2023-10-10 16:24:43 ET
Summary
- Bicycle Therapeutics has strong collaborations and a robust cash position but faces escalating R&D costs and high short interest.
- Preclinical data for Pb-BCY20603 is promising, yet transitioning from rodent models to FDA approval remains a substantial hurdle.
- Investment recommendation is a "Hold" due to a mix of potential upside and significant operational and market risks.
At a Glance
Bicycle Therapeutics ( BCYC ) stands at a crossroads clinically and financially, fortified by multi-billion-dollar potential in milestone payments from collaborations with Bayer and Novartis ( NVS ). Leveraging its proprietary "Bicycles" for targeted cancer therapies, particularly its lead candidates BT8009, BT5528, and BT1718, the firm is advancing multiple Phase 2 trials with promising preclinical data. Financially, the company has built a secure cash runway, diminishing near-term shareholder dilution risks. However, escalating R&D costs, a precarious market capitalization, and an unnervingly high short interest weigh on the stock. Additionally, forthcoming human trials could be the ultimate arbiter of Bicycle's clinical potential. While there's no denying the allure of its oncological approach and its cash position, they're pitted against undeniable market and clinical uncertainties, requiring a vigilant eye on upcoming catalysts.
Q2 Earnings
To begin my analysis, looking at Bicycle Therapeutics' most recent earnings report , the company posted a significant increase in collaboration revenues, rising to $16.3M from last year's $8.2M. However, this was offset by an uptick in operating expenses, specifically in Research and Development, which surged to $71.9M from $34.1M. The net loss expanded to $81.7M from $54.4M YoY. Share dilution is evident, with 30,585,940 shares currently issued and outstanding compared to 29,873,893 at the end of December 2022.
Financial Health
Turning to Bicycle Therapeutics' balance sheet, the company holds $340.4M in cash and cash equivalents. Total current assets are $408.4M, and total liabilities are $234.1M, indicating a current ratio of approximately 1.7. The company has long-term debt of $30.5M. Over the last six months, net cash used in operating activities is $12.3M, translating to a monthly cash burn of about $2.1M. This would result in a cash runway of approximately 163 months based on current assets. Caution should be exercised as these values and estimates are based on past data and may not be applicable to future performance.
Furthermore, with the injection of roughly $275 million in capital —$230 million from its July 2023 public offering and an additional $45 million from an upfront payment by Bayer — the firm has substantially shored up its financial position. This liquidity surge not only paves the way for expedited R&D initiatives but also diminishes the likelihood of shareholder dilution in the near term.
Considering the current asset position and low monthly cash burn rate, the probability of Bicycle needing to secure additional financing in the next twelve months appears to be low. These are my personal observations, and other analysts might interpret the data differently.
Equity Analysis
According to Seeking Alpha data, Bicycle Therapeutics sports a market capitalization of $919.54M, a precarious level that neither exudes strong market confidence nor flags dire skepticism. Analyst projections signal YoY sales growth of 165.37% for 2023, but a dip to -5.62% in 2024. This rollercoaster trajectory underscores potential but also raises questions about long-term growth. BCYC has underperformed the S&P 500 over 3M, 6M, and 9M intervals, although the gap narrows in the 1Y comparison. December options expiring at various strike prices, particularly the open interest of 1001 for the $15.00 strike, suggest high volatility but lean neutral to bullish in sentiment. Short interest is unusually high at 240.17% (4.53 million shares are short whilst the float is 1.88 million shares), a red flag for potential bearish activity.
Ownership skews towards institutions, which hold 64.46% of shares, with significant holdings by Deep Track Capital and Ridgeback Capital Investments. Institutional activity shows a balanced stance with 41 firms increasing positions and another 41 reducing, yet New Positions outnumber Sold Out Positions (9 to 13), which suggests modest institutional interest. Insider activity over 12 months shows more sells (25) than buys (13), but the net activity remains positive, signifying mixed internal sentiment.
Bicycle Therapeutics' Multi-Partnership Oncology Strategy
In May 2023, Bicycle Therapeutics fortified its oncology pipeline through strategic collaborations with Bayer, Novartis, and an extended partnership with the German Cancer Research Center (DKFZ). These collaborations aim to advance Bicycle's proprietary BRCs, with significant upfront payments and potential milestone fees that could total up to $1.7 billion each from Bayer and Novartis. Bicycle's technology leverages its phage platform to create Bicycles — unique structures that mimic protein-protein interactions. These Bicycles can be conjugated to other payloads, including toxins and radioisotopes, offering a versatile platform for targeted cancer therapies.
