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Item 7. Management’s Discussion and Analysis

2023-03-24 compared with 2022-03-25 · 206 added, 197 removed, 212 unchanged (66% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K and our audited financial statements and related notes for the year ended December 31, 2020 included in our final prospectus for our initial public offering filed pursuant to Rule 424(b) under the Securities Act of 1933, as amended, with the Securities and Exchange Commission, on April 30, 2021.

Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions.

We are a clinical-stage biopharmaceutical company engaged in the discovery and development of novel immunotherapeutics and vaccines for the treatment and prevention of infectious diseases and cancer.

We use our proprietary platform to develop product candidates that stimulate powerful, targeted immune responses against pathogens and tumor cells.

We design our product candidates to stimulate immune responses that are robust, highly specific, and are differentiated by the magnitude of the T cell populations induced, which exhibit critical functionality and durability.

We are focused on applying our platform capabilities and the expertise of our team to address significant unmet medical needs in two settings—the therapeutic setting, for the treatment of chronic infectious diseases and cancer, and the prophylactic setting, for the prevention of infectious diseases, based on our platform’s ability to respond rapidly to epidemic and pandemic threats.

As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

You should carefully read the “Cautionary Note Regarding Forward Looking Statements” and “Risk Factors” sections of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements contained in the following discussion and analysis.

We are a clinical-stage biopharmaceutical company engaged in the discovery and development of novel immunotherapeutics and vaccines for the treatment and prevention of infectious diseases, cancer and autoimmunity.

We aim to treat and prevent infectious

diseases and cancer by using our proprietary platforms to develop product candidates that stimulate powerful, targeted immune responses against pathogens, infected cells, and tumor cells.

We design these product candidates to stimulate immune responses that are robust, highly specific, and are differentiated by the magnitude of the T cell populations induced, which exhibit critical functionality and durability.

In the field of autoimmunity, we use our proprietary platform to develop product candidates that are designed to induce regulatory T cells to suppress specific immune responses and prevent/reverse autoimmunity.

We are focused on applying our platform capabilities and the expertise of our team to address significant unmet medical needs in two settings - the therapeutic setting, for the treatment of chronic infectious diseases, cancer, and autoimmunity and the prophylactic setting, for the prevention of infectious diseases, based on our platform’s ability to respond rapidly to epidemic and pandemic threats.

We have a broad pipeline of both clinical and preclinical stage therapeutic and prophylactic programs.

Our current therapeutic programs include VTP-300 for the treatment of chronic hepatitis B infection, or CHB, VTP-200 for the treatment of human papilloma virus infection, or HPV, VTP-850 for the treatment of prostate cancer and VTP-600 for the treatment of non-small cell lung cancer, or NSCLC.

The latter two programs are designed to utilize our SNAPvax platform.

Our current prophylactic programs include VTP-400 for the prevention of herpes zoster, or shingles, and VTP-500 for the prevention of Middle East respiratory syndrome, or MERS.

In addition, we co-invented a COVID-19 vaccine candidate with the University of Oxford, which we assigned to Oxford University Innovation, or OUI, to facilitate the license of those rights by OUI to AstraZeneca UK Limited, or AstraZeneca.

In addition, we co-invented a COVID-19 vaccine with the University of Oxford, the rights to which we assigned to Oxford University Innovation, or OUI, to facilitate the license of those rights by OUI to AstraZeneca UK Limited, or AstraZeneca.

The vaccine, formerly referred to as AZD1222, is now authorized for use under the marketing name Vaxzevria in a number of countries.

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On May 4, 2021, we completed our initial public offering, or IPO, pursuant to which we issued and sold 6,500,000 American Depository Shares, or ADSs, at a public offering price of $17.00 per ADS, resulting in net proceeds of $102.8 million, after deducting underwriting discounts and commissions and offering expenses.

Prior to our IPO, we funded our operations primarily from private placements of our ordinary and preferred shares, private placements of loan notes convertible into ordinary shares, as well as from grants and licensing agreements, research tax credit payments, investments from non-controlling interest a $2.4 million upfront payment from OUI in July 2020 in connection with the Amendment, Assignment and Revenue Share Agreement, or the OUI License Agreement Amendment, related to the licensing of the COVID-19 vaccine, Vaxzevria, formerly known as AZD1222.

We do not expect to generate revenue from any of our own product candidates until we obtain regulatory authorization for one or more of such product candidates, if at all, and commercialize our products, or we enter into out-licensing agreements with third parties.

We may receive some revenue pursuant to the OUI License Agreement Amendment with OUI with respect to the AstraZeneca COVID-19 vaccine candidate AZD1222 in certain circumstances if it receives marketing approval from regulatory authorities and is sold commercially.

Prior to our IPO, we funded our operations primarily from private placements of our ordinary and preferred shares, private placements of loan notes convertible into ordinary shares, as well as from grants and licensing agreements, research tax credit payments, investments from non-controlling interest, and a $2.4 million upfront payment from OUI in July 2020 in connection with the Amendment, Assignment and Revenue Share Agreement, or the OUI License Agreement Amendment, related to the licensing of the COVID-19 vaccine, Vaxzevria.

We do not expect to generate revenue from any of our own product candidates, excluding Vaxzevria, until we obtain regulatory authorization for one or more of such product candidates, if at all, and commercialize our products, or we enter into out-licensing agreements with third parties.

Substantially all of our net losses have resulted from costs incurred in connection with our research and development activities and from general and administrative costs associated with our operations.

We have incurred net losses each year since inception.

For the years ended December 31, 2021 and December 31, 2020, we incurred net losses of $51.1 million and $17.9 million, respectively.

As of December 31, 2021, we had an accumulated deficit of $108.6 million and we do not expect positive cash flows from operations in the foreseeable future.

We expect to continue to incur net operating losses for at least the next several years as we advance our product candidates through clinical development, seek regulatory approval, prepare for approval, and in some cases proceed to commercialization of our product candidates, as well as continue our research and development efforts and invest to establish a commercial manufacturing facility, as and when appropriate.

On March 28, 2022, pursuant to the OUI License Agreement Amendment, we were notified of the commencement of payments, arising from AstraZeneca’s commercial sales of Vaxzevria.

Under the terms of an exclusive worldwide license agreement between OUI and AstraZeneca, we understand OUI is entitled to milestone payments and royalties on commercial sales of Vaxzevria that began after the pandemic period.

As part of the assignment from us to OUI, we are entitled to receive approximately 24% of payments received by OUI from AstraZeneca.

