Share-based compensation

3 Months Ended

Mar. 31, 2024

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 (as amended from time to time, 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, including shares subject to options that were granted under the Company’s 2019 Share Option Plan (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 and continuing up to and including January 1, 2032, 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, 2024, the number of shares reserved

for issuance under the 2020 Plan was increased by 1,886,294 shares. As of March 31, 2024, there were 149,873 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 over a three-year service period in three equal annual installments 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 over a three-year service period in three equal annual installments or over a one-year service period in four equal quarterly installments. The Company may also, in its sole discretion, provide for deferred settlement of RSUs awarded to the Company’s non-employee directors.

As of March 31, 2024, there were options to purchase 6,629,815 shares and RSUs for 856,748 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 March 31, 2024, there were 1,950,108 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 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 377,258 shares effective January 1, 2024. As of March 31, 2024, the total number of shares available for issuance under the ESPP was 1,577,671 ordinary shares. As of March 31, 2024, 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
	March 31,
	2024		2023
Research and development expenses	$	4,531	$	4,596
General and administrative expenses		4,751		4,446
	$	9,282	$	9,042

Share options

The following table summarizes the Company’s option activity since December 31, 2023:

	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, 2023	7,469,527	$	23.13	6.83	$	21,920
Granted	1,862,815		18.44	—		—
Exercised	(133,735)		13.98	—		—
Forfeited	(30,351)		27.43	—		—
Outstanding as of March 31, 2024	9,168,256	$	22.30	7.31	$	61,558
Vested and expected to vest as of March 31, 2024	9,168,256	$	22.30	7.31	$	61,558
Options exercisable as of March 31, 2024	4,959,686	$	20.12	5.81	$	45,394

The weighted average grant-date fair value of share options granted during the three months ended March 31, 2024 and 2023 was $12.93 per share and $20.95 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 $1.0 million and $20,000 for the three months ended March 31, 2024 and 2023, respectively.

Total share-based compensation expense for share options granted was $7.5 million and $7.4 million for the three months ended March 31, 2024 and 2023, respectively. Expense for non-employee consultants for the three months ended March 31, 2024 and 2023 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
	March 31,
	2024		2023
Risk-free interest rate	4.0	%	3.9	%
Expected volatility	77.8	%	83.6	%
Expected dividend yield	—		—
Expected term (in years)	6.1		6.1

As of March 31, 2024, total unrecognized compensation expense related to the unvested employee and director share options was $70.1 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, 2023:

	Number of Shares	Weighted-Average
	Underlying RSUs	Grant Date Fair Value
Unvested at December 31, 2023	326,848	$	37.40
Granted	596,996		18.12
Vested and settled	(67,096)		33.99
Vested and deferred(1)	(10,500)		18.07
Unvested outstanding at March 31, 2024	846,248		24.31
Vested but subject to deferred settlement at March 31, 2024(1)	10,500		18.07
Outstanding at March 31, 2024	856,748	$	24.23

(1) During the three months ended March 31, 2024, the Company granted certain RSUs to the Company’s non-employee directors which provided for deferred settlement of the RSUs to a specified date following the first to occur of (i) the date of the director’s separation from service, (ii) the date of the director’s disability, (iii) the date of the director’s death or (iv) the date of a change in control event.

The fair value of RSUs that vested during the three months ended March 31, 2024 and 2023 was $1.5 million and $1.6 million, respectively.

Total share-based compensation expense for RSUs granted was $1.8 million and $1.6 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the total unrecognized compensation expense related to unvested RSUs was $18.9 million, which is expected to be recognized over a weighted-average period of 3.0 years.