upfront payment and may pay up to $840.0 million in development and regulatory/first commercial sale milestone payments, plus tiered royalties ranging from high-single-digit to very-low-double-digit percentages[104] - The accounting analysis identified two combined performance obligations related to the research license and R&D services, and several significant rights related to target replacement options, radiopharmaceutical candidate development options, and non-radiopharmaceutical candidate development options[108] - As of June 30, 2023, the company recorded $51.6 million in deferred revenue from the Novartis collaboration agreement[116] Ionis Agreements The company entered into an evaluation and option agreement and subsequent collaboration and license agreements with Ionis Pharmaceuticals, Inc., focusing on developing TfR1 Bicycles for oligonucleotide compound delivery, for which Ionis paid a $31.0 million upfront payment and may pay milestone payments and royalties, and the agreements have been amended multiple times to add additional research services, resulting in $17.7 million of deferred revenue as of June 30, 2023 - The company entered into an evaluation and option agreement and subsequent collaboration and license agreements with Ionis, focusing on developing TfR1 Bicycles for oligonucleotide compound delivery[117][120][123] - Ionis paid a $31.0 million non-refundable upfront payment and may pay low-single-digit million dollar IND acceptance fees, development and regulatory milestone payments, and low-single-digit percentage tiered royalties[125] - The agreements have been amended multiple times, including the Ionis Amendment in December 2021 and the Third Ionis Amendment in April 2023, adding additional research services and corresponding consideration[126][141] - As of June 30, 2023, the company recorded $17.7 million in deferred revenue from the Ionis collaboration agreement, Ionis Amendment, and Ionis Evaluation and Option Agreement[143] Genentech Collaboration Agreement On February 21, 2020, the company entered into a collaboration and license agreement with Genentech to discover and develop Bicycle peptides for immuno-oncology targets, for which Genentech paid a $30.0 million upfront payment and has exercised two extension options, each for $10.0 million, and the agreement involves multiple milestone payments and tiered royalties, resulting in $31.1 million of deferred revenue as of June 30, 2023, and $6.0 million of revenue recognized due to the expiration of a significant right upon termination of Genentech Collaboration Project 1 - On February 21, 2020, the company entered into a collaboration and license agreement with Genentech to discover and develop Bicycle peptides for immuno-oncology targets[144] - Genentech paid a $30.0 million upfront payment and has exercised two extension options, each for $10.0 million, to add additional collaboration programs[145] - Genentech may pay up to $200.0 million in development, regulatory, and first commercialization milestone payments, plus tiered royalties ranging from mid-single-digit to low-double-digit percentages[149][150][152] - As of June 30, 2023, the company recorded $31.1 million in deferred revenue from the Genentech collaboration agreement and recognized $6.0 million in revenue due to the expiration of a significant right upon termination of Genentech Collaboration Project 1[161][165] AstraZeneca Collaboration Agreement In November 2016, the company entered into a research collaboration agreement with AstraZeneca, initially focusing on two targets in respiratory, cardiovascular, and metabolic diseases, which were later terminated in 2020 and 2021, and AstraZeneca exercised options for four additional targets in 2018, paying $5.0 million in option fees, and as of June 30, 2023, all research programs have been terminated, related deferred revenue recognized, and no remaining research programs exist under the agreement - In November 2016, the company entered into a research collaboration agreement with AstraZeneca, initially focusing on two targets, which were later terminated in 2020 and 2021[166] - AstraZeneca exercised options for four additional targets in 2018, paying $5.0 million in option fees for R&D services and licensing rights[166][167] - As of June 30, 2023, all research programs have been terminated, related deferred revenue recognized, and no remaining research programs exist under the company's collaboration agreement with AstraZeneca[171][172] AstraZeneca Collaboration Agreement Transaction Price Allocation | Performance Obligation (in thousands) | Transaction Price Allocation | | :----------------------------------- | :------------- | | Target Three Research License and Related Services | 650 | | Target Three Significant Right | 1,504 | | Target Four Significant Right | 1,204 | | Target Five Significant Right | 1,165 | | Target Six Significant Right | 1,127 | Cancer Research UK Collaboration The company has two clinical trial and license agreements with Cancer Research UK (CRUK) for BT1718 and BT7401, with CRUK funding and sponsoring these clinical trials, and for BT1718, the company recognized a $4.1 million liability as of June 30, 2023, as part of R&D expenses, while for BT7401, the company does not consider it a liability