For the year ended December 31, 2022, we recognized approximately $43.7 million as revenue (year ended December 31, 2021:

There is, however, no guarantee or expectation that such payments will continue in the future and, if they do, that we will be notified of such payments in a timely manner.

On August 9, 2022, we filed a Registration Statement on Form S-3, as amended, or the Shelf, with the Securities and Exchange Commission in relation to the registration and potential future issuance of ordinary shares, including ordinary shares represented by ADSs, debt securities, warrants and/or units of any combination thereof in the aggregate amount of up to $200.0 million.

The Shelf was declared effective on August 17, 2022.

We also simultaneously entered into a sales agreement with Jefferies LLC, as sales agent, providing for the offering, issuance and sale by us of up to an aggregate of $75.0 million of our ordinary shares represented by ADSs from time to time in “at-the-market” offerings under the Shelf.

As of December 31, 2022, we sold 307,139 ordinary shares represented by ADSs under the sales agreement, amounting to gross proceeds of $0.7 million.

We have incurred net losses each year since inception through to December 31, 2021.

For the year ended December 31, 2022, we generated net income of $5.3 million, primarily as a result of revenues arising from AstraZeneca sales of Vaxzevria and our agreement with OUI.

For the year ended December 31, 2021, we incurred net losses of $51.1 million.

As of December 31, 2022 and 2021, we had an accumulated deficit of $103.2 million and $108.6 million, respectively, and we do not currently expect profits or positive cash flows from operations in the foreseeable future.

We expect to incur net operating losses for at least the next several years as we advance our product candidates through clinical development, seek regulatory approval, prepare for approval, and in some cases proceed to commercialization of our product candidates, as well as continue our research and development efforts and invest to establish a commercial manufacturing facility, as and when appropriate.

At this time, we cannot reasonably estimate, or know the nature, timing and estimated costs of all of the efforts that will be necessary to complete the development of any of our product candidates that we develop through our programs.

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● acceptance of investigational new drug applications, or INDs, for our planned clinical trials or future clinical trials;

● successful enrollment and completion of clinical trials;

● successful and timely enrollment and completion of clinical trials;

● data from our clinical program supporting approvable and commercially acceptable risk/benefit profiles for our product candidates in the intended populations;

● receipt and maintenance of necessary regulatory and marketing approvals from applicable regulatory authorities, in the light of the commercial environment then existent;

● scale-up of our manufacturing processes and formulation of our product candidates for later stages of development and commercial production;

● availability and successful procurement of raw materials required to manufacture our products for clinical trials, scale-up of our manufacturing processes and formulation of our product candidates for later stages of development and commercial production;

● establishing either our own manufacturing capabilities or satisfactory agreements with third-party manufacturers for clinical supply for later stages of development and commercial manufacturing;

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In some circumstances, such as the emergence of a significantly more effective therapy from a competitor, it may be appropriate to discontinue a product candidate program.

Including the net proceeds from our IPO, we expect that our cash balance as of December 31, 2021 will enable us to fund our operating expenses and capital requirements into the second half of 2024.

We expect that our cash balance as of December 31, 2022 will enable us to fund our operating expenses and capital requirements into the first quarter of 2025.

Recent Developments

On November 12, 2021, we announced results from ongoing Phase 1 and Phase 1b/2a clinical trials of VTP-300, an immunotherapy candidate in development for the treatment of CHB infection.

Results to date showed that both the ChAdOx1-HBV (prime), in study HBV001 (healthy volunteers and CHB patients), and the combination of ChAdOx1-HBV (prime) and MVA-HBV (boost), in study HBV002 (CHB patients only), were highly immunogenic to all HBV viral targets, and were generally well tolerated.

On December 7, 2021, we announced that interim data from 27 patients, who had completed 3 months in the HBV002 study in chronic Hepatitis B (CHB) patients, demonstrated noted changes in surface antigen (HBsAg) levels, especially in the group receiving low-dose

nivolumab with the heterologous boost (VTP-300).

The HBV002 study is enrolling 4 groups to explore prime-boost vector combinations, either MVA-HBV (prime) + MVA-HBV (boost), ChAdOx1-HBV (prime) + MVA-HBV (boost) (VTP-300), VTP-300 with low-dose nivolumab given at the boost, and VTP-300 with low-dose nivolumab given at both the prime and the boost.

The HBV002 study is designed to evaluate the different regimens and investigators will now look to focus enrollment on Group 2 which involves dosing of VTP-300 without nivolumab and Group 3, which involves dosing of VTP-300 with nivolumab administered with the MVA boost, due to the encouraging surface antigen (HBsAg) decrease measured in these study groups.

In December 2021, we acquired Avidea Technologies Inc., or Avidea, to expand both our technology base and product pipeline and to strengthen our scientific leadership in immunotherapies and vaccines.

Prior to the acquisition, Avidea was a privately-held biotechnology company with a goal of advancing the next generation of safer and more effective T cell immunotherapies for treating cancer, infections, and autoimmune diseases.

Avidea’s precision immunotherapies are enabled by polymer-drug conjugate technologies, which are purpose-built to address the need for improved T cell and antibody-based immunotherapies.

Avidea has established current Good Manufacturing Practice, or cGMP, processes for its platforms and also achieved compelling in vivo proof-of-concept data in rigorous preclinical models for a number of product candidates.

This has enabled a strong pipeline of immunotherapies, some of which we expect will enter clinical testing in 2022 and 2023.

On January 18, 2022, we, Cancer Research UK, and the Ludwig Institute for Cancer Research (Ludwig) announced that the first patient had been dosed in the MAGE trial, which is testing a novel immunotherapeutic, VTP-600, in patients with the most common type of lung cancer.

The Phase 1/2a trial is expected to enroll approximately 86 people who have been newly diagnosed with non-small cell lung cancer (NSCLC) and will be testing the safety and initial efficacy of VTP-600 in these patients.

If further clinical trials are successful, VTP-600 could prove to be a powerful new treatment for a group of patients in need of better options.

Depending on its effectiveness in NSCLC, VTP-600 could be evaluated in other types of cancer in the future, including breast, bowel, bladder and melanoma.

Cancer Research UK’s Centre for Drug Development (CDD) is managing and providing significant funding for the phase 1/2a trial.

Vaccitech Oncology Limited (VOLT), a strategic collaboration between us and Ludwig, are supplying VTP-600 for the trial.

On February 1, 2022, we gave notice to terminate The Oxford Science Park lease.

The lease will be terminated on July 30, 2022, by which date the Company will have relocated its corporate headquarters from Oxford to The Harwell Science and Innovation Campus, Oxfordshire.

