EDGAR 10-K Filing

Company CIK: 1761612
Filing Year: 2021
Filename: 1761612_10-K_2021_0001558370-21-002758.json

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ITEM 1. BUSINESS
Item 1. Business

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES.
We occupy approximately 13,500 rentable square feet of office and laboratory space in Cambridge, United Kingdom under a lease that expires in December 2021, with a five-year extension option, and an additional 11,000 rental square feet of office and laboratory space in Lexington, Massachusetts under a lease that expires in December 2022, with a five-year extension option. We believe that our office and laboratory spaces are sufficient to meet our current needs and that suitable additional space will be available as and when needed.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we may become subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Other than as described below, we are not currently subject to any material legal proceedings.
License Litigation
In 2009, our subsidiary, BicycleRD Limited, or BicycleRD, entered into a non-exclusive patent license agreement with Pepscan Systems B.V. and its affiliates, or Pepscan, pursuant to which its licensed rights related to the scaffold used for Bicycles contained in our lead product candidate, BT1718, which is currently in clinical trial sponsored by Cancer Research UK, and in THR-149, which has been licensed to Oxurion. The agreement required BicycleRD to enter into a framework services agreement with Pepscan under which Pepscan would provide certain Bicycles not produced by BicycleRD. In 2010, BicycleRD entered into such a framework services agreement. In 2015, BicycleRD terminated the framework services agreement in accordance with its terms. In 2016, Pepscan terminated the patent license agreement.
BicycleRD instituted proceedings in the District Court of The Hague, or the District Court, to contest the right of Pepscan to terminate the patent license agreement. BicycleRD included a conditional claim for a ruling that the licensed patent relevant to BicycleRD’s activities is invalid. In response, Pepscan claimed, among other things, that the termination of the framework services agreement and alleged breaches by BicycleRD of confidentiality obligations constituted grounds for the termination of the patent license agreement.
Following several years of ongoing litigation and appeals, on February 18, 2020, the Court of Appeal of The Hague, or the Court of Appeal, ruled that Pepscan was entitled to terminate the license agreement and granted a worldwide injunction against BicycleRD exploiting the licensed Pepscan patents and any related know-how, subject to a civil daily fine of EUR 25,000 in the event of non-compliance. BicycleRD subsequently appealed the decision of the Court of Appeal to the Dutch Supreme Court.
In September, 2020, BicycleRD filed two petitions requesting inter partes review (IPR) with the Patent Trial and Appeal Board of the United States Patent and Trademark Office (USPTO) of two of Pepscan’s U.S. patents forming part of the WO 2004 077062 patent family, and a revocation action against the German patent forming part of Pepscan’s WO 2004 077062 patent family in the German Federal Patent Court.
On November 20, 2020, we announced that we entered into a settlement and license agreement with Pepscan regarding our use of Pepscan’s CLIPS peptide technology. We and Pepscan have agreed to settle all intellectual property disputes worldwide, including those described in the preceding paragraphs. Under the terms of the settlement, Pepscan granted us a license to use CLIPS peptide technology in the development of our product candidates BT1718 and THR-149. We paid €3 million in November 2020, will pay €1 million on the first anniversary of the date of settlement, and will make potential additional payments to Pepscan based on achievement of specified clinical, regulatory and commercial milestones. We also entered into a separate settlement agreement with Pepscan concerning European patent opposition proceedings, which is described below.
European Patent Opposition Proceedings
In January 2013, Pepscan filed a notice of opposition in respect of European patent 2 257 624, which is a foundational patent that covers our technology platform. In June 2015, the European Patent Office issued a decision to maintain this patent as granted and rejecting Pepscan's opposition. Pepscan subsequently filed a notice of appeal to revoke the patent in its entirety, along with supporting materials. Pursuant to a separate settlement agreement entered into with Pepscan in November 2020, Pepscan has withdrawn its appeal, and the decision of the Opposition Division maintaining the patent as granted, for the purposes of the opposition proceedings, has become final.
In April 2015, Pepscan filed a notice of opposition in respect of European patent 2 474 613, which is a divisional patent that covers extensions of our technology platform. In February 2017, the European Patent Office issued a decision to maintain this patent in an amended form, in which the patent was limited to the use of TBMB scaffolds. Pepscan subsequently filed a notice of appeal to revoke the patent in its entirety, along with supporting materials. Concurrently, Bicycle also filed a notice of appeal, requesting that the limitation to the use of TBMB be removed. Pursuant to the aforementioned separate settlement agreement entered into with Pepscan on November 20, 2020, Pepscan has withdrawn its appeal, leaving Bicycle as the sole appellant. A hearing date has been scheduled for October 5, 2021, at which we plan to argue for reversal of the amendments made by the Opposition Division. The withdrawal of Pepscan’s appeal means that, for the purposes of the opposition proceedings, the scope of the patent cannot now be restricted further than the version in which it was maintained by the Opposition Division.
In May 2017, the company and Oxurion filed a notice of opposition in respect of Dyax Corp’s European patent 1 854 477, which contained the following claim 1 (among other claims): “A composition comprising at least one peptide that inhibits plasma kallikrein for the use in the treatment of ophthalmic disorders in a patient in need thereof.” Dyax Corp subsequently filed a Main Request to replace the granted claims with a claim scope which was limited to a specific consensus sequence. Oral Proceedings were held on October 15, 2019, and the European Patent Office issued a decision to restrict the claims of European patent 1 854 477 to specific peptides and to two specific ophthalmic disorders (namely macular oedema and retinal vein occlusion). Oxurion filed an appeal against this decision at the EPO Technical Board of Appeal to challenge any action from Dyax Corp to broaden the current claims.
In January and February 2019, the company, Oxurion and a further anonymous party filed a notice of opposition in respect of Dyax Corp’s European patent 2 374 472, which is a divisional filing of European patent 1 854 477. Claim 1 of this divisional patent reads as follows: “A composition comprising at least one plasma kallikrein inhibitor for the use in the treatment of an ophthalmic disorder.” Oral Proceedings before the European Patent Office are scheduled for 11 March 2021.
Trademark Opposition Proceedings
Our UK trademark application for TICA has been opposed by a German company called Immatics Biotechnologies GmbH. The opposition is based on Immatics Biotechnologies' earlier registered rights for the trademarks TCER and TiCR which cover similar goods and services. Submissions have been filed by both parties and we are currently awaiting a decision from the UK IPO.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our ordinary shares, par value £0.01 per share, are not publicly traded. Our American Depositary Shares, or ADSs, each represent one ordinary share of Bicycle Therapeutics plc and began trading on The Nasdaq Global Select Market on May 23, 2019 under the symbol “BCYC.” Prior to that date, there was no public trading market for our ADSs or our ordinary shares.
Holders of Ordinary Shares
As of March 5, 2021, there were approximately 73 holders of record of our ordinary shares and one holder of record of our ADSs. The number of beneficial owners of the ADSs in the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.
Recent Sales of Unregistered Equity Securities
None.
Use of Proceeds from Registered Securities
On May 28, 2019, we completed our IPO of 4,333,333 ADSs at a public offering price of $14.00 per ADS for an aggregate offering price of approximately $60.7 million. In addition, in June 2019, we issued 304,333 ADSs at a public offering price of $14.00 per ADS for an aggregate offering price of approximately $4.3 million in connection with the underwriters’ partial exercise of their option to purchase additional ADSs. Goldman Sachs & Co. LLC, Jefferies LLC, Piper Jaffray & Co. and Canaccord Genuity LLC served as the underwriters of the IPO. The offer and sale of all of the ADSs in the offering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-231076), which was declared effective by the SEC on May 22, 2019.
We received aggregate net proceeds from the offering of approximately $56.4 million, after deducting underwriting discounts and commissions of $4.5 million and offering expenses of $4.0 million. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning 10% or more of any class of our equity securities or to any other affiliates.
