Bicycle Therapeutics(BCYC) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows Condensed Consolidated Balance Sheets Provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change (in thousands) | | :------------------------------------ | :-------------------------------- | :------------------------------- | :-------------------- | | Cash and cash equivalents | $572,086 | $339,154 | +$232,932 | | Total current assets | $603,036 | $369,383 | +$233,653 | | Total assets | $638,683 | $410,609 | +$228,074 | | Total current liabilities | $69,736 | $53,342 | +$16,394 | | Deferred revenue, net of current portion | $107,582 | $41,455 | +$66,127 | | Total liabilities | $222,661 | $139,826 | +$82,835 | | Total shareholders' equity | $416,022 | $270,783 | +$145,239 | | Accumulated deficit | $(462,661) | $(331,096) | -$(131,565) | Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's revenues, expenses, and net loss over specific reporting periods | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Three Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | :-------------------- | | Collaboration revenues | $5,352 | $3,040 | +$2,312 | | Research and development | $39,868 | $22,752 | +$17,116 | | General and administrative | $16,281 | $10,047 | +$6,234 | | Net loss | $(49,898) | $(28,347) | -$(21,551) | | Net loss per share, basic and diluted | $(1.26) | $(0.96) | -$(0.30) | | Metric | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Collaboration revenues | $21,645 | $11,278 | +$10,367 | | Research and development | $111,799 | $56,890 | +$54,909 | | General and administrative | $45,557 | $38,830 | +$6,727 | | Net loss | $(131,565) | $(82,739) | -$(48,826) | | Net loss per share, basic and diluted | $(3.95) | $(2.79) | -$(1.16) | Condensed Consolidated Statements of Shareholders' Equity Outlines changes in shareholders' equity, including ordinary shares, additional paid-in capital, and accumulated deficit | Metric | December 31, 2022 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :------------------------------------ | :------------------------------- | :-------------------------------- | :-------------------- | | Total Shareholders' Equity | $270,783 | $416,022 | +$145,239 | | Ordinary Shares (number) | 29,873,893 | 42,384,799 | +12,510,906 | | Additional Paid-in Capital | $601,105 | $875,248 | +$274,143 | | Accumulated Deficit | $(331,096) | $(462,661) | -$(131,565) | - The increase in total shareholders' equity was primarily driven by the issuance of ADSs and non-voting ordinary shares, net of commissions and offering expenses, totaling $234.5 million during the nine months ended September 30, 2023[18] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------- | | Net cash used in operating activities | $(13,340) | $(55,802) | +$42,462 | | Net cash used in investing activities | $(2,878) | $(17,539) | +$14,661 | | Net cash provided by financing activities | $249,641 | $804 | +$248,837 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $233,480 | $(77,211) | +$310,691 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Nature of the business and basis of presentation Describes the company's core business as a clinical-stage biopharmaceutical firm and the basis for financial statement preparation - Bicycle Therapeutics plc is a clinical-stage biopharmaceutical company focused on developing a novel class of medicines called Bicycles for diseases underserved by existing therapeutics, primarily in oncology[26] - The company's pipeline includes Bicycle® Toxin Conjugates (BTCs) like BT8009 (targeting Nectin-4), BT5528 (targeting EphA2), and BT1718 (targeting MT1 MMP), as well as Bicycle tumor-targeted immune cell agonists (Bicycle TICAs) like BT7480 (targeting Nectin-4 and agonizing CD137)[26] | Financial Metric | As of September 30, 2023 (in millions) | | :----------------- | :------------------------------------- | | Cash and cash equivalents | $572.1 | | Net losses (3 months) | $(49.9) | | Net losses (9 months) | $(131.6) | | Accumulated deficit | $(462.7) | | Net proceeds from July 2023 public offering | $215.1 | | Net proceeds from ATM program (9 months) | $34.2 | - The company expects its cash to be sufficient to fund operating expenses and capital expenditure requirements for at least twelve months from the issuance date of these interim financial statements, but will require additional funding for ongoing preclinical activities and clinical trials[32][33] 2. Summary of significant accounting policies Details the key accounting principles, estimates, and assumptions used in preparing the financial statements - The condensed consolidated financial statements are prepared in accordance with GAAP, with reclassification of deferred income tax benefit in prior periods to conform to current presentation[27] - Management's preparation of financial statements involves significant estimates and assumptions, including accruals for R&D, revenue recognition, share-based compensation, right-of-use assets/liabilities, and income taxes[36] - The company monitors economic uncertainties such as global health crises, monetary policy, geopolitical conflicts, inflation, and interest rates, which could impact its business and financial condition[38] - Accounts receivable primarily represent amounts due under collaboration agreements, with no accounts receivable or allowance for credit losses as of September 30, 2023[41] 3. Fair value of financial assets and liabilities Explains the valuation methods