as payments are solely based on R&D outcomes generating future economic benefits - The company entered into an agreement with CRUK for CRUK to fund and sponsor the Phase I/IIa clinical trial of BT1718 for advanced solid tumors[178] - The company retains the right to continue developing BT1718 during the clinical trial and has an option to license the clinical trial results upon completion, subject to milestone payments[180] - As of June 30, 2023, the company recorded a $4.1 million liability for the BT1718 agreement, included in other long-term liabilities and as part of R&D expenses[182] - The company also has a clinical trial and license agreement with CRUK for BT7401, with CRUK funding and sponsoring its development from preclinical studies through Phase IIa trials, and the company does not consider this agreement a liability as payments are solely based on R&D outcomes generating future economic benefits[184][185][186] 10. Income taxes The company recorded income tax benefits of $0.5 million and $1.1 million for the three and six months ended June 30, 2023, respectively, primarily from U.S. deferred tax assets, and has fully provided a valuation allowance against its U.K. deferred tax assets due to accumulated net losses, but expects to realize the benefits of its U.S. deferred tax assets Income Tax Benefit | Period | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :------------------- | :------------------- | :------------------- | :------------------- | | Income tax benefit (in millions) | 0.5 | 0.4 | 1.1 | 0.9 | - The income tax benefit primarily arises from U.S. deferred tax assets, for which no valuation allowance has been provided due to profits generated from intercompany service agreements[187] - Due to a history of cumulative net losses in the U.K., the company has fully provided a valuation allowance against all U.K. deferred tax assets[189][191] - The company expects to realize the benefits of its U.S. deferred tax assets and has therefore not provided a valuation allowance against them[191] 11. Commitments and contingencies The company entered into new office and laboratory lease agreements and terminated existing ones during the reporting period, leading to changes in lease liabilities and right-of-use assets, with total operating lease liabilities of $16,561 thousand as of June 30, 2023, and also faces future milestone payment commitments exceeding $200 million related to CRUK and other third-party collaborations, contingent on future events - In January 2023, the company entered into a new office and laboratory lease agreement in Cambridge, Massachusetts, for approximately three years, with annual rent of approximately $2.1 million[193] - In April 2023, the company terminated its office and laboratory lease agreement at Babraham Research Campus in Cambridge, U.K., paying $0.3 million in termination-related fees[195][196] Operating Lease Expenses | Expense Category (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Operating lease costs | 1,367 | 1,036 | 2,693 | 1,942 | | Variable lease costs | 803 | 328 | 1,451 | 595 | | Total lease costs | 2,170 | 1,364 | 4,144 | 2,537 | Operating Lease Liability Maturities (as of June 30, 2023) | Year Ending December 31 | Amount (in thousands) | | :------------------- | :------------- | | 2023 | 2,841 | | 2024 | 5,767 | | 2025 | 5,855 | | 2026 | 3,347 | | 2027 | 821 | | Present value adjustment | (2,070) | | Total lease liabilities | 16,561 | | Less: Current lease liabilities | (4,680) | | Long-term lease liabilities | 11,881 | - The company's agreements with CRUK provide for future milestone payments totaling up to $111.2 million, plus royalties based on net product sales, and agreements with other third parties include future milestone payments totaling $92.4 million and $1.3 million, all contingent on the achievement of future events[204][206] 12. Net loss per share For the three and six months ended June 30, 2023, the company's basic and diluted net loss per share was ($1.41) and ($2.71), respectively, with dilutive securities (stock options and restricted stock units) excluded from diluted net loss per share calculation because their effect would be anti-dilutive Net Loss Per Share | Indicator | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------- | :------------------- | :------------------- | :------------------- | | Net loss (in thousands) | (42,603) | (26,828) | (81,667) | (54,392) | | Weighted-average ordinary shares (basic and diluted) | 30,191,693 | 29,648,564 | 30,097,234 | 29,626,974 | | Net loss per share (basic and diluted) | (1.41) | (0.90) | (2.71) | (1.84) | - The company's potentially dilutive securities, including stock options and restricted stock units, due to their anti-dilutive effect, were excluded from the calculation of diluted net loss per share[212] Potentially Dilutive Ordinary Shares | Category | June 30, 2023 | June 30, 2022 | | :------------------- | :------------- | :------------- | | Restricted ordinary shares | 402,970 | 187,725 | | Options to purchase ordinary shares | 7,306,927 | 5,634,144 | | Total | 7,709,897 | 5,821,869 | 13. Related party transactions The company has a founder royalty agreement with its founders and initial investors, but no royalties have been generated or paid to date, and it also paid