There has been no material change in our planned use of the net proceeds from the offering as described in the final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act. As of December 31, 2020, we had consumed all of the net proceeds from the IPO, primarily to advance our BT1718, BT5528, BT8009, BT7480, and other discovery development programs, as well as for continued drug discovery efforts and translational research activities, and for working capital and other general corporate purposes.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA.
You should read the following selected financial data together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K. We have derived the consolidated statements of operations data for the years ended December 31, 2020, 2019, 2018 and the consolidated balance sheet data as of December 31, 2020 and 2019 from our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. We have derived the consolidated statements of operations data for the year ended December 31, 2017 and the consolidated balance sheet data as of December 31, 2018 and 2017 from our audited consolidated financial statements not included in this report. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.
Year ended December 31,
(in thousands, except share and per share data)
Statement of Operations Data:
Collaboration revenues
$
10,390
$
13,801
$
7,136
$
2,060
Operating expenses:
Research and development
33,149
25,540
20,761
11,866
General and administrative
29,201
14,560
8,121
6,407
Total operating expenses
62,350
40,100
28,882
18,273
Loss from operations
(51,960)
(26,299)
(21,746)
(16,213)
Other income (expense):
Interest income
Interest expense
(457)
-
-
Other expense, net
-
(5,377)
(665)
(119)
Total other income (expense), net
(4,563)
(496)
(69)
Net loss before income tax provision
(51,734)
(30,862)
(22,242)
(16,282)
Benefit from income taxes
(724)
(254)
(396)
(23)
Net loss
$
(51,010)
$
(30,608)
$
(21,846)
$
(16,259)
Net loss attributable to ordinary shareholders
$
(51,010)
$
(30,608)
$
(21,846)
$
(16,259)
Net loss per share attributable to ordinary shareholders, basic and diluted
$
(2.66)
$
(2.77)
$
(49.78)
$
(48.81)
Weighted average ordinary shares outstanding, basic and diluted
19,145,938
11,045,370
438,862
333,125
See Note 2 within the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a description of the method used to calculated basic and diluted net loss per share applicable to ordinary shareholders.
As of December 31,
(in thousands)
Balance Sheet Data:
Cash
$
135,990
$
92,117
$
63,380
$
67,663
Working capital
132,594
95,325
67,840
62,061
Total assets
161,152
110,194
81,626
74,001
Total deferred revenue
35,156
5,657
14,635
14,467
Warrant liability
-
-
4,804
4,411
Convertible preferred shares
-
-
122,197
96,441
Total shareholders’ equity (deficit)
$
95,460
$
93,198
$
(69,826)
$
(47,184)

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
You should read this discussion and analysis of our financial condition and consolidated results of operations together with the consolidated financial statements, related notes and other financial information included in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including statements of our plans, objectives, expectations and intentions, contain forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Please also see the section titled “Forward-Looking Statements.”
For the discussion of the financial condition and results of operations for the year ended December 31, 2019 compared to the year ended December 31, 2018, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations" and "-Liquidity and Capital Resources" included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the Securities and Exchange Commission, or the SEC, on March 10, 2020.
Overview
We are a clinical-stage biopharmaceutical company developing a novel class of medicines, which we refer to as Bicycles, for diseases that are underserved by existing therapeutics. Bicycles are fully synthetic short peptides constrained to form two loops which stabilize their structural geometry. This constraint facilitates target binding with high affinity and selectivity, making Bicycles attractive candidates for drug development. Bicycles are a unique therapeutic modality combining the pharmacology usually associated with a biologic with the manufacturing and pharmacokinetic, or PK, properties of a small molecule. The relatively large surface area presented by Bicycles allow targets to be drugged that have historically been intractable to non-biological approaches. Bicycles are excreted by the kidney rather than the liver and have shown no signs of immunogenicity to date, which we believe together support a favorable toxicological profile.
We have a novel and proprietary phage display screening platform which we use to identify Bicycles in an efficient manner. The platform initially displays linear peptides on the surface of engineered bacteriophages, or phages, before “on-phage” cyclization with a range of small molecule scaffolds which can confer differentiated physicochemical and structural properties. Our platform encodes quadrillions of potential Bicycles which can be screened to identify molecules for optimization to potential product candidates. We have used this powerful screening technology to identify our current portfolio of candidates in oncology and intend to use it in conjunction with our collaborators to seek to develop additional future candidates across a range of other disease areas.
Our initial internal programs are focused on oncology indications with high unmet medical need. Our lead product candidates, BT1718, BT5528 and BT8009, are Bicycle Toxin Conjugates®, or BTCs. These Bicycles are chemically attached to a toxin that when administered is cleaved from the Bicycle® and kills the tumor cells. BT1718 is being developed to target tumors that express Membrane Type 1 matrix metalloproteinase, or MT1 MMP and is being investigated for safety, tolerability and efficacy in an ongoing Phase I/IIa clinical trial in collaboration with, and fully funded by, the Cancer Research UK Centre for Drug Development, or Cancer Research UK. We are also evaluating BT5528, a second-generation BTC targeting Ephrin type A receptor 2, or EphA2, in a company-sponsored Phase I/II clinical trial as a monotherapy and in combination with nivolumab, and BT8009, a second-generation BTC targeting Nectin-4, in a company-sponsored Phase I/II clinical trial. Our discovery pipeline in oncology includes Bicycle-based systemic immune cell agonists and Bicycle tumor-targeted immune cell agonists, or TICAs.
Beyond our wholly-owned oncology portfolio, we are collaborating with biopharmaceutical companies and organizations in therapeutic areas in which we believe our proprietary Bicycle screening platform can identify therapies
to treat diseases with significant unmet medical need. Our partnered programs outside of oncology include collaborations in immuno-oncology, anti-infective, cardiovascular, ophthalmology, dementia and respiratory indications.
Financial Overview
Since our inception, we have devoted substantially all of our resources to developing our Bicycle platform and our product candidates, BT1718, BT5528, BT8009, BT7480, BT7455, and BT7401, conducting research and development of our product candidates and preclinical programs, raising capital and providing general and administrative support for our operations. To date, we have financed our operations primarily with proceeds from the sale of our American Depositary Shares, or ADSs, ordinary shares, and convertible preferred shares, proceeds received from upfront payments, research and development payments, and development milestone payments from our collaboration agreements with Genentech Inc., or Genentech, Oxurion NV (formerly ThromboGenics NV), or Oxurion, AstraZeneca AB, or AstraZeneca, Sanofi and the Dementia Discovery Fund, or DDF; and borrowings pursuant to our debt facility with Hercules Capital, Inc., or Hercules. From our inception in 2009 through December 31, 2020, we have received gross proceeds of $243.4 million from the sale of ADSs, ordinary shares and convertible preferred shares, including the proceeds from our initial public offering and at-the-market, or ATM, offering program; and $63.1 million of cash payments under our collaboration revenue arrangements, including $31.0 million from Genentech, $10.3 million from AstraZeneca, $4.1 million from Oxurion, $15.0 million from Sanofi, $1.7 million from DDF; and $15.0 million of borrowings pursuant to our Loan and Security Agreement, or Loan Agreement with Hercules. In January 2021, we received $2.4 million from Oxurion due to a milestone achieved for the initiation of a Phase II trial of THR-149 and $3.0 million of proceeds under an evaluation and option agreement. We do not have any products approved for sale and have not generated any revenue from product sales.
Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were $51.0 million, $30.6 million and $21.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, we had an accumulated deficit of $151.6 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future.
