Share-based compensation

12 Months Ended

Dec. 31, 2022

Share-based compensation

Share-based compensation

8. Share-based compensation

Employee incentive pool

2020 Equity Incentive 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 (“RSUs”), performance RSUs 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.

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. On June 27, 2022, the Company’s shareholders approved an amendment to the 2020 Plan (the “Amendment”) which increased the number of ordinary shares reserved for future issuance by 750,000 shares. 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. Pursuant to this evergreen provision, on January 1, 2022, the number of shares reserved for issuance under the 2020 Plan was increased by 1,478,968 shares. The Amendment extended the final date upon which an “evergreen” increase may occur under this provision from January 1, 2030, to January 1, 2032. As of December 31, 2022, there were 1,082,274 shares available for issuance under the 2020 Plan. The number of shares reserved for issuance under the 2020 Plan was increased by 1,493,694 shares effective January 1, 2023.

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.

In 2022, the Company granted RSUs to non-employee directors and certain employees under the 2020 Plan. Each RSU represents the right to receive one of the Company’s ordinary shares upon vesting. RSUs granted to employees generally vest over a four-year service period with 25% of the award vesting on the first anniversary of the vesting commencement date and the remaining RSUs vesting in 12 equal quarterly installments. Certain RSUs granted to the Company’s non-employee directors vest immediately upon grant.

As of December 31, 2022, there were options to purchase 3,172,533 shares and RSUs for 187,725 shares outstanding under the 2020 Plan.

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, 2022, there were 2,133,437 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 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 Plan is not less than the fair value of ordinary shares as of 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 the Company’s capitalization. As of December 31, 2022, the total number of shares available for issuance under the ESPP was 901,675 shares. The number of shares reserved for issuance under the ESPP was increased by 298,738 shares effective January 1, 2023. As of December 31, 2022, 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,
	2022		2021		2020
Research and development expenses	$	10,394	$	4,974	$	2,603
General and administrative expenses		16,385		7,109		3,911
	$	26,779	$	12,083	$	6,514

Share options

The following table summarizes the Company’s option activity since December 31, 2021:

	Number of			Weighted
	Shares	Weighted		Average	Aggregate
	Underlying	Average		Contractual	Intrinsic
	Share Options	Exercise Price		Term	Value
				(in years)	(in thousands)
Outstanding as of December 31, 2021	4,603,486	$	14.97	8.13	$	207,009
Granted	1,548,167		44.83	—		—
Exercised	(78,074)		12.67	—		—
Forfeited	(174,691)		27.92	—		—
Outstanding as of December 31, 2022	5,898,888	$	22.45	7.64	$	71,002
Vested and expected to vest as of December 31, 2022	5,898,888	$	22.45	7.64	$	71,002
Options exercisable as of December 31, 2022	3,352,315	$	13.93	6.87	$	55,749

The weighted average grant-date fair value of share options granted during the years ended December 31, 2022, 2021 and 2020 was $31.45 per share, $15.66 per share and $7.87 per share, respectively.

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, 2022, 2021 and 2020 was $1.5 million, $22.0 million and $1.3 million, respectively.

For the years ended December 31, 2022, 2021 and 2020, the Company recorded share-based compensation expense for share options granted of $21.9 million, $12.1 million and $6.5 million, respectively. Expense for non-employee consultants for each of the years ended December 31, 2022, 2021 and 2020, was immaterial.

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,
	2022		2021		2020
Risk-free interest rate	2.2	%	0.6	%	1.3	%
Expected volatility	82.5	%	79.8	%	74.8	%
Expected dividend yield	—		—		—
Expected term (in years)	6.02		5.98		5.98

As of December 31, 2022, total unrecognized compensation expense related to the unvested employee and director share options was $50.1 million, which is expected to be recognized over a weighted average period of 2.8 years.

Restricted share units

The following table summarizes the Company’s RSU activity under the 2020 Plan since December 31, 2021:

	Number of Shares	Weighted-Average
	Underlying RSUs	Grant Date Fair Value
Unvested at December 31, 2021	—	$	—
Granted	222,725		60.86
Vested	(35,000)		60.86
Unvested at December 31, 2022	187,725	$	60.86

The fair value of RSUs that vested during the years ended December 31, 2022, 2021 and 2020 was $2.1 million, zero and zero, respectively.

Total share-based compensation expense for RSUs granted for the years ended December 31, 2022, 2021 and 2022 was $4.9 million, zero and zero, respectively. As of December 31, 2022, the total unrecognized compensation expense related to unvested RSUs was $8.6 million, which is expected to be recognized over a weighted-average period of 3.0 years.