On January 18, 2023, we incorporated Vaccitech Switzerland GmbH, a wholly owned subsidiary of Vaccitech (UK) Limited.

On January 30, 2023, we announced the appointment of Nadège Pelletier, Ph.D., as Chief Scientific Officer.

On March 20, 2023, we announced topline interim data from HPV001, a Phase 1b/2 clinical trial of VTP-200, a potential treatment for low grade HPV-related cervical lesions, which demonstrated favorable safety and immunogenicity data at interim analysis in patients with low-grade cervical HPV lesions.

The HPV001 clinical trial will continue as planned to the 12-month primary endpoint.

Impact of the COVID-19 Pandemic

The spread of COVID-19, which we refer to as the COVID-19 pandemic, and the policies and regulations implemented by governments in response to the COVID-19 pandemic have had a significant impact, both directly and indirectly, on the global economy and our business and operations, including continuing disruption to our clinical trial activities.

Of note, the initiation of our Phase 1 clinical trial for VTP-500, which was being conducted at the University of Oxford, was paused and discontinued due to COVID-19.

In addition, the COVID-19 pandemic has had a negative effect on the operations of our third-party manufacturers and the supply chain for our product candidates and clinical trial materials, due to limitations on travel imposed or recommended by federal, state/provincial or municipal governments, employers and others.

COVID-19 continues to have an impact, both directly and indirectly, on our business and operations, including continuing disruptions to our clinical trial activities.

Our study protocols have been amended so that participants who have previously received Vaxzevria (or any other adenovirus-based vaccine) wait for a minimum of three months between their last adenovirus vaccine and injection with our immunotherapeutic product candidates to prevent prior vector immunity affecting the study.

In the VTP-200 program, the initiation of investigational sites for the Phase 1b/2 clinical trial (HPV001) across all countries has been impacted by COVID-19.

The UK is particularly affected as resources to support set up of trials not related to COVID-19 have been low across sites.

Other pandemic related issues affecting recruitment include the mass vaccination programs and the adverse publicity early in the second quarter of 2021 around Vaxzevria.

Participant recruitment continues to be delayed with last patient first visit anticipated in the first quarter of 2022, and the interim analysis is expected to be available in the fourth quarter of 2022.

For our Phase 1 (HBV001) clinical trial for VTP-300, recruitment of patients with Chronic Hepatitis B (CHB) in the UK has been challenging, due to COVID-19 lockdowns.

We completed recruitment for cohorts 1-5 in October 2021.

For our Phase 1b/2a (HBV002) clinical trial for VTP-300, CHB patient recruitment continues with delays in Taiwan, South Korea, and the United Kingdom due to the ongoing COVID-19 restrictions in those countries.

Patient recruitment has also been delayed in South Korea due to the roll out of Vaxzevria vaccine and vaccine hesitancy.

Patient recruitment is estimated to be completed in the first quarter of 2022, with full efficacy data expected in the second half of 2022.

If the disruption due to the COVID-19 pandemic continues, our planned future preclinical and clinical development for our other product candidates could also be delayed due to government orders and site policies as a result of the pandemic.

The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred;

supply chains have been disrupted;

facilities and production have been suspended;

and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.

In response to the spread of COVID-19, we have mandated that our non-laboratory based employees, such as clinical, manufacturing, finance, administrative, quality, regulatory and program managers split their time between working from home and the office, being sure to adhere to COVID-19 working guidelines when on the office premises.

Our increased reliance on personnel working from home may negatively impact productivity, increase the potential risks of data privacy or security breaches, or disrupt, delay, or otherwise adversely impact our business.

We are still assessing our business plans and the impact the COVID-19 pandemic may have on our ability to advance the development of our product candidates as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom we rely, or to raise financing to support the development of our ongoing product candidate development.

No assurances can be given that this analysis will enable us to avoid part or all of any impact from the COVID-19 pandemic, including downturns in business sentiment generally or in our sector in particular.

The Delta variant increased, and other variants may increase, COVID-19 case counts significantly, which may further impact our ability to conduct our business.

In the VTP-200 program, participant recruitment was delayed due, in part, to patient availability and site staff availability, and the last patient’s first visit occurring in January 2023 with the last visit due by January 2024.

Interim data is expected to be available in the first quarter of 2023.

We recently announced topline initial interim immunogenicity and safety data from 58 patients that reached their six-month evaluation timepoint.

We expect to announce the full data from this trial in the first quarter of 2024.

For our Phase 1 (HBV001) clinical trial for VTP-300, recruitment of patients with Chronic Hepatitis B (CHB) in the UK was challenging, due to COVID-19 lockdowns but we completed recruitment for all cohorts in first quarter of 2022.

For our Phase 1b/2a (HBV002) clinical trial for VTP-300, CHB patient recruitment was delayed in Taiwan, South Korea, and the United Kingdom due to the ongoing COVID-19 restrictions in those countries due to patient availability, patient hesitancy and site staff availability.

Patient recruitment was also delayed in South Korea due to the roll out of Vaxzevria vaccine and vaccine hesitancy.

Patient recruitment was completed in May 2022, an update to the interim efficacy data was announced on June 22, 2022 and updated efficacy data was presented at AASLD on November 7, 2022.

We continue to assess our business plans and the impact COVID-19 is having on our ability to advance the development of our product candidates as a result of adverse impacts on the availability of raw materials for manufacturing, research sites, contract service providers or suppliers on whom we rely, or to raise financing to support the development of our ongoing product candidate development.

No assurances can be given that this analysis will enable us to avoid part or all of any impact from COVID-19, including downturns in business sentiment generally or in our sector in particular.

The impact of government regulations, vaccine adoption rates (including boosters), the effectiveness of vaccines, and the continuing economic effects of the pandemic and containment measures may also further adversely impact our business.

We cannot currently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties on whom we rely or with whom we conduct business were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted.

We cannot currently predict the scope and severity of any potential business shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially adversely impacted.

Impact of the Ukraine Crisis

In respect of the international situation in Ukraine, we have assessed the impact on the Company as minimal.

We have no operations or suppliers based in Ukraine, Belarus, or Russia, and there is consequently no additional risk or negative impact on the consolidated financial statements.

Impact of Global Economic Conditions and Inflationary Pressures

Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on the Company’s results of operations and financial condition.

These inflationary pressures and rising interest rates in the United States, the United Kingdom and elsewhere have given rise to increasing concerns that the U.S., U.K.

and other economies are now in, or may soon enter, economic recession.

Sustained inflationary pressures, increased interest rates, an economic recession or continued or intensified disruptions in the global financial markets could adversely affect our future financing capability or ability to access the capital markets.