consulting service fees to an entity associated with its Chairman of the Board - The company has a founder royalty agreement with its founders and initial investors, but no royalties have been generated or paid to date[208][214] - The company paid $0.1 million for consulting services to an entity associated with its Chairman of the Board for both the three and six months ended June 30, 2023[214] 14. Geographic information The company operates in two geographic regions, the U.S. and the U.K., with long-lived assets of $9,449 thousand in the U.S. and $24,145 thousand in the U.K. as of June 30, 2023, and all collaboration revenue is attributed to its U.K. operations - The company operates in two geographic regions: the U.S. and the U.K[215] Geographic Distribution of Long-Lived Assets | Region (in thousands) | June 30, 2023 | December 31, 2022 | | :------------------- | :------------- | :------------- | | United States | 9,449 | 4,466 | | United Kingdom | 24,145 | 28,302 | | Total | 33,594 | 32,768 | - All of the company's collaboration revenue is attributed to its operations in the U.K[216] 15. Subsequent events On July 17, 2023, the company completed an underwritten public offering, issuing 6,117,648 ADSs and 4,705,882 non-voting ordinary shares, generating gross proceeds of $230 million and net proceeds of approximately $215.5 million after offering costs - On July 17, 2023, the company completed an underwritten public offering, issuing 6,117,648 ADSs and 4,705,882 non-voting ordinary shares[217] - The public offering price for this issuance was $21.25 per ADS or non-voting ordinary share[217] - This transaction generated gross proceeds of $230 million for the company, with net proceeds of approximately $215.5 million after deducting underwriting discounts, commissions, and estimated offering expenses of $14.5 million[217] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the company's financial condition and operating results, covering its business overview as a clinical-stage biopharmaceutical company, financial overview, components of operations, performance comparison for the reporting period, liquidity and capital resources, and critical accounting estimates, emphasizing its Bicycle platform and product candidate development progress, ongoing R&D investments, and future financing needs Overview The company is a clinical-stage biopharmaceutical company focused on developing Bicycle drugs, which combine the properties of biologics and small molecules, primarily for oncology indications, and it possesses a proprietary phage display screening platform, advancing multiple product candidates into clinical trials, including BT5528, BT8009, BT1718, and BT7480, with BT8009 having received FDA Fast Track designation - The company is a clinical-stage biopharmaceutical company developing novel drugs called Bicycles, which combine the pharmacological properties of biologics with the manufacturing and pharmacokinetic properties of small molecules[219] - The company possesses a proprietary phage display screening platform for efficient identification of Bicycles, which has been used to identify current oncology candidates[220] - Key product candidates include BT5528 (EphA2-targeted BTC), BT8009 (Nectin-4-targeted BTC), and BT7480 (Nectin-4-targeting and CD137-agonizing Bicycle TICA), all in Phase I/II clinical trials[221] - BT8009 monotherapy has received FDA Fast Track designation for the treatment of adult patients with previously treated locally advanced or metastatic urothelial carcinoma[223] Financial Overview Since inception, the company has primarily financed operations through equity issuances, collaboration agreements, and loans, resulting in an accumulated deficit of $412.8 million as of June 30, 2023, and expects to continue incurring operating losses and requiring substantial additional capital for R&D and potential commercialization efforts, despite existing cash projected to cover the next 12 months of operations, still facing financing uncertainties - The company since inception has primarily financed operations through the sale of ordinary shares, ADSs, and convertible preferred shares, upfront payments, R&D payments, and milestone payments from collaboration agreements, and a loan agreement with Hercules Capital, Inc[226] Cumulative Financing (as of June 30, 2023) | Source | Amount (in millions) | | :------------------- | :------------- | | Gross proceeds from sales of ADSs, ordinary shares, and convertible preferred shares | 579.9 | | Cash payments from collaboration revenue | 188.1 | | Hercules loan | 30.0 | - As of June 30, 2023, the company had an accumulated deficit of $412.8 million and expects to continue to incur operating losses for the foreseeable future[227] - The company expects its existing cash and cash equivalents of $340.4 million as of June 30, 2023, to be sufficient to fund operating expenses and capital expenditure requirements for at least the next 12 months[233] Components of Our Results of Operations This section analyzes the components of the company's operating results, including collaboration revenue, research and development expenses, general and administrative expenses, and other income (expense), net, noting that collaboration revenue primarily stems from agreements, R&D