We anticipate that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates and, if any product candidates are approved, pursue the commercialization of such product candidates by building internal sales and marketing capabilities. We expect that our expenses and capital requirements will increase substantially if and as we:
● continue our development of our product candidates, including conducting future clinical trials of BT1718, BT5528 and BT8009;
● progress the preclinical and clinical development of BT7480, BT7455 and BT7401;
● seek to identify and develop additional product candidates;
● develop the necessary processes, controls and manufacturing data to obtain marketing approval for our product candidates and to support manufacturing to commercial scale;
● develop, maintain, expand and protect our intellectual property portfolio;
● seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
● hire and retain additional personnel, such as non-clinical, clinical, pharmacovigilance, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, medical affairs, commercial and scientific personnel;
● acquire or in-license other products and technologies;
● expand our infrastructure and facilities to accommodate our growing employee base, including adding equipment and infrastructure to support our research and development; and
● add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our operations as a public company.
We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take many years and is subject to significant uncertainty. We have no commercial-scale manufacturing facilities of our own, and all of our manufacturing activities have been and are planned to be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations, or CROs, to carry out our clinical development activities. If we seek to obtain marketing approval for any of our product candidates from which we obtain promising results in clinical development, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, charitable grants, monetization transactions or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates. The COVID-19 pandemic has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, whether as a result of the ongoing COVID-19 pandemic or otherwise, we could experience an inability to access additional capital.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of December 31, 2020, we had cash of $136.0 million. We believe that our existing cash will enable us to fund our operating expenses and capital expenditure requirements for at least 12 months from the date of filing of this Annual Report on Form 10-K. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. See “- Liquidity and Capital Resources.”
Components of Our Results of Operations
Collaboration Revenues
To date, we have not generated any revenue from product sales and we do not expect to generate any revenue from product sales for the foreseeable future. Our revenue primarily consists of collaboration revenue under our arrangements with our collaboration partners, including amounts that are recognized related to upfront payments, milestone payments and option exercise payments, and amounts due to us for research and development services. In the future, revenue may include additional milestone payments and option exercise payments, and royalties on any net product sales under our collaborations. We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of license, research and development services, milestone and other payments.
Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities, including our discovery efforts, and the development of our product candidates, which include:
● employee-related expenses including salaries, benefits, and share-based compensation expense;
● expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on our behalf;
● the cost of consultants;
● the cost of lab supplies and acquiring, developing and manufacturing preclinical study materials and clinical trial materials;
● costs related to compliance with regulatory requirements; and
● facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, and other operating costs.
Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as a prepaid expense or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
U.K. research and development tax credits and government grant funding are recorded as an offset to research and development expense. See “-Benefit from Income Taxes.”
Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors and contract manufacturing organizations, or CMOs, in connection with our preclinical and clinical development activities. Costs incurred after a product candidate has been designated and that are directly related to the product candidate are included in direct research and development expenses for that program. Costs incurred prior to designating a product candidate are included in other discovery and platform related expense. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.
In December 2016, we entered into a Clinical Trial and License Agreement with Cancer Research Technology Limited, or CRTL and Cancer Research UK, pursuant to which the Cancer Research UK Centre for Drug Development is sponsoring and funding a Phase I/IIa clinical trial for our product candidate, BT1718, in patients with advanced solid tumors. Cancer Research UK has designed and prepared and is carrying out and sponsoring the clinical trial at its own cost. Upon the completion of the Phase I/IIa clinical trial, we have the right to obtain a license to the results of the clinical trial upon the payment of a milestone, in cash and ordinary shares, with a combined value in the mid six digit dollar amount. If such license is not acquired, or if it is acquired and the license is terminated and we decide to abandon development of all products that deliver cytotoxic payloads to the MT1 target antigen, CRTL may elect to receive an assignment and exclusive license to develop and commercialize the product on a revenue sharing basis (in which case we will receive tiered royalties of 70% to 90% of the net revenue depending on the stage of development when the license is granted is less certain costs, as defined in the agreement). The Cancer Research UK Agreement contains additional future milestone payments upon the achievement of development, regulatory and commercial milestones,
payable in cash and shares, with an aggregate total value of $50.9 million, as well as royalty payments based on a single digit percentage on net sales of products developed. The Cancer Research UK Agreement can be terminated by either party upon an insolvency event, material breach of the terms of the contract, upon a change in control involving a tobacco related entity, and in certain other specified circumstances, and includes provisions that require the repayment of costs to Cancer Research UK upon certain termination events or change in control events. The costs incurred by Cancer Research UK are recorded as a liability in accordance with ASC 730, Research and Development as the payments are not based solely on the results of the research and development having future economic benefit. The liability is recorded as incremental research and development expense in the consolidated statements of operations and comprehensive loss. Upon the completion of the Phase IIa part of the clinical trial, we expect research and development expenses to increase significantly as we expect to fund the continued development of BT1718, as well as incur additional development milestone payments.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as a result of our expanded portfolio of product candidates and as we: (i) continue the clinical development and seek to obtain marketing approval for our product candidates, including BT1718, BT5528 and BT8009; (ii) initiate clinical trials for our product candidates, including BT7480, BT7455 and BT7401; and (iii) build our in-house process development and analytical capabilities and continue to discover and develop additional product candidates.
The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing products, including the uncertainty of:
● whether our business will be adversely affected by the ongoing COVID-19 pandemic, which could materially affect our operations, delay our research efforts and clinical trials and cause significant disruption in the operations and business of third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business; and
● completing research and preclinical development of our product candidates, including conducting future clinical trials of BT1718, BT5528 and BT8009;
● progressing the preclinical and clinical development of BT7480, BT7455 and BT7401;
● establishing an appropriate safety profile with IND-enabling studies to advance our preclinical programs into clinical development;
● identifying new product candidates to add to our development pipeline;
● successful enrollment in, and the initiation and completion of clinical trials;
● the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
● commercializing the product candidates, if and when approved, whether alone or in collaboration with others;
● establishing commercial manufacturing capabilities or making arrangements with third party manufacturers;
● the development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials;
● addressing any competing technological and market developments, as well as any changes in governmental regulations;
● negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations under such arrangements;
● maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how, as well as obtaining and maintaining regulatory exclusivity for our product candidates;
● continued acceptable safety profile of the drugs following approval; and
● attracting, hiring and retaining qualified personnel.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, the FDA, EMA or another regulatory authority may require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or we may experience significant trial delays due to patient enrollment or other reasons, including the impacts of the ongoing COVID-19 pandemic, in which case we would be required to expend significant additional financial resources and time on the completion of clinical development. For instance, all clinical sites for the Phase I/IIa trial of BT1718 being conducted by Cancer Research UK in the United Kingdom temporarily paused enrollment of new patients due to the ongoing COVID-19 pandemic during the first half of 2020. The pause in enrollment was lifted in the second quarter of 2020, and patient enrollment in the Phase IIa portion of the clinical trial is again underway. However, changes in circumstances related to the ongoing pandemic could result in future pauses in or other impacts on enrollment. In addition, we may obtain unexpected results from our clinical trials, and we may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, insurance, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
Foreign currency transactions in currencies different from the functional currency of our UK entities are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange differences resulting from the settlement of such transactions and from the translation at period-end exchange rates in foreign currencies are recorded in general and administrative expense in the statement of operations and comprehensive loss. As such, our operating expenses may be impacted by future changes in exchange rates. See “Quantitative and Qualitative Disclosures About Market Risks” for further discussion.
We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our portfolio of product candidates. We also expect to incur increased expenses associated with being a public company,
including costs of accounting, audit, information systems, legal, intellectual property, regulatory and tax compliance services, director and officer insurance costs and investor and public relations costs.
Other Income (Expense)
Interest Income
Interest income consists primarily of interest earned on our cash held in operating accounts.
Interest Expense
Interest expense consists primarily of interest expense for financing arrangements. On September 30, 2020, we entered into the Loan Agreement with Hercules and borrowed $15.0 million. Consequently, we expect interest expense to increase in future periods.