and classifications for the company's financial assets and liabilities - The carrying values of most current financial assets and liabilities approximate their fair values due to their short-term nature[45] - Cash equivalents, including money market funds and 30-day term deposits, are classified as Level 1 assets[46] | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------- | :-------------------------------- | :------------------------------- | | Cash equivalents | $63,400 | $276,100 | | Restricted cash | $500 | $0 | 4. Property and equipment, net Details the company's tangible assets, including laboratory equipment, leasehold improvements, and depreciation | Category | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------- | :-------------------------------- | :------------------------------- | | Laboratory equipment | $15,087 | $14,872 | | Leasehold improvements | $10,547 | $10,736 | | Computer equipment and software | $537 | $441 | | Furniture and office equipment | $823 | $924 | | Less: Accumulated depreciation and amortization | $(11,395) | $(7,863) | | Total property and equipment, net | $15,599 | $19,110 | | Depreciation Expense | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :------------------- | :--------------------------------------------- | :-------------------------------------------- | | Depreciation expense | $1,700 | $4,900 | 5. Accrued expenses and other current liabilities Outlines various short-term obligations, including employee compensation, R&D expenses, and professional fees | Category | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------ | :-------------------------------- | :------------------------------- | | Accrued employee compensation and benefits | $9,760 | $9,928 | | Accrued external research and development expenses | $18,010 | $10,859 | | Accrued professional fees | $1,319 | $1,068 | | Current portion of operating lease liabilities | $4,661 | $3,125 | | Other | $303 | $1,472 | | Total accrued expenses and other current liabilities | $34,053 | $26,452 | 6. Long-term debt Describes the company's loan agreements, outstanding balances, and future principal payment obligations - The company has a loan and security agreement with Hercules Capital, Inc., initially providing up to $40.0 million, with $30.0 million drawn[51][52] - The loan agreement was amended to extend the interest-only period to April 1, 2025, and the maturity date to July 1, 2025, with potential for an additional $45.0 million in term loans[53] | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :-------------------------------- | :------------------------------- | | Term loan payable | $30,000 | $30,000 | | End of term charge | $881 | $682 | | Unamortized debt issuance costs | $(277) | $(367) | | Carrying value of term loan | $30,604 | $30,315 | | Future Principal Payments (in thousands) | | :--------------------------------------- | | Year Ending December 31, 2023: $0 | | Year Ending December 31, 2024: $0 | | Year Ending December 31, 2025: $31,500 | | Total: $31,500 | 7. Ordinary shares Details the company's share capital structure, including authorized, issued, and outstanding ordinary and non-voting shares - The company's ordinary shares are divided into two classes: ordinary shares (one vote per share) and non-voting ordinary shares (no voting rights, but re-designatable to ordinary shares under certain conditions)[62][63][65] | Share Type | September 30, 2023 | December 31, 2022 | | :-------------------------- | :----------------- | :---------------- | | Authorized ordinary shares | 59,612,613 | 57,820,181 | | Issued & outstanding ordinary shares | 37,678,917 | 29,873,893 | | Issued & outstanding non-voting ordinary shares | 4,705,882 | 0 | - No dividends have been declared as of September 30, 2023, and December 31, 2022[66] 8. Share-based compensation Explains the equity incentive plan, share option and RSU activity, and related compensation expenses - The 2020 Equity Incentive Plan allows for grants of options, stock appreciation rights, and restricted share units (RSUs) to employees, directors, and consultants, with an automatic annual increase in reserved shares[68][69] | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :------------------------------------ | :--------------------------------------------- | :-------------------------------------------- | | Research and development expenses | $3,357 | $11,941 | | General and administrative expenses | $4,073 | $12,724 | | Total share-based compensation expense | $7,430 | $24,665 | | Share Options Activity | As of December 31, 2022 | As of September 30, 2023 | | :--------------------- | :---------------------- | :----------------------- | | Outstanding | 5,898,888 | 7,312,020 | | Weighted Average Exercise Price | $22.45 | $23.32 | | Weighted Average Contractual Term (years) | 7.64 | 6.99 | | Unrecognized compensation expense | N/A | $58.6 million | | Weighted average period for recognition | N/A | 2.7 years | | RSU Activity | As of December 31, 2022 | As of September 30, 2023 | | :--------------------- | :---------------------- | :----------------------- | | Unvested | 187,725 | 335,104 | | Weighted-Average Grant Date Fair Value | $60.86 | $38.40 | | Unrecognized compensation expense | N/A | $11.0 million | | Weighted average period for recognition | N/A | 2.7 years | 9. Significant agreements Summarizes key collaboration and license agreements with pharmaceutical partners and their financial implications | Collaboration Partner | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :-------------------- | :--------------------------------------------- | :-------------------------------------------- | | Bayer | $434 | $434 | | Novartis | $772 | $772 | | Ionis | $2,782 | $8,123 | | Genentech | $1,364 | $11,112 | | AstraZeneca | $0 | $1,204 | | Total collaboration revenues | $5,352 | $21,645 | | Collaboration Partner | Deferred Revenue as of Sep 30, 2023 (in thousands) | Deferred Revenue as of Dec 31, 2022 (in thousands) | | :-------------------- | :------------------------------------------------- | :------------------------------------------------- | | Bayer | $42,521 | $0 | | Novartis | $49,050 | $0 | | Ionis | $14,463 | $21,489 | | Genentech | $28,738 | $39,308 | | AstraZeneca | $0 | $1,076 | | Total deferred revenue | $134,772 | $61,873 | Bayer Collaboration Agreement Details the collaboration with Bayer for radiopharmaceutical compounds, including upfront payments and potential milestones - The company entered into a collaboration and license agreement with Bayer on May 4, 2023, focusing on radiopharmaceutical compounds for two specified targets, with an option for a third target and non-radiopharmaceutical compounds[90][92] - Bayer made an upfront payment of $45.0 million and is eligible for development and regulatory/first commercial sale milestones of up to £534.9 million across three target programs, plus tiered royalties on net sales[94][95] - The transaction price of $47.5 million (upfront fee + estimated CRO reimbursement) was allocated to combined performance obligations (license + R&D services) and material rights for various options, with revenue recognized proportionally over service periods or upon option exercise/expiry[103][104] Novartis Collaboration Agreement Outlines the collaboration with Novartis for research and discovery, including upfront fees and potential milestone payments - A collaboration and license agreement was signed with Novartis on March 27, 2023, for research and discovery activities on two targets, granting Novartis a non-exclusive research license and potential exclusive commercialization rights[106][109] - Novartis paid a $50.0 million upfront fee and is eligible for development and regulatory/first commercial sale milestones of up to $840.0 million, tiered sales milestones up to $800.0 million, and tiered royalties on net sales[110] - The $50.0 million transaction price was allocated to combined performance obligations (license + R&D services) and material rights for various options, with revenue recognized proportionally over service periods or upon option exercise/expiry[117][119] Ionis Agreements Describes the collaboration with Ionis for oligonucleotide delivery, including upfront payments and revenue recognition - The Ionis Collaboration Agreement, following an evaluation and option agreement, grants Ionis an exclusive worldwide license for TfR1 Bicycles for oligonucleotide delivery, with the company performing initial research and discovery activities[121][125][126] - Ionis made an upfront payment of $31.0 million (plus a $3.0 million credit) and is eligible for IND acceptance payments, development/regulatory milestones up to a low double-digit million dollars per target, and tiered royalties on net sales[128] - The total transaction price of $38.0 million (including a $3.4 million premium from a share purchase) was allocated to combined licenses and research/discovery obligations and material rights for IND acceptance fee credits[134][139][141] - The company recognized $2.8 million and $8.1 million in revenue from Ionis for the three and nine months ended September 30, 2023, respectively[146] Genentech Collaboration Agreement Details the collaboration with Genentech for immuno-oncology targets, including payments and program termination impacts - The Genentech Collaboration Agreement focuses on discovering and developing Bicycle peptides for immuno-oncology targets, with Genentech having options for additional targets and development candidates[147][148] - The company received a $30.0 million upfront payment and $10.0 million for each of two expansion options exercised by Genentech, with potential for development, regulatory, and sales milestones up to $200.0 million per program, plus tiered royalties[148][154] - The initial transaction price of $31.0 million (later increased to $33.0 million) was allocated to research licenses, R&D services, and material rights for various options, with revenue recognized proportionally or upon option exercise/expiry[160][161][162] - Genentech terminated Collaboration Program 1 in June 2023, leading to $6.0 million in revenue recognition from the expiration of a material right[161] AstraZeneca Collaboration Agreement Summarizes the collaboration with AstraZeneca, including target options, terminations, and deferred revenue recognition - The AstraZeneca Collaboration Agreement, initiated in November 2016, focused on multiple targets, with AstraZeneca exercising an option for four additional targets in May 2018 for a $5.0 million option fee[165] - AstraZeneca terminated collaboration activities for the third, sixth, fifth, and fourth targets in October 2020, August 2021, June 2022, and April 2023, respectively, leading to recognition of associated deferred revenue[170] - As of September 30, 2023, there are no remaining research programs under the AstraZeneca Collaboration Agreement, and no deferred revenue