expenses are the largest expenditure covering preclinical and clinical development, G&A expenses mainly comprise personnel and professional service costs, and income tax benefit primarily arises from U.S. deferred tax assets Collaboration Revenues The company currently has no product sales revenue, with future revenue primarily derived from collaboration agreements with partners, including upfront payments, milestone payments, option exercise payments, and R&D service fees, and future revenue is expected to fluctuate based on the timing and amount of licensing, R&D services, milestones, and other payments - The company currently has no product sales revenue and does not expect to generate any for the foreseeable future[234] - Revenue is primarily derived from collaboration agreements with partners, including upfront payments, milestone payments, and option exercise payments, as well as R&D service fees[234] - Future revenue may include additional milestone payments, option exercise payments, and royalties on net product sales under collaboration agreements[234] Expenses The company's expenses primarily consist of research and development expenses and general and administrative expenses, with R&D being the largest expenditure, covering employee costs, third-party agreement fees, lab supplies, regulatory compliance, and facility costs, benefiting from U.K. R&D tax credits, while G&A expenses mainly include personnel costs and professional service fees, affected by exchange rate fluctuations, and both categories are expected to increase significantly in the future Research and Development Expenses Research and development expenses are the company's largest expenditure, primarily comprising employee-related costs, third-party R&D and clinical activity fees, laboratory supplies, regulatory compliance costs, and facility expenses, with R&D costs expensed as incurred and benefiting from U.K. R&D tax credits, and the company expects future R&D expenses to increase significantly to advance clinical development of product candidates and expand its pipeline - R&D expenses primarily include employee-related costs (salaries, benefits, share-based compensation), third-party R&D and clinical activity fees, consultant fees, laboratory supplies, clinical trial material procurement and manufacturing costs, and regulatory compliance costs[237] - R&D costs are expensed as incurred, with U.K. R&D tax credits and government grants recognized as reductions to R&D expenses[238] - The company expects future R&D expenses to increase significantly to advance clinical development of product candidates, initiate new clinical trials, establish internal process development and analytical capabilities, and discover and develop additional product candidates[243] - The Phase I/IIa clinical trial for BT1718 is funded by Cancer Research UK, and the costs incurred are recorded as a liability under ASC 730 and as part of R&D expenses[239][242] General and Administrative Expenses General and administrative expenses primarily include salaries and share-based compensation for executive, finance, corporate, business development, and administrative functions, as well as professional fees for legal, patent, accounting, audit, tax, and consulting services, also encompassing insurance, travel, and facility-related costs, and are affected by exchange rate fluctuations, with the company expecting these expenses to grow in the future due to increased headcount and public company compliance costs - General and administrative expenses primarily include salaries and share-based compensation for executive, finance, corporate, business development, and administrative function personnel[247] - These expenses also include professional fees for legal, patent, accounting, audit, tax, and consulting services, as well as insurance, travel, and facility-related costs[247] - Foreign currency transaction gains and losses are included in general and administrative expenses, so operating expenses may be affected by future exchange rate changes[248] - The company expects future general and administrative expenses to increase due to increased headcount and compliance costs as a public company[249] Other Income (Expense), net Other income (expense), net, primarily includes interest income and interest expense, with interest income mainly derived from interest earned on cash and cash equivalents, and interest expense primarily from the loan agreement with Hercules Capital, Inc., while the company's income tax benefit mainly stems from U.S. deferred tax assets, and U.K. R&D tax credits are recognized as a reduction to R&D expenses Interest Income Interest income primarily consists of interest earned on cash and cash equivalents held in the company's operating accounts - Interest income primarily consists of interest earned on cash and cash equivalents held in the company's operating accounts[250] Interest Expense Interest expense primarily arises from the company's financing arrangements, with $30.0 million in outstanding borrowings under its loan agreement with Hercules Capital, Inc. as of June 30, 2023 - Interest expense primarily arises from the company's financing arrangements[252] - As of June 30, 2023, the company had $30.0 million in outstanding borrowings under its loan agreement