Bicycle's lead candidates include BT8009, BT5528, and BT1718. BT8009 targets Nectin-4, a cell adhesion molecule overexpressed in tumor cells. In preclinical models, BT8009 has shown superior anti-tumor activity compared to existing treatments and is currently in Phase 2/Expansion trials . BT5528 targets EphA2, a kinase associated with poor cancer prognosis. It's also in Phase 2/Expansion trials and has shown promise in preclinical models resistant to current treatments. BT1718 targets MT1-MMP, a protein linked to cell invasion and poor cancer outcomes. It's in a Phase 2/Expansion trial sponsored by CRUK and has shown promise due to high levels of expression on subsets of stromal and tumor cells in various cancers.
These collaborations and lead candidates not only provide Bicycle with significant financial backing but also validate its unique approach to targeted cancer therapy. The partnerships could accelerate the development and commercialization of Bicycle's wholly-owned BRC candidates, making it a compelling player in the oncology space.
Pb-BCY20603: The Bicycle That Could Pedal Past Tumors
In May 2023, Bicycle Therapeutics in collaboration with OranoMed revealed preclinical data on their compound Pb-BCY20603, a Bicycle Radionuclide Conjugate [BRC] designed to target the tumor antigen MT1-MMP. This compound, labeled with lead-212, demonstrated compelling anti-tumor activity in rodent models, achieving total tumor eradication after just three bi-weekly doses of 10 µCi. Additionally, the median survival rate increased across all dosage groups, with a 90% survival rate observed at the end of a 100-day study for the three-cycle, 10 µCi treatment group.
The high-affinity binding of Pb-BCY20603 to MT1-MMP is consistent with prior studies on BT1718, another Bicycle compound targeting the same antigen. This suggests a targeted therapeutic approach with minimized off-target effects. Lead-212, chosen as the radionuclide, is an alpha-emitter with a high linear energy transfer, making it ideal for localized DNA damage in tumor cells. Its short half-life of about 10.6 hours minimizes systemic toxicity but also necessitates precise delivery for maximum therapeutic benefit.
The bi-weekly 10 µCi dosing regimen stands out for its efficacy, aligning with the pharmacokinetic profile of BT1718, which also showed promise in early-phase human trials. While the 90% survival rate in rodent models is promising, it's crucial to interpret this cautiously given its preliminary stages. Nevertheless, if Pb-BCY20603 successfully transitions to human clinical trials, it could be a game-changer in oncology. Moreover, its success could position Bicycle as a key player in the targeted radionuclide therapy market, a sector that is currently underpenetrated but holds significant growth potential.
My Analysis & Recommendation
In summary, Bicycle Therapeutics is at a defining juncture. On one hand, its robust partnerships with pharmaceutical giants such as Bayer and Novartis lend credence to the company’s unique approach to targeted cancer therapy, and its cash runway — thanks to its public offering and upfront payments — offers a level of operational security that most early-stage biotechs can only dream of. That said, Bicycle is no safe harbor for the risk-averse investor.
The company’s financials paint a picture of a firm in transition, a work in progress with operating expenses, notably in R&D, growing faster than revenues. The weight of a short interest exceeding 240% should not be shrugged off; it indicates that the bear camp is betting heavily against the stock. The options activity with open interest leaning neutral at the $15.00 strike suggests a high level of uncertainty and potential volatility. Plus, let's not lose sight of the backloaded nature of Bicycle's deals with Bayer and Novartis — a vote of cautious optimism, in my view, rather than an outpouring of confidence from these established players.
While the preclinical data on Pb-BCY20603, their most interesting candidate in my eyes, offers a ray of hope, it's a long journey from rodent models to FDA approval. Given the mixed internal sentiment observed in insider activity and the precarious market capitalization, the risk factors are substantial and cannot be dismissed.
As for the coming weeks and months, investors should watch for any changes in short interest as a litmus test for market sentiment. Equally important will be updates on the clinical progress of lead candidates BT8009, BT5528, and BT1718. Early readouts or regulatory nods could serve as significant price catalysts or roadblocks, depending on the outcomes. Moreover, given the sizable upfront and milestone payments linked to strategic collaborations, any hiccups in these relationships could have an outsized impact on the stock.
Taking all these elements into account, my investment recommendation for Bicycle at this stage would be a "Hold." The upside potential is tantalizing but comes interwoven with substantial risk. A “Hold” stance allows for room to maneuver, hedging against both optimistic promises and the lurking shadows of operational and market-driven uncertainties.
Let's call it cautious optimism, seasoned with a pinch of skepticism — a prudent posture for any investor navigating the complex and unforgiving landscape of biotechnology equities.
For further details see:
Bicycle Therapeutics: Pedaling Through Uncertainty