Additionally, we may incur future increases in operating costs due to additional inflationary increases.

Components of Our Operating Results

To date, we have not generated any revenue from product sales and do not expect to do so in the near future, if at all.

Our revenue to date has been derived from a research grant from BARDA, a research collaboration and license agreement with Enara Bio and the OUI License Agreement Amendment with OUI relating to Vaxzevria (formerly, AZD1222).

To date, we have not generated any revenue from direct product sales and do not expect to do so in the near future, if at all.

Most of our revenue to date has been derived from a research grant from the Biomedical Advanced Research and Development Authority, or BARDA, a research collaboration and license agreement with Enara Bio, a research, option and license agreement with Scancell and the OUI License Agreement Amendment with OUI relating to Vaxzevria.

In April 2020, we entered into the OUI License Agreement Amendment with OUI in respect of our rights to use the ChAdOx1 technology in COVID-19 vaccines to facilitate the license of those rights by OUI to AstraZeneca.

Under this agreement, we are entitled to receive from OUI a share of payments, including royalties and milestones, received by OUI from AstraZeneca in respect of this vaccine.

As a direct result of the OUI License Agreement Amendment, we received a payment of $2.4 million, of which we have recognized $2.4 million as revenue during the year ended December 31, 2020.

No revenue has been recognized as a result of this agreement for the year ended December 31, 2021.

In March 2022, we were notified by OUI of the commencement of revenue relating to the commercial sales of Vaxzevria.

Our revenue for the year ending December 31, 2022 was $43.7 million, representing the amounts we have been notified of as due by OUI to date and an estimate of future receipts, constrained to the extent that it is probable that a significant reversal of revenue would not occur.

No revenue was recognized as a result of this agreement for the year ended December 31, 2021.

We determined that we have no further performance obligations under the terms of the OUI License Agreement Amendment, which comprised the transfer of intellectual property rights only.

Accordingly, we plan to recognize these and any future amounts as revenue when received.

Accordingly, we plan to recognize these and any future amounts as revenue when earned, and it is probable that a significant reversal of revenue will not occur.

Operating Expenses

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Research and Development Expenses

Since our inception, we have focused significant resources on our research and development activities, including establishing and building on our adenovirus platform, further enhancing our in-licensed ChAdOx1, ChAdOx2 and MVA vectors, developing a new next-generation adenoviral vector, conducting preclinical studies, developing various manufacturing processes, and advancing clinical development of our programs including Phase 2 clinical trials for VTP-100, which we subsequently discontinued development of, as well as initiating the clinical trials for VTP-200 and VTP-300, and readying VTP-600 and VTP-850 for clinical trials.

development activities account for the major portion of our operating expenses.

Since our inception, we have focused significant resources on our research and development activities, including establishing and building on our adenovirus platform, further enhancing our in-licensed ChAdOx1, ChAdOx2 and MVA vectors, developing new next-generation vector platforms, acquiring new nanoparticle based technologies, conducting preclinical studies, developing various manufacturing processes, and advancing clinical development of our programs including Phase 2 clinical trials for VTP-100, which we subsequently discontinued development of, as well as initiating the clinical trials for VTP-200, VTP-300, VTP-600, VTP-850 and readying VTP-400, VTP-500, VTP-1100 and VTP-1000 for clinical trials.

Research and development activities account for the major portion of our operating expenses, and we expect research and development expenses to increase in the future.

Research and development costs are expensed as incurred.

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● leased facility costs, equipment depreciation and other expenses, which include direct and allocated expenses.

● intellectual property costs incurred in connection with filing and prosecuting patent applications as well as third-party license fees.

General and Administrative Expenses

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Other general and administrative expenses include consulting fees and professional service fees for auditing, tax and legal services, rent expenses related to our offices, depreciation, foreign exchange gains and losses on our cash balances and other central non-research costs.

We expect our general and administrative expenses to continue to increase in the future as we expand our operating activities in both the UK and USA and potentially prepare for manufacturing and/or commercialization of our current and future product candidates.

These costs would normally increase as our headcount rises to allow full support for our operations as a public company, including increased expenses related to legal, accounting, regulatory and tax-related services associated with maintaining compliance with requirements of the Nasdaq Global Market and the Securities and Exchange Commission, directors’ and officers’ liability insurance premiums and investor relations activities.

For the year ended December 31, 2022, we recognized a change in fair value in relation to the updated assumptions in the assessment of the contingent consideration fair value recognized from

the acquisition of Avidea on December 10, 2021.

Significant judgment is used to determine the probability of success of achievement of the technology and clinical milestones and the date of the expected milestone.

We expect our general and administrative expenses to continue to increase in the future as we expand our operating activities in both the United Kingdom and United States and potentially prepare for manufacturing and/or commercialization of our current and future product candidates.

These costs will increase as our headcount rises to allow full support for our operations as a public company, including increased expenses related to legal, accounting, regulatory and tax-related services associated with maintaining compliance with requirements of the Nasdaq Global Market and the Securities and Exchange Commission, directors’ and officers’ liability insurance premiums and investor relations activities.

Other Income/ (Expense)

Change in Fair Value of Derivatives

Change in Fair Value

We recognized a change in fair value in relation to the conversion and redemption features embedded in the convertible loan notes in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

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The conversion was accounted for as an extinguishment of the convertible loan notes.

As a result, the 12,421 Series B preferred shares issued on conversion was recognized at the settlement-date fair value of the Series B shares and a loss was recognized in earnings for the difference between (1) the fair value of those shares and (2) the sum of the carrying amounts of the convertible loan notes and the bifurcated conversion and redemption feature liability.

As a result, the 12,421 Series B preferred shares issued on conversion were recognized at the settlement-date fair value of the Series B shares and a loss was recognized in earnings for the difference between (1) the fair value of those shares and (2) the sum of the carrying amounts of the convertible loan notes and the bifurcated conversion and redemption feature liability.

Interest Expense

Interest expense results primarily from our convertible loan notes, which carry a market rate of interest.

Interest expense results primarily from our convertible loan notes, which carried a market rate of interest.

These notes were issued between July and November 2020 and converted on March 15, 2021 into 12,421 Series B Shares with the conversion price being 0.8 times the Series B Shares issue price.

Interest Income

Interest income results primarily from the interest earned on our short-term cash deposits and cash balances held by Vaccitech (UK) Limited in United States dollars and pounds sterling.

Research and Development Incentives

Research and development incentives contain payments receivable from the United Kingdom and Australian governments related to corporation tax relief on research and development projects incentive programs in the United Kingdom and Australia.