with Hercules Capital, Inc[252] Benefit from Income Taxes The company's income tax benefit primarily arises from U.S. deferred tax assets, for which no valuation allowance has been provided due to profits generated from intercompany service agreements, while U.K. R&D tax credits are recognized as a reduction to R&D expenses and not reflected in the income tax provision - The income tax benefit primarily arises from U.S. deferred tax assets, for which no valuation allowance has been provided due to profits generated from intercompany service agreements[253] - U.K. R&D tax credits are recognized as a reduction to R&D expenses and are not reflected in the income tax provision because they are fully refundable and not dependent on current or future taxable income[254] - The company benefits from U.K. R&D tax credit schemes, including the Small and Medium-sized Enterprise R&D Tax Relief Scheme (SME Program) and the Research and Development Expenditure Credit Scheme (RDEC Program)[255] Results of Operations This section compares the operating results for the three and six months ended June 30, 2023, noting significant growth in both collaboration revenue and research and development expenses, leading to an expanded operating loss, partially offset by increased interest income Comparison of the Three Months Ended June 30, 2023 and 2022 For the three months ended June 30, 2023, collaboration revenue increased by $7.0 million year-over-year, primarily due to revenue recognition from the expiration of a significant right in the Genentech collaboration agreement, while R&D expenses rose by $19.9 million due to increased clinical program spending and personnel costs, and G&A expenses increased by $3.0 million, driven by professional service fees and share-based compensation, partially offset by foreign exchange impacts, leading to an expanded net loss of $42.6 million Operating Results Comparison (Three Months Ended June 30, 2023) | Indicator (in thousands) | 2023 | 2022 | Change | | :------------------- | :----- | :----- | :----- | | Collaboration revenue | 11,397 | 4,378 | 7,019 | | Research and development expenses | 39,720 | 19,854 | 19,866 | | General and administrative expenses | 14,788 | 11,824 | 2,964 | | Operating loss | (43,111) | (27,300) | (15,811) | | Net loss | (42,603) | (26,828) | (15,775) | - Collaboration revenue increased by $7.0 million, primarily due to revenue recognized from the expiration of a significant right in the Genentech collaboration agreement[260] - Research and development expenses increased by $19.9 million, primarily driven by increased BT8009 clinical program spending, Bicycle TICA program development costs, other discovery and platform-related costs, employee and contractor-related costs, and facility-related costs[263] - General and administrative expenses increased by $3.0 million, primarily due to a $1.7 million increase in professional and consulting fees and a $1.2 million increase in share-based compensation expense, partially offset by a $1.1 million favorable foreign exchange impact[265][267] Comparison of the Six Months Ended June 30, 2023 and 2022 For the six months ended June 30, 2023, collaboration revenue increased by $8.1 million year-over-year, mainly from Genentech and Ionis collaboration agreements, while R&D expenses significantly rose by $37.8 million due to increased BT8009 and BT5528 clinical program spending, Bicycle TICA program development costs, and personnel and facility-related expenses, and G&A expenses slightly increased by $0.5 million, driven by personnel and professional service fees, partially offset by reduced share-based compensation, leading to an expanded net loss of $81.7 million Operating Results Comparison (Six Months Ended June 30, 2023) | Indicator (in thousands) | 2023 | 2022 | Change | | :------------------- | :----- | :----- | :----- | | Collaboration revenue | 16,293 | 8,238 | 8,055 | | Research and development expenses | 71,931 | 34,138 | 37,793 | | General and administrative expenses | 29,276 | 28,783 | 493 | | Operating loss | (84,914) | (54,683) | (30,231) | | Net loss | (81,667) | (54,392) | (27,275) | - Collaboration revenue increased by $8.1 million, primarily due to $7.4 million in revenue recognized from the expiration of a significant right in the Genentech collaboration agreement and an $0.8 million increase in Ionis collaboration revenue[270] - Research and development expenses increased by $37.8 million, primarily driven by increased BT8009 and BT5528 clinical program spending, Bicycle TICA program development costs, other discovery and platform-related costs, employee and contractor-related costs, and facility-related costs[273] - General and administrative expenses increased by $0.5 million, primarily due to a $1.6 million increase in personnel-related costs and increased professional and consulting fees, partially offset by a $2.2 million decrease in share-based compensation expense[274] - Other income (expense), net, increased by $2.7 million, primarily due to a $2.6 million increase in interest income, benefiting from higher interest rates and interest earned on cash equivalents[275] Liquidity and Capital Resources The company has been in an operating loss position since inception, primarily financing through equity