remains[170][171] Summary of Contract Assets and Liabilities Presents an overview of deferred revenue balances and revenue recognition by type from collaboration agreements | Contract Liability | January 1, 2023 (in thousands) | Additions (in thousands) | Deductions (in thousands) | September 30, 2023 (in thousands) | | :----------------- | :----------------------------- | :----------------------- | :------------------------ | :-------------------------------- | | Deferred revenue | $61,873 | $95,870 | $(21,645) | $134,772 | - As of September 30, 2023, deferred revenue balances for Bayer, Novartis, Ionis, and Genentech include significant amounts allocated to material rights, which will be recognized upon option exercise or expiry[174] | Revenue Type | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :------------------------------------ | :--------------------------------------------- | :-------------------------------------------- | | Revenue based on proportional performance | $5,006 | $13,829 | | Revenue based on expiration of material rights | $346 | $7,816 | | Total | $5,352 | $21,645 | Cancer Research UK Details agreements with Cancer Research UK for clinical development of BT1718 and BT7401, including funding and liabilities - The company has agreements with Cancer Research UK (CRUK) for the clinical development of BT1718 and BT7401[177][183] - CRUK sponsors and funds the Phase I/IIa clinical trial for BT1718, with the company retaining rights to obtain a license to trial results upon milestone payment[177][179] - The company recorded a liability of $4.1 million as of September 30, 2023, for costs incurred by CRUK for BT1718, recognized as research and development expense[181] - CRUK also funds and sponsors the development of BT7401 through a Phase IIa trial, with potential future milestone payments up to $60.3 million and royalties[183][184] 10. Income taxes Explains the company's income tax provision, UK R&D tax credits, and deferred tax asset valuation allowances | Metric | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :------------------------------------ | :--------------------------------------------- | :-------------------------------------------- | | Income tax provision (benefit) | $2,272 | $1,137 | - The company is subject to UK corporate taxation but has generated losses since inception, thus not paying UK corporation tax. The income tax provision primarily reflects the tax impact from US operating activities[186] - A change in estimate in Q3 2023 concluded that certain US R&D expenses are not required to be capitalized under IRC Section 174, resulting in a $2.4 million income tax provision[189] - A full valuation allowance is maintained against UK deferred tax assets due to a history of cumulative net losses, while US deferred tax assets are expected to be realized[190][191] 11. Commitments and contingencies Outlines lease agreements for office and laboratory spaces and contingent future milestone payment obligations - The company has lease agreements for office and laboratory spaces in Cambridge, Massachusetts (3-year term) and Cambridge, UK (5-year term), and Lexington, Massachusetts (extended to Dec 2027)[193][196][198] | Lease Expense Component | Three Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2023 (in thousands) | | :---------------------- | :--------------------------------------------- | :-------------------------------------------- | | Operating lease cost | $1,364 | $4,057 | | Variable lease cost | $566 | $2,017 | | Total lease cost | $1,930 | $6,074 | | Operating Lease Liabilities (in thousands) | | :--------------------------------------- | | Year Ending December 31, 2023: $1,394 | | Year Ending December 31, 2024: $5,654 | | Year Ending December 31, 2025: $5,740 | | Year Ending December 31, 2026: $3,271 | | Year Ending December 31, 2027: $821 | | Present value adjustment: $(1,796) | | Total lease liabilities: $15,084 | | Less: current lease liabilities: $(4,661) | | Long term lease liabilities: $10,423 | - The company has contingent future milestone payments totaling $111.2 million under CRUK arrangements and $92.4 million and $1.3 million under separate third-party agreements, which are not estimable in timing or likelihood[204] 12. Net loss per share Calculates basic and diluted net loss per share, considering weighted average ordinary shares outstanding | Metric | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :----------------------------- | | Net loss | $(49,898) | $(131,565) | | Weighted average ordinary shares outstanding | 39,576,467 | 33,291,701 | | Net loss per share, basic and diluted | $(1.26) | $(3.95) | - Potentially dilutive securities (options and RSUs) were excluded from diluted net loss per share calculation as their effect would be anti-dilutive[211] | Potentially Dilutive Securities | September 30, 2023 | | :------------------------------ | :----------------- | | Restricted ordinary shares | 335,104 | | Options to purchase ordinary shares | 7,312,020 | | Total | 7,647,124 | 13. Related party transactions Discloses transactions with related parties, including founder royalty agreements and consultancy services - The company has a Founder Royalty Agreement with its founders and initial investors, but no royalties have been earned or paid to date[206][213] - Consultancy services were provided by an entity associated with the Chairman of the board, totaling $49,000 for the three months and $0.2 million for the nine months ended