Share-based compensation

9 Months Ended

Sep. 30, 2023

Share-based compensation

Share-based compensation

8. Share-based compensation

Employee incentive pool

2020 Equity Incentive Plan

In June 2020, the Company’s shareholders first approved the Bicycle Therapeutics plc 2020 Equity Incentive Plan with Non-Employee Sub-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, initially 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, 2023, the number of shares reserved for issuance under the 2020 Plan was increased by 1,493,694 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 September 30, 2023, there were 889,257 shares available for issuance.

Share options issued under the 2020 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 vesting 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 or over a one-year service period in four equal quarterly installments.

The Company grants 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 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 vest in 12 equal quarterly installments. Certain RSUs granted to the Company’s non-employee directors either vest immediately upon grant or over a one-year service period in four equal quarterly installments.

As of September 30, 2023, there were options to purchase 4,620,330 shares and RSUs for 335,104 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 September 30, 2023, there were 2,103,250 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 vesting 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.

Employee Share Purchase Plan

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 lower 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. The number of shares reserved for issuance under the ESPP was increased by 298,738 shares effective January 1, 2023. As of September 30, 2023, the total number of shares available for issuance under the ESPP was 1,200,413 ordinary shares. As of September 30, 2023, 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 condensed consolidated statements of operations and comprehensive loss (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Research and development expenses	$	3,357	$	2,637	$	11,941	$	7,643
General and administrative expenses		4,073		2,731		12,724		13,596
	$	7,430	$	5,368	$	24,665	$	21,239

Share options

The following table summarizes the Company’s option activity since December 31, 2022:

	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, 2022	5,898,888	$	22.45	7.64	$	71,002
Granted	1,859,315		27.57	—		—
Exercised	(26,562)		11.42	—		—
Forfeited	(419,621)		30.69	—		—
Outstanding as of September 30, 2023	7,312,020	$	23.32	6.99	$	29,629
Vested and expected to vest as of September 30, 2023	7,312,020	$	23.32	6.99	$	29,629
Options exercisable as of September 30, 2023	4,334,755	$	18.39	5.75	$	28,069

The weighted average grant-date fair value of share options granted during the nine months ended September 30, 2023 and 2022 was $20.16 per share and $32.91 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 was $0.1 million and $0.3 million for the three and nine months ended September 30, 2023, respectively and was $0.1 million and $1.3 million for the three and nine months ended September 30, 2022, respectively.

Total share-based compensation expense for share options granted was $6.3 million and $20.5 million for the three and nine months ended September 30, 2023, respectively, and was $4.7 million and $17.1 million for the three and nine months ended September 30, 2022, respectively. Expense for non-employee consultants for the three and nine months ended September 30, 2023 and 2022 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:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Risk-free interest rate	4.1	%	3.0	%	3.9	%	2.0	%
Expected volatility	83.3	%	84.1	%	83.5	%	82.2	%
Expected dividend yield	—		—		—		—
Expected term (in years)	6.1		6.1		6.1		6.0

As of September 30, 2023, total unrecognized compensation expense related to the unvested employee and director share options was $58.6 million, which is expected to be recognized over a weighted average period of 2.7 years.

Restricted share units

The following table summarizes the Company’s RSU activity under the 2020 Plan since December 31, 2022:

	Number of Shares	Weighted-Average
	Underlying RSUs	Grant Date Fair Value
Unvested at December 31, 2022	187,725	$	60.86
Granted	321,839		29.59
Vested	(99,638)		51.39
Forfeited	(74,822)		39.55
Unvested at September 30, 2023	335,104	$	38.40

The fair value of RSUs that vested during the three and nine months ended September 30, 2023, was $0.5 million and $2.6 million, respectively, and for the three and nine months ended September 30, 2022, was zero and $2.1 million, respectively.

Total share-based compensation expense for RSUs granted was $1.2 million and $4.2 million for the three and nine months ended September 30, 2023, respectively, and was $0.7 million and $4.1 million for the three and nine months ended September 30, 2022, respectively. As of September 30, 2023, the total unrecognized compensation expense related to unvested RSUs was $11.0 million, which is expected to be recognized over a weighted-average period of 2.7 years.