Other Expense, net
Prior to our IPO, other expense, net consisted primarily of changes in the fair value associated with the remeasurement of the warrant liability for warrants we issued to subscribe for Series A and Series B1 convertible preferred shares. We remeasured the warrant liability at fair value at each reporting period until completion of our IPO in May 2019. Upon the completion of the IPO, the respective warrants were exercised or converted to warrants to subscribe for ordinary shares, and as such, we will not incur additional expense related to the remeasurement of the warrant liability in future periods.
Benefit From Income Taxes
We are subject to corporate taxation in the United States and the United Kingdom. We have generated losses since inception and have therefore not paid United Kingdom corporation tax. The benefit from income taxes presented in our consolidated statements of operations and comprehensive loss represents the tax impact from our operating activities in the United States, which have generated taxable income based on intercompany service arrangements.
The research and development tax credit received in the United Kingdom is recorded as a reduction to research and development expenses. The U.K. research and development tax credit, as described below, is fully refundable to us after surrendering tax losses and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from the U.K. research and development tax credit as a reduction to research and development expenses and is not reflected as part of the income tax provision. If, in the future, any U.K. research and development tax credits generated are needed to offset a corporate income tax liability in the United Kingdom, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded as a reduction to research and development expenses.
As a company that carries out extensive research and development activities, we seek to benefit from one of two U.K. research and development tax credit cash rebate regimes: The Small and Medium-sized Enterprises R&D Tax Credit Program, or SME Program, and the Research and Development Expenditure program, or RDEC Program. Qualifying expenditures largely comprise employment costs for research staff, consumables expenses incurred under agreements with third parties that conduct research and development, preclinical activities, clinical activities and manufacturing on our behalf and certain internal overhead costs incurred as part of research projects.
Based on criteria established by U.K. law, a portion of expenditures being carried out in relation to our pipeline research and development, clinical trials management and manufacturing development activities were eligible for the RDEC Program for the year ended December 31, 2020. We will assess whether it is possible to qualify under the more favorable SME regime for future accounting periods, but this will be affected as a result of becoming a large company by reference to our staff headcount and/or our financial results.
Unsurrendered U.K. losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of U.K. taxable profits. After accounting for tax credits receivable, we had accumulated tax losses for carry forward in the United Kingdom of $72.0 million and $41.7 million as of December 31, 2020 and 2019, respectively.
Value Added Tax, or VAT, is broadly charged on all taxable supplies of goods and services by VAT-registered businesses. Under current rates, an amount of 20% of the value, as determined for VAT purposes, of the goods or services supplied is added to all sales invoices and is payable to HMRC. Similarly, VAT paid on purchase invoices is generally reclaimable from HMRC and is included as a component of prepaid and other current assets in our consolidated balance sheets.
Results of Operations
The following table summarizes our results of operations for the years ended December 31, 2020, 2019 and 2018:
Year Ended December 31,
(in thousands)
Collaboration revenues
$
10,390
$
13,801
$
7,136
Operating expenses:
Research and development
33,149
25,540
20,761
General and administrative
29,201
14,560
8,121
Total operating expenses
62,350
40,100
28,882
Loss from operations
(51,960)
(26,299)
(21,746)
Other income (expense):
Interest income
Interest expense
(457)
-
-
Other expense, net
-
(5,377)
(665)
Total other income (expense), net
(4,563)
(496)
Net loss before income tax provision
(51,734)
(30,862)
(22,242)
Benefit from income taxes
(724)
(254)
(396)
Net loss
$
(51,010)
$
(30,608)
$
(21,846)
Comparison of the Years Ended December 31, 2020 and 2019
Year Ended
December 31,
Change
(in thousands)
Collaboration revenues
$
10,390
13,801
$
(3,411)
Operating expenses:
Research and development
33,149
25,540
7,609
General and administrative
29,201
14,560
14,641
Total operating expenses
62,350
40,100
22,250
Loss from operations
(51,960)
(26,299)
(25,661)
Other income (expense):
Interest income
(131)
Interest expense
(457)
-
(457)
Other expense, net
-
(5,377)
5,377
Total other income (expense), net
(4,563)
4,789
Net loss before income tax provision
(51,734)
(30,862)
(20,872)
Benefit from income taxes
(724)
(254)
(470)
Net loss
$
(51,010)
(30,608)
$
(20,402)
Collaboration Revenues
Collaboration revenues decreased by $3.4 million during the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to a decrease of $10.7 million of revenue from our collaboration with Sanofi. In March 2019, Sanofi exercised its right to terminate the sickle cell program and in October 2019, Sanofi terminated the hemophilia program, resulting in the recognition of revenue of $5.3 million and $4.7 million, respectively, for amounts allocated to material rights when these options expired, as well as a decrease in revenue of $1.0 million related to a one-time payment pursuant to a Material Transfer Agreement in 2019. These amounts were offset by an increase of $4.9 million of revenue from our collaboration with Genentech entered into in 2020, an increase of $2.4 million of revenue from a collaboration arrangement with Oxurion due to a milestone achieved for the initiation of a Phase II trial of THR-149, and $1.0 million of revenue from our collaboration arrangement with AstraZeneca primarily as AstraZeneca exercised its right to terminate a collaboration program, which resulted in the recognition of revenue of $1.5 million for amounts allocated to a material right when an option expired.
Research and Development Expenses
The following table summarizes our research and development expenses for the years presented:
Year Ended December 31,
Change
(in thousands)
BT1718 (MT1)
$
$
1,211
$
(468)
BT5528 (EphA2)
5,893
3,878
2,015
BT8009 (Nectin-4)
5,037
3,260
1,777
Tumor-targeted immune cell agonists
4,208
1,082
3,126
Other discovery and platform related expense
10,480
11,128
(648)
Employee and contractor related expenses
11,927
9,122
2,805
Share-based compensation
2,603
1,286
1,317
Facility expenses
1,384
1,297
Research and development incentives
(9,126)
(6,724)
(2,402)
Total research and development expenses
$
33,149
$
25,540
$
7,609
Research and development expense increased by $7.6 million in the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to increases of $5.8 million in direct program spend, primarily due to increased clinical and TICA program development expenses offset by a $0.6 million decrease in other unallocated discovery and platform expense due to the timing of development activities, as well as an increase of $2.8 million in employee and contractor related expenses attributable to increased headcount and $1.3 million of incremental share-based compensation expense, offset by a $2.4 million increase in the research and development tax credit reimbursement due to the corresponding increase in research and development spending in the United Kingdom.
We begin to separately track program expenses beginning at candidate nomination and accumulate all costs incurred to support each program to date. Through December 31, 2020, we have incurred approximately $13.5 million, $14.3 million, $11.1 million and $5.3 million of direct expenses for the development of the BT1718, BT5528, BT8009 and TICA programs, respectively.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the years presented:
Year Ended December 31,
Change
(in thousands)
Personnel related costs
$
6,494
$
4,594
$
1,900
Professional and consulting fees
14,633
6,084
8,549
Other general and administration costs
4,738
2,983
1,755
Share-based compensation
3,911
1,797
2,114
Effect of foreign exchange rates
(575)
(898)
Total general and administrative expenses
$
29,201
$
14,560
$
14,641
General and administrative expenses increased by $14.6 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019, primarily due to increases of $8.5 million in professional and consulting fees, including $4.7 million of expense related to the settlement and license agreement with Pepscan entered into in November 2020 as well as increased legal, human resources, and consulting costs to support operations as a public company, $2.1 million in share-based compensation expense; $1.9 million in personnel related costs due to increases in headcount; $1.8 million in other general and administrative costs, including insurance expense to support operations as a public company; and $0.3 million unfavorable effect of foreign exchange rates during the year ended December 31, 2020 as compared to the year ended December 31, 2019.
Other Income (Expense), net
Other income (expense), net decreased by $4.8 million for the year ended December 31, 2020, compared to the year ended December 31, 2019. In the year ended December 31, 2020, we recognized $0.7 million of interest income and $0.5 million in interest expense related to our debt facility entered into on September 30, 2020, whereas in the year ended December 31, 2019, we recognized $5.4 million of other expense associated with changes in the fair value of the warrant liability and final re-measurement upon completion of the IPO, offset by $0.8 million of interest income.