September 30, 2023[213] 14. Geographic information Provides a breakdown of property and equipment by geographic region and attribution of collaboration revenues | Geographic Region | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :---------------- | :-------------------------------- | :------------------------------- | | United States | $8,817 | $4,466 | | United Kingdom | $21,379 | $28,302 | | Total | $30,196 | $32,768 | - All collaboration revenues are attributed to the company's operations in the United Kingdom[215] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on financial condition, operations, and liquidity, comparing results for Q3 and YTD September 30, 2023 and 2022 Overview Introduces Bicycle Therapeutics as a clinical-stage biopharmaceutical company developing novel 'Bicycles' for oncology - Bicycle Therapeutics is a clinical-stage biopharmaceutical company developing 'Bicycles,' a novel class of medicines combining biologic pharmacology with small molecule properties, primarily for oncology indications[218] - The company utilizes a proprietary phage display screening platform to identify and optimize Bicycle candidates, including Bicycle® Toxin Conjugates (BTCs) like BT8009, BT5528, and BT1718, and Bicycle tumor-targeted immune cell agonists (Bicycle TICAs) like BT7480 and BT7455[219][220] - BT8009 received Fast Track Designation from the FDA for metastatic urothelial cancer and has aligned with the FDA on a Phase II/III registrational trial (Duravelo-2) for potential accelerated approval[222][224] Financial Overview Summarizes funding sources, historical losses, and future capital requirements for advancing product candidates - The company has funded operations primarily through sales of shares, collaboration payments, and debt, receiving $830.1 million from share sales and $233.1 million from collaboration arrangements since inception through September 30, 2023[225] | Metric | Nine Months Ended Sep 30, 2023 (in millions) | | :----------------- | :------------------------------------------- | | Net losses | $(131.6) | | Accumulated deficit | $(462.7) | - Expenses and capital requirements are expected to increase substantially due to advancing preclinical activities and clinical trials, seeking marketing approvals, expanding intellectual property, and building commercial capabilities[227][229] - As of September 30, 2023, cash and cash equivalents were $572.1 million, projected to fund operations for at least 12 months, but substantial additional funding will be needed for continued operations and growth[231][232] Components of Our Results of Operations Analyzes the key drivers of financial performance, including collaboration revenues and various expense categories Collaboration Revenues Discusses the sources and expected fluctuations of revenue from collaboration agreements, including upfront and milestone payments - Revenue primarily consists of collaboration revenue from upfront payments, milestone payments, option exercise payments, and research and development services[233] - Future revenue is expected to fluctuate based on the timing and amount of license, R&D services, milestone, and other payments, with potential for royalties on net product sales[234][235] Research and Development Expenses Details the components of R&D expenses, accounting treatment, and expected increases due to pipeline expansion - R&D expenses include employee-related costs, third-party research and development services, consultants, lab supplies, and regulatory compliance costs[236] - R&D costs are expensed as incurred, with UK R&D tax credits and government grants recorded as an offset to these expenses[237] - The company expects R&D expenses to continue increasing due to expanded product candidate portfolio, clinical development, and building in-house capabilities[242] - The successful development of product candidates is highly uncertain, with numerous risks including clinical trial completion, regulatory approvals, and commercialization[243][244][245] General and Administrative Expenses Covers G&A costs, including personnel, professional fees, and facility expenses, and expected increases - G&A expenses primarily cover salaries, share-based compensation for executive, finance, and administrative functions, along with professional fees, insurance, and facility-related costs[246] - Foreign currency transaction differences are recorded in G&A expense, and these expenses are expected to increase with growing headcount and public company compliance costs[247][248] Other Income (Expense), net Explains interest income from cash equivalents and interest expense from the Hercules loan agreement - Interest income is primarily derived from cash held in operating accounts and cash equivalents[249] - Interest expense is mainly from the $30.0 million borrowings outstanding under the Loan Agreement with Hercules[249] Provision For (Benefit From) Income Taxes Discusses income tax provisions, UK R&D tax credits, and potential impacts of legislative changes - The company is subject to corporate taxation in the US and UK, with the provision for income taxes reflecting US operating activities and UK R&D tax credits reducing R&D expenses[250][251] - The company benefits from UK R&D tax credit programs (SME and RDEC), which provide cash rebates for qualifying expenditures, with rates changing after April 1, 2023[252][253] - Proposed UK government legislation may introduce restrictions on tax relief for sub-contracted