Research and development incentives contain payments receivable from the United Kingdom government related to corporation tax relief on research and development projects incentive programs in the United Kingdom.

We account for such relief received as other income.

The Company benefits from the United Kingdom research and development tax credit regime, being the Small and Medium-sized Enterprises R&D tax relief program, or SME Program, and, to the extent that our projects are grant funded or relate to work subcontracted to us by third parties, the Research and Development Expenditure Credit program, or RDEC Program.

Under the SME program, the Company is able to surrender some of its trading losses that arise from qualifying research and development activities for a cash rebate of up to 33.35% of such qualifying research and development expenditure.

Qualifying expenditures largely comprise employment costs for research staff, consumables, outsourced contract research organization costs and utilities costs incurred as part of research projects.

Certain subcontracted qualifying research and development expenditures are eligible for a cash rebate of up

A large portion of costs relating to research and development, clinical trials and manufacturing activities are eligible for inclusion within these tax credit cash rebate claims.

From the 1 st April 2023, it is expected that the SME additional deduction and credit rates will decrease, reducing the tax credit claim available for the Company.

The Company may not be able to continue to claim research and development tax credits under the SME program in the future because it may no longer qualify as a small or medium-sized company.

In addition, the EU State Aid cap limits the total aid claimable in respect of a given project to €7.5 million which may impact the Company’s ability to claim R&D tax credits in future.

Further, the U.K.

Finance Act of 2021 introduced a cap on payable credit claims under the SME Program in excess of £20,000 with effect from April 2021 by reference to, broadly, three times the total Pay As You Earn, or PAYE, and National Insurance Contributions, or NICs, liability of the company, subject to an exception which prevents the cap from applying.

That exception requires the company to be creating, taking steps to create or managing intellectual property, as well as having qualifying research and development expenditure in respect of connected parties, which does not exceed 15% of the total claimed.

If such exception does not apply, this could restrict the amount of payable credit that we claim.

For the year ended December 31, 2022, the R&D tax credits was further restricted by the available tax losses in the UK for the period.

Unsurrendered UK losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions.

The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of UK taxable profits.

Critical Accounting Policies and Use of Estimates

This discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or US GAAP.

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of expenses during the reporting period.

On an ongoing basis, management evaluates its estimates, including those related to accruals for external manufacturing of clinical trial material as well as clinical study conduct, fair value of assets and liabilities, and the fair value of ordinary shares and share-based compensation.

This discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S.

On an ongoing basis, management evaluates its estimates, including those related to revenue, expenses, leases, accruals and prepayments for external manufacturing of clinical trial material as well as clinical study conduct, fair value of contingent consideration, impairment of goodwill and intangible assets, and the fair value of ordinary shares and share-based compensation.

Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances.

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We believe that the following accounting policies are critical to the process of making significant judgments and estimates in the preparation of our financial statements and understanding and evaluating our reported financial results.

Going Concern

The consolidated financial statements included elsewhere herein have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

We have financed our activities principally from the issuance of ordinary and preferred equity securities and convertible loan notes.

We have experienced recurring losses since inception and expect to incur additional losses in the future in connection with research and development activities.

Our ability to continue as a going concern is dependent upon our ability to raise additional debt and equity capital.

There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us.

We incurred a net loss of $51.1 million and used $32.6 million in cash to fund our operating activities during the year ended December 31, 2021 and $17.9 million and $11.0 million, respectively, for the year ended December 31, 2020.

We had an accumulated deficit of $108.6 million as of December 31, 2021.

As of December 31, 2021, we had $214.1 million in cash and cash equivalents as a result of equity issuances and the IPO in 2021.

Our management believes that we have sufficient cash to support our operations through to the second half of 2024, without additional financing.

If we are unable to obtain additional financing in sufficient amounts or on acceptable terms, we may be forced to delay, reduce or eliminate some or all of our research and development programs and product portfolio expansion, which could adversely affect our operating results or business prospects.

Although our management continues to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

After considering the uncertainties, management consider it is appropriate to continue to adopt the going concern basis in preparing the consolidated financial statements.

Convertible Loan Notes and Embedded Derivatives

In 2020, we entered into a series of unsecured convertible loan notes arrangements on various dates between July through November 2020.

The convertible loan notes accrue interest daily at 8% per annum, which is payable in (a) cash upon an event of default or (b) cash or shares at the Board’s discretion upon conversion.

The convertible loan notes will mature on June 6, 2023.

On maturity, the lenders can elect cash redemption in lieu of conversion, in an amount that equals all outstanding principal plus a redemption premium.

The convertible loan notes may not be prepaid without the consent of the lenders.

We review the terms of convertible loan notes and other financing arrangements to determine whether there are embedded derivative instruments, including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative

financial instrument.

Derivative financial instruments are initially measured at fair value, and then re-valued at each reporting date, with changes in the fair value reported as charges or credits to consolidated statement of operations and comprehensive loss.

To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument exceed the total proceeds received an immediate charge to consolidated statement of operations and comprehensive loss is recognized in order to initially record the derivative instrument at fair value.

The discount from the face value of the convertible loan notes resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to consolidated statement of operations and comprehensive loss, using the effective interest method.

Embedded derivatives bifurcated are presented along with the host contract on the balance sheet.

Recognition of Revenue from Contracts with Customers

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Our performance obligations under the terms of this agreement are limited to the transfer of intellectual property rights (licenses and other rights).

Payments by AstraZeneca to OUI under this agreement included an up-front payment and may include payments based upon the achievement of defined milestones, commercial milestones and royalties on product sales if certain future conditions are met.

We are entitled to a specified percentage of payments, including royalties and milestones, received by OUI from that license agreement with AstraZeneca as set out in the OUI License Agreement Amendment.

Payments by AstraZeneca to OUI under this agreement include an up-front payment, payments based upon the achievement of defined milestones, royalties on product sales, and may include payments of commercial and other milestones, if certain future conditions are met.

We are entitled to receive approximately 24% of receipts, including royalties and milestones, received by OUI from that license agreement with AstraZeneca as set out in the OUI License Agreement Amendment.

We evaluate our collaboration and licensing arrangements pursuant to Accounting Standards Codification 606, or ASC 606.

To determine the recognition of revenue from arrangements that fall within the scope of ASC 606, we perform the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize determinable revenue when, or as, the company satisfies a performance obligation or (if later) when such revenue becomes payable.

We present revenues from collaboration and licensing arrangements separately from other sources of revenue.