issuances, collaboration agreements, and loans, and as of June 30, 2023, held $340.4 million in cash and cash equivalents, expected to support operations for at least the next 12 months, with an additional $215.5 million net proceeds raised from a subsequent public offering, but faces ongoing capital needs to advance product development and potential commercialization, possibly requiring further financing Liquidity The company has experienced operating losses and negative cash flows since inception, with no product sales revenue, relying on equity issuances, collaboration agreements, and loans for financing, and as of June 30, 2023, held $340.4 million in cash and cash equivalents, projected to fund operations for at least the next 12 months, with an additional $215.5 million net proceeds raised from a subsequent public offering - The company has been in an operating loss and negative cash flow position since inception and has not generated product sales revenue[276] - Primary financing sources include sales of ADSs, ordinary shares, and convertible preferred shares, upfront and milestone payments from collaboration agreements, and a loan from Hercules Capital, Inc[276] - As of June 30, 2023, the company had $340.4 million in cash and cash equivalents, expected to be sufficient to fund operating expenses and capital expenditure requirements for at least the next 12 months[289] - On July 17, 2023, the company completed a public offering, issuing 6,117,648 ADSs and 4,705,882 non-voting ordinary shares, generating approximately $215.5 million in net proceeds[277] Cash Flows For the six months ended June 30, 2023, net cash outflow from operating activities significantly decreased to $12.3 million, primarily due to changes in accounts receivable and R&D incentive receivables, while net cash outflow from investing activities decreased to $2.4 million, and net cash inflow from financing activities substantially increased to $15.0 million, mainly from ADS issuance under the ATM program Cash Flow Summary | Category (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------- | :------------------- | | Net cash outflow from operating activities | (12,315) | (49,931) | | Net cash outflow from investing activities | (2,376) | (14,555) | | Net cash inflow from financing activities | 15,010 | 645 | | Effect of exchange rate changes on cash and cash equivalents | 960 | (2,070) | | Net increase (decrease) in cash and cash equivalents | 1,279 | (65,911) | - Net cash outflow from operating activities decreased by $37.6 million, primarily due to a $27.3 million increase in net loss, and increased non-cash expenses (share-based compensation and depreciation/amortization), but offset by a $63.5 million increase in cash flow from changes in operating assets and liabilities[278] - Net cash outflow from investing activities decreased by $12.2 million, primarily due to reduced purchases of property and equipment[280] - Net cash inflow from financing activities was $15.0 million, primarily from net proceeds from ADS issuance under the ATM program[280] Loan Agreement with Hercules The company has $30.0 million in outstanding term loans under its agreement with Hercules Capital, Inc., with the potential for an additional $45.0 million under certain conditions, bearing a floating interest rate up to 9.05% and an interest-only period until April 1, 2025, secured by most of the company's personal property and assets, excluding intellectual property, and without financial covenants, but including customary affirmative and negative covenants and events of default - The company has $30.0 million in outstanding term loans under its agreement with Hercules, with the potential for an additional $45.0 million under customary conditions, available until December 31, 2024[281] - The loan bears interest at the Wall Street Journal Prime Rate plus 4.55%, with a minimum annual interest rate of 8.05% and a maximum of 9.05%, and an interest-only period until April 1, 2025[281] - The loan is secured by most of the company's personal property and assets, excluding intellectual property, and the agreement contains customary affirmative and negative covenants and events of default, but no financial covenants[281] Capital Resources and Funding Requirements The company faces ongoing capital requirements to advance preclinical and clinical development of product candidates, seek regulatory approvals, establish commercialization capabilities, and protect intellectual property, with future funding needs dependent on R&D progress, collaboration agreements, regulatory approvals, and market acceptance, and expects to raise capital through equity issuances, debt financing, collaborations, and strategic alliances, but faces financing uncertainties and economic volatility risks - The company faces ongoing cash requirements to advance preclinical and clinical development of product candidates, including BT5528, BT8009, BT7480, BT1718, BT7455, and BT7401[282] - Future capital requirements will depend on various factors, including the scope of R&D, clinical trial results, regulatory approvals, commercialization costs, intellectual property protection, and personnel recruitment[291] - The company expects to raise capital through equity offerings, debt financings, collaborations,