10. Share‑based compensation

Employee incentive pool

2020 Share Option Plan

In June 2020, the Company’s shareholders approved the Bicycle Therapeutics plc 2020 Equity Incentive Plan (the “2020 Plan”), under which the Company may grant market value options, market value stock appreciation rights or restricted shares, restricted share units, performance restricted share units and other share-based awards to the Company’s employees. The Company’s non-employee directors and consultants are eligible to receive awards under the 2020 Non-Employee Sub-Plan to the 2020 Plan. All awards under the 2020 Plan, including the 2020 Non-Employee Sub-Plan, will be set forth in award agreements, which will detail the terms and conditions of awards, including any applicable vesting and payment terms, change of control provisions and post-termination exercise limitations. In the event of a change of control of the Company, as defined in the 2020 Plan, any outstanding awards under the 2020 Plan will vest in full immediately prior to such change of control. Share options issued under the 2020 Share Option Plan have a 10 year contractual life, and generally vest over either a three year service period for non-employee directors, or a four year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments for employees and consultants. Certain options granted to the Company’s non-employee directors vest immediately upon grant.

The Company initially reserved up to 4,773,557 ordinary shares for future issuance under the 2020 Plan, representing 574,679 new shares, 544,866 shares that remained available for future issuance under the Company’s 2019 Share Option Plan (the “2019 Plan”) immediately prior to the effectiveness of the 2020 Plan and up to 3,654,012 shares subject to options that were granted under the 2019 Plan and that were granted pursuant to option contracts granted prior to the Company’s IPO, in each case that expire, terminate, are forfeited or otherwise not issued from time to time, if any. Additionally, the number of ordinary shares reserved for issuance pursuant to the 2020 Plan will automatically increase on the first day of January of each year, commencing on January 1, 2021, in an amount equal to 5% of the total number of the Company’s ordinary shares outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s board of directors. As of December 31, 2020, there were 4,699,470 shares available for issuance and options to purchase 196,550 shares outstanding under the 2020 Plan. The number of shares reserved for issuance under the 2020 Plan was increased by 1,054,727 shares effective January 1, 2021.

2019 Share Option Plan

In May 2019, the Company adopted the 2019 Plan, which became effective in conjunction with the IPO. As of December 31, 2020, there were 2,594,277 options to purchase ordinary shares outstanding under the 2019 Plan. In conjunction with the adoption of the 2020 Plan, all shares available for future issuance under the 2019 Plan as of June 29, 2020 became available for issuance under the 2020 Plan and the Company ceased making awards under the 2019 Plan. The 2020 Plan is the successor of the 2019 Plan.

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

Pre-IPO Share Options and restricted shares

Prior to the IPO, the Company issued share options and ordinary shares, as administered by the board of directors, using standardized share option and share subscription agreements. To the extent such incentives were in the form of share options, the options may have been granted pursuant to a potentially tax-favored Enterprise Management Incentive, or EMI, scheme available to U.K. employees, directors and consultants of the Company. Upon completion of the IPO, shares reserved for future issuance outside of the 2019 Share Option Plan were cancelled.

Options granted, as well as restricted shares granted as employee incentives prior to the IPO, typically vest over a four‑year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments and expire no later than 10 years from the date of grant.

Certain equity awards were issued in 2017 and 2018 for which 20% of the award vests upon the first anniversary of the vesting start date, 60% vests thereafter in 36 equal monthly installments, and 20% vest upon the earlier of the fourth anniversary of the vesting start date, or the achievement of a specified revenue threshold from the Company’s collaboration arrangements.

Options issued to U.K. employees prior to the IPO generally had an exercise price of £0.01 per share. The exercise price for share options granted to U.S. employees, had an exercise price that was not less than the fair value of ordinary shares as determined by the board of directors as of the date of grant. Prior to the IPO, the Company’s board of directors valued the Company’s ordinary shares based on input from management, considering the most recently available valuation of ordinary share performed by an independent third‑party valuation firm as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

Employee Share Purchase Plan (“ESPP”)

In May 2019, the Company adopted the 2019 Employee Stock Purchase Plan (the “ESPP”), which became effective in conjunction with the IPO. The Company initially reserved 215,000 ordinary shares for future issuance under this plan. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2020 and each January 1 thereafter through January 1, 2029, by the least of (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31; (ii) 430,000 ordinary shares or (iii) such lesser number of shares as determined by the Compensation Committee. The number of shares reserved under the ESPP is subject to adjustment in the event of a split-up, share dividend or other change in our capitalization. As of December 31, 2020, the total number of shares available for issuance under the ESPP was 394,937 ordinary shares. The number of shares reserved for issuance under the ESPP was increased by 210,945 shares effective January 1, 2021.