Liquidity and Capital Resources
From our inception through December 31, 2020, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We do not expect to generate significant revenue from sales of any products for several years, if at all.
To date, we have financed our operations primarily with proceeds from the sale of ordinary shares (including in the form of ADSs) and convertible preferred shares, as well as proceeds received from upfront payments, payments for research and development services, and development milestone payments from our collaboration agreements with Genentech, AstraZeneca, Oxurion, Sanofi, DDF, and borrowings pursuant to our debt facility.
From our inception in 2009 through December 31, 2020, we have received gross proceeds of $243.4 million from the sale of ordinary shares (including in the form of ADSs) and convertible preferred shares, including the proceeds from our IPO; $63.1 million of cash payments under our collaboration revenue arrangements including $31.0 million from Genentech, $10.3 million from AstraZeneca, $4.1 million from Oxurion, $15.0 million from Sanofi, $1.7 million from DDF; $15.0 of borrowings pursuant to our Loan Agreement with Hercules. In January 2021, we received $2.4 million from Oxurion due to a milestone achieved for the initiation of a Phase II trial of THR-149 and $3.0 million of proceeds under an evaluation and option agreement.
Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2020, 2019 and 2018:
Year Ended December 31,
(in thousands)
Net cash used in operating activities
$
(17,789)
$
(28,613)
$
(26,078)
Net cash used in investing activities
(1,200)
(1,555)
(1,186)
Net cash provided by financing activities
62,843
58,440
25,430
Effect of exchange rate changes on cash
(2,449)
Net increase (decrease) in cash
$
43,873
$
28,737
$
(4,283)
Operating Activities
Net cash used in operating activities for the year ended December 31, 2020 included our net loss of $51.0 million, net cash used in our operating assets and liabilities of $25.4 million and non-cash charges of $7.9 million, which included share-based compensation expense of $6.5 million, depreciation and amortization of $1.3 million, and non-cash interest related to the Loan Agreement of $0.1 million. Net changes in our operating assets and liabilities for the year ended December 31, 2020 consisted primarily of an increase in deferred revenue of $24.6 million primarily due to upfront payments received from collaboration arrangement with Genentech; an increase of $4.8 million in accrued expenses and other current liabilities, primarily due to accrued external research and development costs; and an increase of $0.5 million in other long-term liabilities. These were offset by an increase of $2.1 million in accounts receivable and an increase of $1.8 million in research and development incentives receivable.
Net cash used in operating activities for the year ended December 31, 2019 included our net loss of $30.6 million, net cash used in our operating assets and liabilities of $7.4 million and non-cash charges of $9.4 million, which included share-based compensation expense of $3.1 million, depreciation and amortization of $1.0 million, and changes in the fair value of the warrant liability of $5.4 million. Net changes in our operating assets and liabilities for the year ended December 31, 2019, consisted primarily of a decrease in accounts receivable of $4.9 million, primarily due to a payment received from AstraZeneca for its exercise of an option; a decrease in deferred revenue of $9.3 million, primarily due to the recognition of revenue related to the Sanofi collaboration arrangement; a decrease in accrued expenses and other current liabilities of $0.9 million; and an increase in prepaid expenses and other assets of $3.1 million, primarily due to prepaid clinical costs, offset by an increase in accounts payable of $0.2 million and an increase in other long-term liabilities of $1.1 million.
Investing Activities
During the years ended December 31, 2020 and 2019, we used $1.2 million and $1.6 million, respectively, of cash in investing activities for purchases of property and equipment consisting primarily of laboratory equipment.
Financing Activities
During the year ended December 31, 2020, net cash provided by financing activities was $62.8 million, primarily consisting of net proceeds from our ATM program of $48.1 million and borrowings of $15.0 million under our Loan Agreement with Hercules, offset by the payment of debt issuance costs of $0.6 million.
During the year ended December 31, 2019, net cash provided by financing activities was $58.4 million, primarily consisting of net proceeds of $57.0 million from our IPO, and net proceeds of $1.3 million from our Series B2 convertible preferred shares issued in January 2019.
Loan Agreement
On September 30, 2020, or the Closing Date, we entered into the Loan Agreement with Hercules as agent, which provided for aggregate maximum borrowings of up to $40.0 million, consisting of (i) a term loan of $15.0 million, which was funded on the Closing Date, (ii) subject to customary conditions, an additional term loan of up to $15.0 million available from the Closing Date through March 15, 2021, and (iii) subject to our achievement of certain performance milestones and satisfaction of customary conditions and available until March 15, 2022, an additional term loan of $10.0 million. Borrowings under the Loan Agreement, including the $15.0 million term loan issued as of September 30, 2020 bear interest at an annual rate equal to the greater of (i) 8.85% and (ii) the prime rate of interest plus 5.60%. The Loan Agreement provides for interest-only payments until November 1, 2022, which may be extended to May 1, 2023 upon our achievement of certain performance milestones, followed by equal monthly payments of principal and interest through October 1, 2024, or the Maturity Date. We may prepay all or any portion greater than $5.0 million of the outstanding borrowings, subject to a prepayment premium equal to 2.0% of the principal amount outstanding if the prepayment occurs during the first year following the Closing Date, 1.5% of the principal amount outstanding if the prepayment occurs during the second year following the Closing Date and 1.0% thereafter but prior to the Maturity Date. The Loan Agreement also provides for an end of term charge, payable upon maturity or the repayment of obligations under the Loan Agreement, equal to 5.0% of the principal amount repaid. In connection with the Loan Agreement, we granted Hercules a security interest in substantially all of our personal property and other assets, other than our intellectual property. The Loan Agreement includes a right for the lenders to invest in an amount of up to $2.0 million in the closing of any our financings after the Closing Date that result in aggregate proceeds to us of at least $10.0 million. In addition, the Loan Agreement contains customary affirmative and restrictive covenants and representations and warranties, including a covenant against the occurrence of a change in control (as defined in the Loan Agreement), financial reporting obligations, and certain limitations on indebtedness, liens (including a negative pledge on intellectual property and other assets), investments, distributions (including dividends), collateral, investments, transfers, mergers or acquisitions, taxes, corporate changes, and deposit accounts. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period, the occurrence of certain events that could reasonably be expected to have a “material adverse effect” as set forth in the Loan Agreement, cross acceleration to third-party indebtedness and certain events relating to bankruptcy or insolvency. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to the outstanding principal balance, and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. There are no financial covenants. If we fail to make payments when due, or breach any operational covenant or have any event of default, this could have a material adverse effect on our business and financial condition.
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates and as we:
● continue our development of our product candidates, including conducting future clinical trials for BT1718, BT5528, and BT8009;
● progress the preclinical and clinical development of BT7480, BT7455, and BT7401;
● seek to identify and develop additional product candidates;
● develop the necessary processes, controls and manufacturing data to seek to obtain marketing approval for our product candidates and to support manufacturing of product to commercial scale;
● develop, maintain, expand and protect our intellectual property portfolio;
● seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any;
● hire and retain additional personnel, such as non-clinical, clinical, pharmacovigilance, quality assurance, regulatory affairs, manufacturing, distribution, legal, compliance, medical affairs, finance, commercial and scientific personnel;
● acquire or in-license other products and technologies;
● expand our infrastructure and facilities to accommodate our growing employee base, including adding equipment and infrastructure to support our research and development; and
● add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and our operations as a public company.
In addition, if we obtain marketing approval for any product candidate that we identify and develop, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution to the extent that such sales, marketing, and distribution are not the responsibility of our collaboration partners. Even if we are able to generate product sales, we may not become profitable. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts.