Amounts received by us as non-refundable upfront payments under the OUI License Agreement Amendment prior to satisfying the above revenue recognition criteria would be recorded as deferred revenue in our consolidated balance sheets.

Such amounts would be recognized as revenue over the performance period of the respective services on a percent of completion basis for each of the obligations.

Contingent milestone payments related to specified preclinical and clinical development milestones are not initially recognized within the transaction price as they are fully constrained under the guidance in ASC 606.

We use judgment to determine whether milestones or other variable consideration, except for sales-based royalties, should be included in the transaction price.

For sales-based and clinical development milestones and royalties, when the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of (i) when the related sales or milestone achievement occurs or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

This could require management to estimate the amount of revenue to recognize in the period if the actual data for the period has not been provided.

Research and Development Costs

Research and development costs are expensed as incurred.

Research and development expenses consist of costs incurred in performing research and development activities, including salaries and bonuses, share-based compensation, employee benefits, facilities costs, laboratory supplies, depreciation, manufacturing expenses and external costs of vendors engaged to conduct preclinical development activities and clinical trials as well as the cost of licensing technology.

activities and clinical trials as well as the cost of licensing technology.

Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses.

The prepaid amounts are then expensed as the related goods are delivered or the services are performed.

Research and development costs are accrued when the related services or goods are delivered ahead of being billed.

All patent-related costs incurred in connection with filing and prosecuting patent applications are classified as research and development costs and expensed as incurred due to the uncertainty about any future recovery of the expenditure.

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We grant options and restricted shares to employees and directors and account for share-based compensation using a fair value method.

All of these arrangements are settled in equity at a predetermined price and generally vest over a period of four years.

All of these arrangements are settled in equity at a predetermined price and generally vest over a period of one to three years.

All share options have a life of 10 years before expiration.

To the extent such incentives are in the form of share options, up until the first quarter of 2021, the options may have been granted pursuant bilateral EMI option awards or unapproved option awards.

The EMI option award

agreements provide for the grant of potentially tax favored Enterprise Management Incentive, or EMI, options, to our U.K.

employees and directors.

Options issued pursuant to such agreements have an exercise price agreed with HM Revenue & Customs.

To the extent such incentives are in the form of share options, up until the first quarter of 2021, the options may have been granted pursuant to bilateral EMI option awards or unapproved option awards.

On April 8, 2021, we adopted the Vaccitech plc Share Award Plan 2021 and the Vaccitech plc Non-Employee Sub-Plan which is a sub-plan of the Vaccitech plc Share Award Plan 2021.

Under the terms of the Vaccitech plc Share Award Plan 2021, the Board is permitted to grant awards to employees as restricted share units, options, share appreciation rights, restricted shares.

Upon adoption of the Vaccitech plc Share Award Plan 2021, no further awards are granted pursuant bilateral EMI option awards or unapproved option awards.

Under the terms of the Vaccitech plc Share Award Plan 2021, the Board is permitted to grant awards to employees as restricted share units, options, share appreciation rights or restricted shares.

Upon adoption of the Vaccitech plc Share Award Plan 2021, no further awards are granted pursuant to the bilateral EMI option awards or unapproved option awards.

Share based compensation awards are measured at the grant date fair value.

For service-based awards, compensation expense is generally recognized over the requisite service period of the awards, usually the vesting period.

The Company applies the “multiple option” method of allocating expense.

In applying this method, each vesting tranche of an award is treated as a separate grant and recognized on a straight-line basis over that tranche’s vesting period.

For performance-based awards where the vesting of the awards may be accelerated upon the achievement of certain milestones.

vesting and the related share-based compensation is recognized as an expense when it is probable the milestone will be met.

The Company has elected to recognize the effect of forfeitures on share-based compensation when they occur.

we apply the “multiple option” method of allocating expense.

In applying this method, each vesting tranche of an award is treated as a separate grant and recognized on a straightline basis over that tranche’s vesting period.

For performance-based awards where the vesting of the awards may be accelerated upon the achievement of certain milestones, vesting and the related share-based compensation is recognized as an expense when it is probable the milestone will be met.

We have elected to recognize the effect of forfeitures on share-based compensation when they occur.

Any differences in compensation recognized at the time of forfeiture are recorded as a cumulative adjustment in the period where the forfeiture occurs.

We measure share-based awards granted to employees and directors based on the fair value on the date of grant using the Black-Scholes option-pricing model for options.

Black-Scholes utilizes assumptions related to expected term, forfeitures, volatility, the risk-free interest rate, the dividend yield (which is assumed to be zero, as we have not paid any cash dividends).

Black-Scholes utilizes assumptions related to expected term, volatility, the risk-free interest rate and the dividend yield (which is assumed to be zero, as we have not paid any cash dividends).

The volatility assumption utilizes both the Company’s historical volatility and those of a portfolio of listed peer companies, weighted towards the Company as we build the historical records following IPO.

For options granted prior to our IPO, we applied a discount for lack of marketability calculated using the Finnerty model.

The assumptions used in the Black-Scholes model to determine fair value for the share option grants during the year ended December 31, 2021 and the year ended December 31, 2020 and were:

The assumptions used in the Black-Scholes model to determine fair value for the share option grants during the years ended December 31, 2022 and 2021, were:

Expected volatility

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Expected dividend yield

For the year ended December 31, 2021, 1,947,402 share options were granted, and 763,230 share options were granted for the year ended December 31, 2020.

In January and March 2022, we granted further 1,632,922 share options with a weighted average exercise price of $11.24.

For the years ended December 31, 2022 and 2021, 2,296,303 and 1,947,402 share options were granted, respectively.

In January and February 2023, we granted a further 1,973,529 share options with a weighted average exercise price of $2.53.

Business Combinations

We acquired Avidea Technologies, Inc on December 10, 2021 and have accounted for the acquisition using the acquisition method of accounting.

This required us assess and make judgments as to whether the acquisition met the criteria of a business combination or an asset acquisition.

In determining that the acquisition of Avidea Technologies, Inc.

met the criteria of a business combination we first used the “screen” to assess whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

As the screen was not met, we then applied the “framework” for determining whether the acquired set included at minimum, an input and substantive process that together significantly contribute to the ability to create output.

We concluded that the framework criteria are met because the scientists make up an organized workforce that has the necessary skills, knowledge, or experience to perform processes that when applied to the developed technology (input) is critical to the ability undertake research and development of a product that can be provided to a customer.

We acquired Avidea on December 10, 2021 and have accounted for the acquisition using the acquisition method of accounting.

This required us to assess and make judgments as to whether the acquisition met the criteria of a business combination or an asset acquisition.