Once the Company commences offerings under the ESPP, each offering to the employees to purchase shares under the ESPP will begin on each June 1 and December 1 and will end on the following November 30 and May 31, respectively. On each purchase date, which will fall on the last date of each offering period, ESPP participants will purchase ordinary shares at a price per share equal to 85% of the lesser of (1) the fair market value of the shares on the offering date or (2) the fair market value of the shares on the purchase date. The occurrence and duration of offering periods under the ESPP are subject to the determinations of the Company’s compensation committee. As of December 31, 2020, there have been no offering periods to employees under ESPP.

Share‑based compensation

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


	Year Ended
	December 31,
	2020		2019		2018
Research and development expenses	$	2,603	$	1,286	$	513
General and administrative expenses		3,911		1,797		510
	$	6,514	$	3,083	$	1,023

Share options

The following table summarizes the Company’s option activity since December 31, 2019:


				Weighted
		Weighted		Average	Aggregate
	Number of	Average		Contractual	Intrinsic
	Shares	Exercise Price		Term	Value
				(in years)	(in thousands)
Outstanding as of December 31, 2019	2,634,346	$	9.57	9.04	$	6,107
Granted	1,370,984		12.00	—		—
Exercised	(79,158)		3.42	—		—
Forfeited	(189,509)		11.10	—		—
Outstanding as of December 31, 2020	3,736,663	$	10.51	8.54	$	27,553
Vested and expected to vest as of December 31, 2020	3,736,663	$	10.51	8.54	$	27,553
Options exercisable as of December 31, 2020	1,518,721	$	8.81	7.90	$	13,729

The weighted average grant‑date fair value of share options granted during the years ended December 31, 2020, 2019 and 2018 was $7.87 per share, $6.07 per share and $3.73 per share, respectively.

For the years ended December 31, 2020, 2019 and 2018, the Company recorded share‑based compensation expense for share options granted of $6.5 million, $2.7 million and $0.8 million, respectively. Expense for non‑employee consultants for the years ended December 31, 2020, 2019 and 2018, was immaterial.

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares. The aggregate intrinsic value of share options exercised during the years ended December 31, 2020, 2019 and 2018 was $1.3 million, $0.6 million and $23,000 respectively.

During the year ended December 31, 2018, the Company granted share options to purchase 70,875 ordinary shares with performance based vesting, for which 20% of the award vests upon the first anniversary of the vesting start date, 60% vests thereafter in 36 equal monthly installments, and 20% on the earlier of the fourth anniversary of the vesting start date, or the achievement of a specified revenue threshold from the Company’s collaboration arrangements. In May 2018, the Company determined that the performance condition became probable of achievement and recorded a cumulative catch‑up to reflect the expense as if the vesting condition was probable of achievement at the time of the grant of the award. The Company recorded expense of $0.1 million, $0.1 million and $0.7 million, during the years ended December 31, 2020, 2019 and 2018, respectively, related to awards with performance based vesting, which includes the acceleration of vesting expense.

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

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


	Year Ended
	December 31,
	2020		2019		2018
Risk-free interest rate	1.3	%	2.1	%	2.7	%
Expected volatility	74.8	%	77.9	%	78.6	%
Expected dividend yield	—		—		—
Expected term (in years)	5.98		5.86		6.07

As of December 31, 2020, total unrecognized compensation expense related to the unvested employee and director share‑based awards was $13.7 million, which is expected to be recognized over a weighted average period of 2.5 years.

Restricted shares

Prior to the IPO, the Company granted restricted shares with service‑based vesting conditions. In conjunction with the IPO in May 2019, the board of directors modified the vesting terms to accelerate vesting for all then unvested restricted shares. As a result, the Company recorded $0.2 million of expense upon the modification of the restricted shares during the year ended December 31, 2019.

For the years ended December 31, 2020, 2019 and 2018, the Company recorded share-based compensation of zero, $0.4 million, and $0.2 million, respectively, for unvested restricted shares granted.

The fair value of employee restricted share awards vested during the years ended December 31, 2020, 2019 and 2018, based on estimated fair values of the ordinary shares underlying the restricted share awards on the day of vesting, was zero, $0.7 million and $0.2 million, respectively. As of December 31, 2020, there was no unrecognized compensation cost related to the unvested employee and director restricted share awards.