R&D activities and potentially merge the SME and RDEC programs, impacting future claims[254][255] Results of Operations Compares the company's financial performance across key metrics for the current and prior reporting periods Comparison of the Three Months Ended September 30, 2023 and 2022 Analyzes changes in collaboration revenues, R&D, G&A expenses, and net loss for the three-month period | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Collaboration revenues | $5,352 | $3,040 | +$2,312 | | Research and development expenses | $39,868 | $22,752 | +$17,116 | | General and administrative expenses | $16,281 | $10,047 | +$6,234 | | Loss from operations | $(50,797) | $(29,759) | -$(21,038) | | Interest income | $3,985 | $1,991 | +$1,994 | | Net loss | $(49,898) | $(28,347) | -$(21,551) | - Collaboration revenues increased by $2.3 million, driven by new collaborations with Novartis and Bayer, and increases from Ionis and Genentech[260] - R&D expenses rose by $17.1 million, primarily due to increased direct program spend for BT8009 and Bicycle TICA programs, higher employee costs, and a decrease in UK R&D tax credit reimbursement rate[262] - G&A expenses increased by $6.2 million, mainly from higher professional/consulting fees, personnel costs, share-based compensation, and an unfavorable foreign exchange impact[264][266] Comparison of the Nine Months Ended September 30, 2023 and 2022 Analyzes changes in collaboration revenues, R&D, G&A expenses, and net loss for the nine-month period | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (in thousands) | | :------------------------------------ | :----------------------------------------- | :----------------------------------------- | :-------------------- | | Collaboration revenues | $21,645 | $11,278 | +$10,367 | | Research and development expenses | $111,799 | $56,890 | +$54,909 | | General and administrative expenses | $45,557 | $38,830 | +$6,727 | | Loss from operations | $(135,711) | $(84,442) | -$(51,269) | | Interest income | $7,726 | $3,117 | +$4,609 | | Net loss | $(131,565) | $(82,739) | -$(48,826) | - Collaboration revenues increased by $10.4 million, primarily due to $6.0 million from Genentech (material right expiration), increased proportional performance revenue from Ionis, and new collaborations with Novartis and Bayer[270] - R&D expenses increased by $54.9 million, driven by higher clinical program expenses for BT8009 and Bicycle TICAs, increased employee costs, and higher facilities-related expenses, partially offset by incremental R&D incentives[272] - G&A expenses rose by $6.7 million, mainly due to increased personnel-related costs and professional/consulting fees, partially offset by a decrease in share-based compensation[273] Liquidity and Capital Resources Examines the company's ability to meet short-term obligations and its sources of funding for future operations Liquidity Discusses the company's historical funding, current cash position, and projected operational runway - The company has incurred significant operating losses and negative cash flows since inception, with no product sales revenue to date[275] - Operations are financed through share sales, collaboration payments, and debt, including $215.1 million net from a July 2023 public offering and $34.2 million net from an ATM program during the nine months ended September 30, 2023[275][276][277] - As of September 30, 2023, the company had $572.1 million in cash and cash equivalents, expected to fund operations for at least 12 months[291] Cash Flows Analyzes cash movements from operating, investing, and financing activities for the nine-month period | Cash Flow Activity | Nine Months Ended Sep 30, 2023 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(13,340) | $(55,802) | | Net cash used in investing activities | $(2,878) | $(17,539) | | Net cash provided by financing activities | $249,641 | $804 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $233,480 | $(77,211) | - The decrease in cash used in operating activities by $42.5 million was primarily due to increased cash flows from changes in operating assets and liabilities, driven by deferred revenue from new collaboration agreements[280] - Net cash provided by financing activities significantly increased to $249.6 million, mainly from the July 2023 public offering and ATM program[282] Loan Agreement with Hercules Details the terms of the outstanding loan, interest rates, and collateral arrangements with Hercules Capital - The company has $30.0 million outstanding under a loan agreement with Hercules, with potential for an additional $45.0 million in term loans available through December 31, 2024[282] - The loan bears interest at the Wall Street Journal prime rate plus 4.55%, with a minimum of 8.05% and a cap of 9.05%, and an interest-only period ending April 1, 2025[282] - The agreement includes a 5.0% end of term charge and is collateralized by substantially all personal property and assets, excluding intellectual property[284] Capital Resources and Funding Requirements Outlines future cash needs, financing strategies, and risks associated with funding availability and economic conditions - Future cash requirements include advancing preclinical and clinical trials, developing new product candidates, seeking marketing approvals, expanding intellectual property, and building commercial infrastructure[285] | Contractual Obligation | Total (in thousands) | Less than 1 year (in thousands) | 1 to 