As of December 31, 2020, we had cash of $136.0 million. We expect that our existing cash will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months from the date of filing of this Annual Report on Form 10-K. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development of product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including:
● our ability to raise capital in light of the impacts of the ongoing global COVID-19 pandemic on the global financial markets;
● the scope, progress, results, and costs of drug discovery, preclinical development, laboratory testing, and clinical trials for the product candidates we may develop;
● our ability to enroll clinical trials in a timely manner and to quickly resolve any delays or clinical holds that may be imposed on our development programs, particularly in light of the ongoing global COVID-19 pandemic;
● the costs associated with our manufacturing process development and evaluation of third-party manufacturers and suppliers;
● the costs, timing and outcome of regulatory review of our product candidates;
● the costs of preparing and submitting marketing approvals for any of our product candidates that successfully complete clinical trials, and the costs of maintaining marketing authorization and related regulatory compliance for any products for which we obtain marketing approval;
● the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims;
● the costs of future activities, including product sales, medical affairs, marketing, manufacturing, and distribution, for any product candidates for which we receive marketing approval;
● the terms of our current and any future license agreements and collaborations; and the extent to which we acquire or in-license other product candidates, technologies and intellectual property.
● the success of our collaborations with Genentech, AstraZeneca, Oxurion and DDF;
● our ability to establish and maintain additional collaborations on favorable terms, if at all; and
● the costs of operating as a public company.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, monetization transactions, government contracts or other strategic transactions. To the extent that we raise additional capital through the sale of equity, ownership interests of existing holders of our ADSs and ordinary shares will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our ADSs or ordinary shares. If we raise additional funds through collaboration agreements, strategic alliances, licensing arrangements, monetization transactions, or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our shareholders. The ongoing COVID-19 pandemic continues to evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, whether as a result of the pandemic or otherwise, we could experience an inability to access additional capital, which could in the future negatively affect our operations. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2020 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:
Payments due by period
Less than
More than
Total
1 year
1 to 3 years
3 to 5 years
5 years
(in thousands)
Operating lease commitments (1)
$
1,352
$
$
$
-
$
-
Debt obligations (2)
19,662
1,346
18,316
-
-
Total
$
21,014
$
2,254
$
18,760
$
-
$
-
(1) Amounts reflect minimum payments due for our office and laboratory space leases. We have one office lease in Cambridge, U.K. under an operating lease that expires in December 2021. We lease laboratory space in Lexington, Massachusetts under an operating lease that expires in December 2022.
(2) Amounts in the table reflect the contractually required principal, interest and the final payment under the Loan Agreement with Hercules as of December 31, 2020
In the ordinary course of business, we enter into various agreements with contract research organizations to provide clinical trial services, with contract manufacturing organizations to provide clinical trial materials, and with vendors for preclinical research studies, synthetic chemistry and other services for operating purposes. These payments are not included in the table of contractual obligations above since the contracts are generally cancelable with advanced written notice, with a notice period of 90 days or less. From the time of notice until termination, we are contractually
obligated to make certain minimum payments to the vendors, based on the timing of the notification and the exact terms of the agreement.
Our arrangements with Cancer Research UK provide for additional future milestone payments upon the achievement of development, regulatory and commercial milestones, payable in cash and shares, with an aggregate total value of $111.2 million, as well as royalty payments based on a single digit percentage on net sales of products developed. In addition, in November 2020, we entered into a settlement and license agreement with Pepscan Systems B.V. regarding our use of Pepscan’s CLIPS peptide technology, which agreement provides for additional future milestone payments by us upon the achievement of development, regulatory and commercial milestones, with an aggregate total value of $92.4 million. We have not included future payments under this agreement in the table of contractual obligations above since these obligations are contingent upon future events. As of December 31, 2020, we were unable to estimate the timing or likelihood of achieving these milestones.
Legal Proceedings
For a discussion of legal matters as of December 31, 2020, see Note 13, “Commitments and Contingencies,” within the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in the Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Collaboration Revenues
Our revenues are generated primarily through collaborative arrangements and license agreements with pharmaceutical companies. The terms of these arrangements may include (i) performing research and development services using our bicyclic peptide screening platform with the goal of identifying compounds for further development and commercialization, (ii) options to obtain additional research and development services or licenses for additional targets, or to optimize product candidates, upon the payment of option fees, or (iii) the transfer of intellectual property rights (licenses).
The terms of these arrangements typically include payment to us of one or more of the following: non-refundable upfront license fees; payments for research and development services; fees upon the exercise of options to obtain additional services or licenses; payments based upon the achievement of defined collaboration objectives; future regulatory and sales-based milestone payments; and royalties on net sales of future products.
We recognize revenue in accordance with ASU 2014-09, Revenue from Contracts with Customers (Topic 606) or ASC 606, and all subsequent amendments. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.
Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.
To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, we satisfy the performance obligations. We only apply the five-step model to contracts when it is probable that we will collect substantially all of the consideration we are entitled to in exchange for the goods or services it transfers to the customer. As part of the accounting for these arrangements, we must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.
Once a contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess if these options provide a material right to the customer and if so, they are considered performance obligations.
Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. The promised goods or services in our contracts with customers primarily consist of license rights to our intellectual property for research and development, research and development services, and options to acquire additional research and development services or options to obtain additional licenses, such as a commercialization license for a potential product candidate. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources, and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, we consider factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own and whether the required expertise is readily available. In addition, we consider whether the collaboration partner can benefit from a promise for its intended purpose without the receipt of the remaining promises, whether the value of the promise is dependent on the unsatisfied promises, whether there are other vendors that could provide the remaining promises, and whether it is separately identifiable from the remaining promises.
We estimate the transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, we evaluate the amount of the potential payments and the likelihood that the payments will be received. We utilize either the most likely amount method or expected value method to estimate variable consideration to include in the transaction price based on which method better predicts the amount of consideration expected to be received. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
After determining the transaction price, we allocate it to the identified performance obligations based on the estimated standalone selling prices. We must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. We utilize key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, probabilities of technical and regulatory success and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts we would expect to receive for each performance obligation.
We then recognize as revenue in the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method.
Licenses of Intellectual Property: If a license to our intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, we recognize revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are combined with other promises, such as research and development services and a research license, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement.
Research and Development Services: The promises under our collaboration agreements may include research and development services to be performed by us on behalf of the partner. Payments or reimbursements resulting from our research and development efforts are recognized as the services are performed and presented on a gross basis because we are the principal for such efforts.
Customer Options: We evaluate customer options to obtain additional items (i.e. additional license rights) for material rights, or options to acquire additional goods or services for free or at a discount. Optional future services that reflect their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations and are accounted for as separate contracts. If optional future services reflect a significant or incremental discount, they are material rights, and are accounted for as performance obligations. We allocate the transaction price to material rights based on the relative standalone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or expires.
Milestone Payments: Our collaboration agreements may include development and regulatory milestones. We evaluate whether the milestones are considered probable of being reached and estimate the amounts to be included in the transaction price using the most likely amount method. We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as marketing approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenue and net loss in the period of adjustment.
Royalties: For sales-based royalties, including milestone payments based on the level of sales, we determine whether the sole or predominant item to which the royalties relate is a license. When the license is the sole or predominant item to which the sales-based royalty relates, we recognize revenue at the later of: (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, we have not recognized any sales-based royalty revenue resulting from our collaboration agreements.
We receive payments from customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due until we perform our obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional, such as when we have a contractual right to payment per the terms of the contract.
Accrued Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
● vendors in connection with performing research activities on our behalf and conducting preclinical studies and clinical trials on our behalf;
● CMOs in connection with the production of preclinical and clinical trial materials;
● CROs, investigative sites or other service providers in connection with clinical trials;
● vendors in connection with preclinical and clinical development activities; and
● vendors related to product manufacturing and development and distribution of preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs, research institutions and vendors that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and actual results could differ from our estimates. As of December 31, 2020, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Share-Based Compensation
We measure share-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. We record the expense for awards with only service-based vesting conditions using the straight-line method and account for forfeitures as they occur.