In determining that the acquisition of Avidea met the criteria of a business combination we first used the “screen test” to assess whether

substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

As the “screen test” was not met, as the identifiable assets were not substantially all of the fair value of the gross assets acquired, we then applied the “framework” for determining whether the acquired assets included at minimum, an input and substantive process that together significantly contribute to the ability to create output.

We concluded that the framework criteria are met because the scientists make up an organized workforce that has the necessary skills, knowledge, or experience to perform processes that when applied to the developed technology (input) is critical to the ability to undertake research and development of a product that can be provided to a customer.

The more than-insignificant amount of goodwill (including the fair value associated with the workforce) was also an indicator that management considered in determining that the workforce is performing a critical process.

We therefore determined the acquisition to meet the definition of a business combination.

We recognize tangible and identifiable intangible assets acquired and liabilities assumed at their estimated fair values as of the acquisition date.

Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities is allocated to goodwill.

The estimate of fair value as of the acquisition date required the use of significant assumptions and estimates.

The developed technology was valued using the cost approach.

The critical assumptions and estimates included, but were not limited to developer margins, mark up on costs, opportunity costs, discount rates and market rates for salary, bonus and benefits of staff involved in the development of the technology.

While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, we will continue to evaluate

certain assets, liabilities and tax estimates that are subject to change within the measurement period (up to one year from the acquisition date).

The Company acquired Avidea for an up-front amount of $33.3 million, of which $12.2 million was payable in cash and $21.1 million in 2,163,694 of the Company’s American Depositary Shares.

We acquired Avidea for an up-front amount of $32.8 million (after working capital adjustments), of which $11.8 million was payable in cash and $21.0 million in 2,151,831 of American Depositary Shares of the Company.

In addition, Avidea’s stockholders may be entitled to receive an aggregate of up to $40.0 million in additional payments, payable in a mixture of cash and ADSs, upon the achievement of certain milestones.

This contingent consideration is included within the purchase price and is recognized at its fair value on the acquisition date, and subsequently remeasured to fair value at each reporting date until the contingency is resolved.

Changes in fair value are recognized in earnings.

The fair value of Contingent Consideration is determined based on the probability of pursuit, the probability of success of the achievement of the milestone, the expected date of milestone achievement and applying the relevant discount rate.

Changes in fair value are recognized in earnings in the consolidated statements of operations and comprehensive loss.

The fair value of contingent consideration is based on the probability of pursuit of the activity associated with the milestone, the probability of success of the achievement of the milestone, the expected date of milestone achievement and applying the relevant discount rate.

Transaction costs are expensed as incurred in general and administrative expenses.

Results of operations and cash flows of acquired companies are included in the Company’s operating results from the date of acquisition.

Goodwill and Purchased Intangible Asset

We test goodwill for impairment at least annually on November 30, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable.

The Company has elected to assess goodwill for impairment by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis of determining whether it is necessary to perform the quantitative goodwill impairment test.

Results of operations and cash flows of acquired companies are included in our operating results from the date of acquisition.

Impairment of Goodwill and Intangible Assets

We test goodwill for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying amount of goodwill may not be recoverable.

We have elected to assess goodwill for impairment by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis of determining whether it is necessary to perform the quantitative goodwill impairment test.

We have one reporting unit.

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Because there are inherent uncertainties involved in these factors, significant differences between these estimates and actual results could result in future impairment charges and could materially impact our future financial results.

The goodwill of $12.6 million recognized to December 31, 2021 wholly relates to the acquisition of Avidea Technologies, Inc.

on December 10, 2021.

No events or circumstances changed during the year ended December 31, 2021 that would indicate that the fair value of the reporting unit is below the carrying amount.

We will perform an impairment assessment of the Company's assets including goodwill and intangible assets in the first quarter of 2022 as the Company has experienced a sustained decline in the price of its ADSs in the first quarter of 2022 which is a potential indicator that it is more likely than not that a goodwill impairment exists.

The impairment assessment could lead to an impairment charge for the first quarter of 2022.

Our purchased intangible assets were recently acquired in connection with the Avidea Technologies, Inc.

business combination, and consist of developed technologies, notably SNAPvax.

We have determined a useful life of 10 years and will amortize the developed technology over this period.

If we were to identify an impairment indicator in the future, we may conclude that the carrying value of the intangible asset is not recoverable within the remaining useful life of the asset and recognize a non-cash impairment charge.

An impairment of this asset could have a material impact on our results of operations.

The goodwill of $12.2 million recognized to December 31, 2022 wholly relates to the acquisition of Avidea on December 10, 2021.

The Company performed the annual impairment test to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount.

Based on this assessment, the Company has not recognized any impairment losses related to goodwill or intangible assets for the years ended December 31, 2022 and 2021.

Convertible Loan Notes and Embedded Derivatives

Derivative financial instruments are initially measured at fair value, and then re-valued at each reporting date, with changes in the fair value reported as charges or credits in the consolidated statements of operations and comprehensive loss.

To the extent that the initial fair values of the freestanding and/or bifurcated derivative instrument exceed the total proceeds received an immediate charge in the consolidated statements of operations and comprehensive loss is recognized in order to initially record the derivative instrument at fair value.

The discount from the face value of the convertible loan notes resulting from allocating some or all of the proceeds to the derivative instruments, together with the stated rate of interest on the instrument, is amortized over the life of the instrument through periodic charges to consolidated statements of operations and comprehensive loss, using the effective interest method.

Embedded derivatives bifurcated are presented along with the host contract on the balance sheets.

In 2020, we entered into a series of unsecured convertible loan notes arrangements on various dates between July through November 2020.

The Series B funding on March 21,2021 constituted a qualified equity financing in accordance with the terms of the convertible loan notes.

As a result, the convertible loan notes were converted on March 15, 2021 into 12,421 Series B Shares with the conversion price being 0.8 times the Series B Shares issue price and are no longer outstanding.

Results of Operations

Comparison of the Years Ended December 31, 2021 and December 31, 2020

Comparison of the Years Ended December 31, 2022 and 2021

The following table sets forth the significant components of our results of operations (in thousands):

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ended December

Revenue from Licenses, Grants & Services Operating expenses:

Revenue from Licenses, Grants & Services

Operating expenses:

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Other income/(expense):

Change in fair value of derivatives

Change in fair value of derivatives embedded in convertible loan notes

Unrealized exchange gain on convertible loan notes

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Research and development incentives

Total other (expenses) income

For the year ended December 31, 2021, our revenue primarily consisted of $0.2 million of reimbursement of research and development expenses from BARDA and $0.1 million of license revenue from a research, collaboration and license agreement with Enara Bio.