3 years (in thousands) | 3 to 5 years (in thousands) | | :--------------------- | :------------------- | :------------------------------ | :-------------------------- | :-------------------------- | | Operating lease commitments | $16,880 | $5,633 | $10,228 | $1,019 | | Debt obligations | $35,978 | $2,534 | $33,444 | $0 | | Total | $52,858 | $8,167 | $43,672 | $1,019 | - The company expects to finance future cash needs through equity offerings, debt financings, collaborations, and other strategic transactions, with risks of dilution and unfavorable terms[295] - Global economic conditions, including high inflation and rising interest rates, pose risks to funding availability and operating costs, potentially impacting the company's ability to raise capital or continue operations[296][299] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section discusses the company's exposure to market risks, specifically interest rate sensitivity on its cash and debt, and foreign currency exchange risk due to international operations Interest Rate Sensitivity Assesses the impact of interest rate changes on the company's cash, cash equivalents, and variable-rate debt - As of September 30, 2023, the company held $572.1 million in cash and cash equivalents, primarily in interest-bearing savings accounts, 30-day term deposits, and money market funds[302] - The company's $30.0 million borrowings under the Hercules credit facility bear interest at a variable rate (prime rate + 4.55%, capped at 9.05%), currently at 9.05%[303] - An immediate one percentage point change in interest rates is not expected to materially affect the fair value of the investment portfolio or the company's financial condition or results of operations[302][303] Foreign Currency Exchange Risk Discusses exposure to currency fluctuations, particularly between GBP and USD, and the lack of hedging activities - The functional currency for Bicycle Therapeutics plc and Bicycle Therapeutics Inc. is USD, while for BicycleTx Limited and BicycleRD Limited it is British Pound Sterling[304][306] - Monetary assets and liabilities in non-functional currencies are remeasured, and exchange gains/losses are included in net loss; foreign exchange losses of $0.7 million and $0.8 million were recorded for the three and nine months ended September 30, 2023, respectively[307] - The company does not currently engage in currency hedging activities, making it susceptible to fluctuations in exchange rates, particularly between the pound sterling and the U.S. dollar[308] Item 4. Controls and Procedures This section details management's evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Reports on the effectiveness of the company's disclosure controls and procedures as evaluated by management - As of September 30, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[309] Changes in Internal Control over Financial Reporting Confirms no material changes in internal control over financial reporting during the reporting period - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[310] PART II - OTHER INFORMATION Item 1. Legal Proceedings This section confirms that the company is not currently involved in any material legal proceedings or claims - The company is not currently subject to any material legal proceedings or claims arising in the ordinary course of business[311] Item 1A. Risk Factors Outlines various risks impacting business, financial condition, and growth, covering finance, product development, commercialization, and operations - The company has a history of significant operating losses and expects increasing losses, requiring substantial additional funding, which may dilute existing shareholders or restrict operations[313][326][337] - Success is heavily dependent on internal development programs (BTC and Bicycle TICA), which are in early stages and face high risks of failure in clinical trials, regulatory approval, and commercialization[314][352][358][361] - Commercialization success is uncertain, depending on market acceptance, insurance coverage, reimbursement, and intense competition from companies with greater resources[320][321][438][445] Summary of Selected Risk Factors Highlights key risks including operating losses, funding needs, product development challenges, and market uncertainties - Key risks include significant operating losses, need for substantial additional funding, dependence on product candidate success, early development stage of medicines, difficulties in patient enrollment, and unpredictability of preclinical/early clinical trial results[313][314][315] - Other risks involve potential undesirable side effects, delays in identifying new product candidates, limited market opportunities, ongoing regulatory obligations, intense competition, and uncertainty of insurance coverage and reimbursement[316][318][319][320][321] Risks Related to Our Financial Position and Need for Additional Capital Addresses risks associated with historical losses, future funding requirements, potential dilution, and debt compliance - The company has a history of significant operating losses, with a net loss of $131.6 million for the nine months ended September 30, 2023, and an accumulated deficit of $462.7 million[327] - Substantial additional funding will be required to advance product candidates, seek marketing approvals, expand intellectual property, and build commercial infrastructure, with no assurance of availability on favorable terms[338][339] - Raising