We have granted awards that include both a service condition, that vests over time, and a performance condition, that will accelerate vesting upon the achievement of a specified collaboration revenue threshold. For equity awards that contain both performance and service conditions, we recognize share-based compensation expense using an accelerated attribution model over the requisite service period when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance condition as of the reporting date.
The fair value of each share option is estimated using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the fair value of ordinary shares, the expected share price volatility, the expected term of the award, the risk-free interest rate, and expected dividends. The assumptions used in
computing the fair value of stock option awards reflect our best estimates but involve uncertainties related to market and other conditions, many of which are outside of our control. Changes in any of these assumptions may materially affect the fair value of share-based awards granted and the amount of share-based compensation recognized in future periods.
Research and Development Incentives and Receivable
We receive reimbursements of certain research and development expenditures, through our subsidiaries in the United Kingdom, as part of a United Kingdom government’s research and development tax reliefs program. Under the program, a percentage of qualifying research and development expenses incurred by our subsidiaries in the United Kingdom are reimbursed up to 14.5% of the surrenderable losses. We assess our research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive program described above. At each period end, we estimate the reimbursement available to the Company based on available information at the time.
We recognize income from the research and development incentives when the relevant expenditure has been incurred, the associated conditions have been satisfied and there is reasonable assurance that the reimbursement will be received. We record these research and development incentives as a reduction to research and development expenses in the statements of operations and comprehensive loss, as the research and development tax credits are not dependent on us generating future taxable income, our ongoing tax status, or tax position. The refund is denominated in pounds sterling and, therefore, the receivable is remeasured into U.S. dollars as of each reporting date. The research and development incentives receivable represents an amount due in connection with the above program.
Emerging Growth Company and Smaller Reporting Company Status
We are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, We will remain an EGC until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering (December 31, 2024), (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ordinary shares held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such fiscal year or (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. The JOBS Act permits an EGC to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
In addition, we intend to rely on the other exemptions and reduced reporting requirements available to EGCs provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b), (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that has or may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. These exemptions will apply until the earlier to occur of (i) the end of the year in which the fifth anniversary of our IPO occurs, or December 31, 2024, or (b) we no longer meet the requirements of being an emerging growth company.
We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may, and intend to, take advantage of certain of the scaled disclosures available to smaller reporting companies for so long as we are a smaller reporting company. We may be a smaller reporting company in any year in which (i) the market value of our voting and non-
voting ordinary shares held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) (a) our annual revenue is less than $100.0 million during the most recently completed fiscal year and (b) the market value of our voting and non-voting ordinary shares held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Off-balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements and do not have any holdings in variable interest entities, as defined in the rules and regulations of the SEC.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Sensitivity
As of December 31, 2020, we had cash of $136.0 million. Our exposure to interest rate sensitivity is impacted by changes in the underlying U.K. and U.S. bank interest rates. Our surplus cash has been invested in interest-bearing savings accounts. We have not entered into investments for trading or speculative purposes. Due to the conservative nature of our investment portfolio, which is predicated on capital preservation of investments with short-term maturities, we do not believe an immediate one percentage point change in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates.
We are subject to interest rate risk in connection with our borrowings under our credit facility with Hercules, which were $15.0 million as of December 31, 2020. Our outstanding indebtedness with Hercules bears interest at the greater of 8.85%, or 5.60% plus the Wall Street Journal prime rate. As of December 31, 2020, our outstanding indebtedness with Hercules bears interest at 8.85%. If the prime rate increases to over 3.25%, the interest on our loan with Hercules will increase. We currently do not engage in any interest rate hedging activity, and we have no intention to do so in the foreseeable future. Based on the current interest rate of the term loan and the scheduled payments thereunder, we do not believe a 1.0% increase in interest rates would have a material impact on our financial condition or results of operations.
Foreign Currency Exchange Risk
The functional currency is the currency of the primary economic environment in which an entity’s operations are conducted. The functional currency of Bicycle Therapeutics plc and Bicycle Therapeutics Inc. is the United States dollar. The functional currency of its wholly owned non-U.S. subsidiaries, BicycleTx Limited and BicycleRD Limited, is the British Pound Sterling and the consolidated financial statements are presented in United States Dollars, USD. The functional currency of the Company’s subsidiaries is the same as the local currency.
Monetary assets and liabilities denominated in currencies other than the functional currency are remeasured into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are remeasured into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss for the respective periods. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in general and administrative expense in the consolidated statements of operations and comprehensive loss as incurred. We recorded foreign exchange gains of $0.6 million, $0.9 million and $0.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.
For financial reporting purposes, our consolidated financial statements have been translated into U.S. dollars. We translate the assets and liabilities of BicycleTx Limited and BicycleRD Limited into USD at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during the period and shareholders’ equity (deficit) amounts are translated based on historical exchange rates as of the date of each transaction. Translation adjustments are not included in determining net loss but are included in our foreign exchange
adjustment included in the consolidated statements of convertible preferred shares and shareholders’ equity (deficit) as a component of accumulated other comprehensive income (loss).
We do not currently engage in currency hedging activities in order to reduce our currency exposure, but we may begin to do so in the future.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this item are set forth beginning on page of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Our internal control over financial reporting is a process designed under the supervision of our principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Our management conducted an assessment of our internal control over financial reporting based on the framework established in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on the assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2020.
Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption for “emerging growth companies.”
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
First Amendment to Loan and Security Agreement
On March 10, 2021, or the Amendment Closing Date, we and our subsidiaries entered into the First Amendment to the Loan and Security Agreement, or the First Amendment to LSA, with Hercules, in its capacity as administrative agent and collateral agent, and the Lenders named in the First Amendment to LSA. The First Amendment to LSA amended certain terms of our debt facility with Hercules.
Pursuant to the First Amendment to LSA, payments on our borrowings under our debt facility with Hercules will be interest-only until the first payment is due on August 1, 2023, which date was extended from November 1, 2022. If we achieve certain performance milestones, the interest-only period will be extended, with the first principal payment due on February 1, 2024, which date was extended from May 1, 2023.
On the Amendment Closing Date and pursuant to the terms of the First Amendment to LSA, we borrowed the additional term loan of $15.0 million that had been available from September 30, 2020 to March 15, 2021.
The foregoing summary description of the First Amendment to LSA does not purport to be complete and is qualified in its entirety by reference to the full text of the First Amendment to LSA, which is attached as Exhibit 10.28 to this Annual Report and is incorporated herein by reference.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by this Item 10 will be included in the sections titled “Board of Directors and Corporate Governance” and “Executive Officers of the Company” in our Proxy Statement and is incorporated herein by reference.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 will be included in the sections titled “Director Remuneration” and “Executive Compensation” in our Proxy Statement and is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The information required by this Item 12 will be included in the sections titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our Proxy Statement and is incorporated herein by reference.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item 13 will be included in the sections titled “Board of Directors and Corporate Governance” and “Transactions with Related Persons” in our Proxy Statement and is incorporated herein by reference.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item 14 will be included in Proposal 5 in the section titled “Independent Registered Public Account Firm Fees” in our Proxy Statement and is incorporated herein by reference.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
The financial statements schedules and exhibits filed as part of this Annual Report on Form 10-K are as follows:
(a)(1) Financial Statements
Reference is made to the financial statements included in Item 8 of Part II hereof.
(a)(2) Financial Statement Schedules
All other schedules are omitted because they are not required or the required information is included in the financial statements or notes thereto.
(a)(3) Exhibits
The exhibits listed below are filed as part of this Form 10-K other than Exhibit 32.1, which shall be deemed furnished:
Number
Description
3.1
Articles of Association (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on May 13, 2019).
4.1
Form of Deposit Agreement (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on May 13, 2019).
4.2
Form of American Depositary Receipt (included in Exhibit 4.1) (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on May 13, 2019).
4.3
Letter Agreement, dated July 1, 2020, between Bicycle Therapeutics plc and Citibank, N.A. (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q (File No. 001-38916), filed with the Securities and Exchange Commission on November 5, 2020).
4.4
Amendment to Letter Agreement, dated October 27, 2020, between Bicycle Therapeutics plc and Citibank, N.A.
4.5
Registration Rights Agreement by and among Bicycle Therapeutics Limited and the Investors listed therein, dated December 21, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on April 26, 2019).
4.6
Description of Securities (incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 10-K (File No. 001-38916), filed with the Securities and Exchange Commission on March 10, 2020).
10.1+
Form of Share Option Contract of Bicycle Therapeutics Limited for employees in England (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on April 26, 2019).
Number
Description
10.2+
Form of Share Option Contract of Bicycle Therapeutics Limited for employees in the United States (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on April 26, 2019).
10.3+
Rules of the Bicycle Therapeutics Share Option Plan, as amended on September 12, 2019 (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q (File No. 001-38916) filed with the Securities and Exchange Commission on November 7, 2019).
10.4+
Forms of award agreements under the Bicycle Therapeutics Share Option Plan, as amended (incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K (File No. 001-38916), filed with the Securities and Exchange Commission on March 10, 2020).
10.5+
2019 Employee Share Purchase Plan (incorporated by reference to Exhibit 10.5 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on May 13, 2019).
10.6+
Bicycle Therapeutics plc 2020 Equity Incentive Plan and forms of award thereunder (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q (File No. 001-38916), filed with the Securities and Exchange Commission on August 5, 2020).
10.7+
Senior Executive Cash Incentive Bonus Plan (incorporated by reference to Exhibit 10.4 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on May 13, 2019).
10.8+
Service Agreement, dated September 26, 2019, by and between BicycleTx Ltd. and Kevin Lee (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-38916) filed with the Securities and Exchange Commission on September 30, 2019).
10.9+
Amended and Restated Employment Agreement, dated September 26, 2019, by and between Bicycle Therapeutics Inc. and Lee Kalowski (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-38916) filed with the Securities and Exchange Commission on September 30, 2019).
10.10+
Amended and Restated Employment Agreement, dated September 26, 2019, by and between BicycleTx Ltd. and Michael Skynner, Ph.D. (incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K (File No. 001-38916), filed with the Securities and Exchange Commission on March 10, 2020).
10.11+
Amended and Restated Employment Agreement, dated September 26, 2019, by and between Bicycle Therapeutics Inc. and Nicholas Keen, Ph.D. (incorporated by reference to Exhibit 10.10 to the Annual Report on Form 10-K (File No. 001-38916), filed with the Securities and Exchange Commission on March 10, 2020).
10.12+
Service Agreement, dated September 26, 2019, by and between BicycleTx Ltd and Nigel Crockett , Ph.D. (incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K (File No. 001-38916), filed with the Securities and Exchange Commission on March 10, 2020).
10.13+
Form of letter agreement to amend Service Agreement by and between the BicycleTx Ltd. and its executive officers in the United Kingdom, effective January 1, 2020 (incorporated by reference to the Quarterly Report on Form 10-Q (File No. 001-38916), filed with the Securities and Exchange Commission on May 7, 2020).
10.14+
Service Agreement, dated July 9, 2020, by and between BicycleTx Ltd. and Dominic Smethurst, MA, MBChB, MRCP, MFPM.
Number
Description
10.15+
Form of Deed of Indemnity between the Company and each of its directors (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K (File No. 001-38916), filed with the Securities and Exchange Commission on November 12, 2019).
10.16+
Form of Deed of Indemnity between the registrant and each of its executive officers (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K (File No. 001-38916), filed with the Securities and Exchange Commission on November 12, 2019).
10.17+
Non-employee Director Compensation Policy, amended as of December 17, 2019 (incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K (File No. 001-38916), filed with the Securities and Exchange Commission on March 10, 2020).
10.18+
Non-employee Director Compensation Policy, amended as of December 16, 2020.
10.19
Contract for the Sale of Leasehold Land with Vacant Possession, by and between Convergence Pharmaceuticals Limited and BicycleRD Limited, dated October 31, 2017, which is pursuant to the Underlease of Ground and First Floor Premises Building 900 Babraham Research Campus Babraham Cambridge, between Imperial College Thinkspace Limited, Convergence Pharmaceuticals Limited and Biogen Idec Limited, dated March 2, 2017 (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on May 13, 2019).
10.20
Lease Agreement, by and between Bicycle Therapeutics Inc. and King 4 Hartwell Place, LLC, dated September 26, 2017 (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on April 26, 2019).
10.21
Clinical Trial and License Agreement, by and between Bicycle Therapeutics Limited, Cancer Research Technology Limited, and Cancer Research UK, dated December 13, 2016, as amended and restated by the Deed of Amendment on March 31, 2017, as further amended by the Second Deed of Amendment on June 29, 2018 (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on April 26, 2019).
10.22††
Discovery Collaboration and License Agreement between BicycleTx Limited and Genentech, Inc., dated February 21, 2020 (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K (File No. 001-38916), filed with the Securities and Exchange Commission on March 10, 2020).
10.23††
Settlement and Licence Agreement, dated November 20, 2020, by and among Bicycle Therapeutics plc, Bicycle Therapeutics Inc., BicycleRD Limited, BicycleTx Limited and Pepscan Systems BV, Pepscan Presto BV, Pepscan Therapeutics BV, Pepscan Holding NV, Pepmab BV.
10.24††
Settlement Agreement, dated November 20, 2020, by and among Bicycle Therapeutics plc, Bicycle Therapeutics Inc., BicycleRD Limited, BicycleTx Limited and Pepscan Systems BV, Pepscan Presto BV, Pepscan Therapeutics BV, Pepscan Holding NV, Pepmab BV.
Number
Description
10.25
Controlled Equity OfferingSM Sales Agreement, dated June 5, 2020, among Cantor Fitzgerald & Co., Oppenheimer & Co. Inc. and Bicycle Therapeutics plc (incorporated by reference to Exhibit 1.2 to the Registration Statement on Form S-3 (File No. 333-238996), filed with the Securities and Exchange Commission on June 5, 2020).
10.26
Loan and Security Agreement, dated September 30, 2020, by and among Bicycle Therapeutics plc, BicycleTx Limited, BicycleRD Limited and Bicycle Therapeutics, Inc., the lenders party thereto, and Hercules Capital, Inc., as administrative and collateral agent (incorporated by reference to Exhibit 10.1 to Form 8-K (File No. 001-38916), filed with the Securities and Exchange Commission on October 1, 2020).
10.27+
Form of letter agreement to amend Service Agreement by and between the BicycleTx Ltd. and its executive officers in the United Kingdom, effective January 1, 2021.
10.28
First Amendment to Loan and Security Agreement, dated March 10, 2021, by and among Bicycle Therapeutics plc, BicycleTx Limited, BicycleRD Limited and Bicycle Therapeutics, Inc., the lenders party thereto, and Hercules Capital, Inc., as administrative and collateral agent.
21.1
Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Company’s Registration Statement on Form S-1 (File No. 333-231076), filed with the Securities and Exchange Commission on April 26, 2019).
23.1
Consent of Independent Registered Public Accounting Firm.
24.1
Power of Attorney (included on the signature page of this report).
31.1
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
* Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
+ Indicates a management contract or compensatory plan.
† Confidential treatment has been granted for certain portions of this exhibit. These portions have been omitted and filed separately with the SEC.
†† Portions of this Exhibit (indicated with [***]) have been omitted as the registrant has determined that (i) the omitted information is not material and (ii) the omitted information would likely cause competitive harm to the registrant if publicly disclosed.