additional capital may lead to dilution for existing shareholders, restrictive covenants from debt financing, or relinquishing valuable rights through collaborations[345] - Failure to comply with covenants or payment obligations under the Hercules term loan facility could result in default, increased interest, or acceleration of repayment, negatively impacting financial condition[346][349] Risks Related to the Discovery, Development and Regulatory Approval of Our Product Candidates Covers risks in product candidate development, clinical trials, regulatory scrutiny, patient enrollment, and potential side effects - The company's future success is heavily dependent on its BTC and Bicycle TICA programs, which may not successfully complete clinical trials, receive regulatory approval, or be commercialized[352][354] - Product candidates represent a new category of medicines (Bicycles) and may face heightened regulatory scrutiny, potentially leading to increased costs or delays in development[358][359][360] - Difficulties in patient enrollment for clinical trials, especially for rare diseases, could delay or prevent the advancement of product candidates, increasing costs and potentially leading to trial termination[370][371][372] - Preclinical and early clinical trial results may not predict future success, and product candidates may cause undesirable side effects, leading to halted development, denied marketing approval, or significant negative consequences[375][376][383][384] Risks Related to Commercialization of Our Product Candidates and Other Regulatory Compliance Matters Examines challenges in marketing approval, sales infrastructure, market opportunities, reimbursement, and healthcare regulations - The marketing approval process is expensive, time-consuming, and uncertain, with no guarantee of timely approval or commercially viable terms, potentially limiting revenue generation[417][421][423] - The company lacks internal marketing, sales, and distribution infrastructure, and building or outsourcing these capabilities is costly and risky, potentially hindering commercialization success[424][425][426][428][429] - Market opportunities for product candidates may be limited to specific patient populations or indications, potentially restricting profitability without approval for broader uses[430][431][432] - Failure to obtain or maintain adequate insurance coverage and reimbursement for approved products could limit market access and revenue, especially given the substantial cost of new treatments[453][454][456] - The company is subject to stringent healthcare fraud and abuse laws, privacy laws, and other regulations, with non-compliance potentially leading to substantial penalties and reputational harm[466][468][472] Risks Related to Our Business and Our International Operations Addresses risks from international operations, cybersecurity threats, IT system failures, and social media impacts - As a UK-based company with international operations, the business is exposed to economic, political, and regulatory risks, including differing regulatory requirements, intellectual property protection, and currency exchange rate fluctuations[509][510][525] - Cyber-attacks, failures in IT systems, and deficiencies in cybersecurity (internal or third-party) pose risks of information theft, data corruption, and significant business disruption, especially with increased remote work and reliance on third-party providers[513][514][517][518] - Social media and AI-based platforms present new risks, including inappropriate disclosure of sensitive information, negative publicity, and potential release of proprietary information, which could harm reputation and intellectual property[523][524] Risks Related to Our Dependence on Third Parties Highlights risks from reliance on collaborators, CROs, manufacturers, and the protection of shared trade secrets - The company relies heavily on development and commercialization collaborators (e.g., Genentech, Ionis, Novartis, Bayer, Cancer Research UK) to develop, conduct clinical trials, and commercialize product candidates[526][527][529] - Collaborator failures to perform as expected, fulfill responsibilities, or devote sufficient resources could significantly reduce future revenue and delay or terminate product development[529][530] - Reliance on third-party CROs and manufacturers for clinical trials and product supply increases risks of delays, insufficient quantities, quality issues, and non-compliance with cGMP requirements[539][541][546][548][553] - Sharing trade secrets with third parties for manufacturing and collaborations increases the risk of discovery by competitors or misappropriation, potentially impairing the company's competitive position[556][557][558][560] Risks Related to Our Intellectual Property Discusses challenges in obtaining and maintaining patent protection, trade secret risks, and potential infringement lawsuits - Inability to obtain and maintain broad patent and intellectual property protection could allow competitors to develop similar products, adversely affecting commercialization efforts[561][563] - Issued patents may be found invalid or unenforceable if challenged, and trade secrets are difficult to protect, risking loss of competitive advantage[570][575][576] - Patent term extensions and data exclusivity for products may be limited, potentially opening the door to generic competition sooner than expected[582][583][584] - Infringement lawsuits