For the year ended December 31, 2020, our revenue primarily consisted of $2.4 million from the OUI License Agreement Amendment with respect to the AstraZeneca COVID-19 vaccine candidate AZD1222 and $1.6 million of reimbursement of research and development expenses from BARDA.

Other income, net

Total other income/(expense)

Net income/(loss)

For the year ended December 31, 2022, our revenue primarily consisted of $43.7 million from the OUI License Agreement Amendment with respect to amounts owed to us by OUI for the commercial sales of Vaxzervria, and $0.8 million attributable to upfront fees associated with a research and license agreement with Scancell.

For the year ended December 31, 2021, our revenue consisted of $0.2 million of reimbursement of research and development expenses from BARDA and $0.1 million of license revenue from a research, collaboration and license agreement with Enara Bio.

The collaboration and license agreement with Enara Bio was terminated in 2022.

Research and Development Expenses

The following table summarizes our research and development expenses for the years ended December 31, 2021 and December 31, 2020:

The following table summarizes our research and development expenses for the years ended December 31, 2022 and 2021:

ended December

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VTP-800/850 Prostate cancer

VTP-1000/VTP-1100 (SNAPvax candidates)

Other and earlier stage programs

Total direct research and development expenses

Internal research and development expenses:

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Other internal costs

Total research and development expense

Our research and development expenses for the years ended December 31, 2021 and 2020 were $20.4 million and $14.4 million, respectively.

Personnel-related expenses were $5.8 million and $3.0 million, respectively, as a result of the relative increase in our headcount across both the UK and US.

Direct expenses for outside services and consultants and laboratory materials were $14.0 million for the year ended December 31, 2021 and $10.3 million for the year ended December 31, 2020 and mainly comprised of costs for clinical trials, manufacturing of clinical trial materials, as well as costs for external preclinical services and sample testing.

The Other and earlier stage programs for the year ended December 31, 2021 includes a refund of $0.3 million received in respect of the closure of the MVA-based influenza prophylactic, VTP-100, which did not meet defined primary clinical endpoints in 2020.

Total internal research and development expenses

Total research and development expenses

Our research and development expenses for the years ended December 31, 2022 and 2021 were $42.4 million and $20.4 million, respectively, and consisted of direct and internal research and development expenses.

Direct expenses for the years ended December 31, 2022 and 2021 were $30.3 million and $14.0 million, respectively, and consisted of outside services, consultants, laboratory materials, clinical trials, manufacturing of clinical trial materials, as well as costs for external preclinical services and sample testing.

Of the $16.3 million increase, $7.3 million pertains to progress in VTP-300, having completed the last patient visit in the HBV001 Phase 1 clinical trial in May 2022, completing enrollment in the HBV002 Phase 2 clinical trial in May 2022, and dosing the first patient in the HBV003 Phase 2 clinical trial in October 2022.

$5.1 million of the increase pertains to the commencement of VTP-1000 Celiac disease and VTP-1100 HPV cancer programs in 2022.

$2.6 million of the increase pertains to VTP-800/850, which has progressed to FDA clearance of our IND for PCA001, a Phase 1/2 open-label clinical trial, in December 2022.

$1.0 million of the increase pertains to VTP-200, having completed enrollment into the Phase 1b/2 clinical trial, HPV001, in December 2022.

Internal research and development expenses for the years ended December 31, 2022 and 2021 were $12.0 million and $6.4 million, respectively.

Of the $5.6 million increase, $4.6 million pertains to personnel-related expenses as a result of the relative increase in headcount across locations in the United Kingdom and United States, including those individuals that joined the Company through the acquisition of Avidea in December 2021.

Facility related costs increased $0.9 million primarily due to the relocation of the Company headquarters in the third quarter of 2022, and the U.S.

facility expenses being incurred for the full year following the Avidea acquisition in December 2021.

General and Administrative Expenses

General and administrative expenses for the year ended December 31, 2021 were $25.1 million, which were mainly attributable to personnel expenses of $20.4 million, including the share-based payment charge of $14.2 million, insurance costs of $4.8 million and legal and professional fees of $2.9 million, netted by unrealized foreign exchange gain on cash balances of $6.0 million.

General and administrative expenses for the year ended December 31, 2022 were $6.4 million, which were mainly attributable to personnel expenses of $16.8 million, including the share-based compensation charge of $7.2 million, due to an increase in headcount, insurance cost of $6.2 million, legal and professional fees of $4.3 million, and other general and administrative expenses, offset by un unrealized foreign exchange gain on the revaluation of cash balances of $26.4 million, resulting from the fluctuations between the United States dollar and pound sterling exchange rates.

For the year ended December 31, 2021, general and administrative expenses were $25.1 million, which were mainly attributable to personnel expenses of $20.4 million, including the share-based compensation charge of $14.2 million, insurance costs of $4.8 million and legal and professional fees of $2.9 million, netted by unrealized foreign exchange gain on cash balances of $6.0 million.

The share-based payment charge includes a one-off expense relating to the RSUs that vested upon the successful completion of our IPO.

For the year ended December 31, 2020, general and administrative expenses were $10.5 million, including personnel expenses of $5.4 million, and professional fees and consulting fees of $3.2 million, netted by unrealized foreign exchange gains on our cash balances of $0.4 million.

Change in fair value of derivatives

For the years ended December 31, 2021, and 2020, we recognized a change in fair value of $6.0 million and $2.0 million, respectively, in relation to the conversion and redemption features embedded in the convertible loan notes.

Change in fair value of derivatives embedded in convertible loan notes

For the year ended December 31, 2022, there were no outstanding convertible loan notes.

For the year ended December 31, 2021, we recognized a gain of $6.0 million in relation to the conversion and redemption features embedded in the convertible loan notes.

Loss on extinguishment of convertible loan notes

There was no loss on extinguishment of convertible loan notes for the year ended December 31, 2022, as there were no outstanding loan notes in the year.

For the year ended December 31, 2021, we recognized a loss of $13.8 million related to conversion of convertible loan notes into 12,421 Series B preferred shares.

The loss is a difference between (1) the fair value of those shares ($53.7 million) and (2) the sum of the carrying amounts of the convertible loan notes ($25.6 million) and the bifurcated conversion and redemption feature liability ($14.4 million).

Interest Income

For the years ended December 31, 2022 and 2021, interest income was $3.1 million and $0.002 million respectively, which primarily result from the interest earned on our short-term cash deposits and cash balances held by Vaccitech (UK) Limited in United States dollars and pound sterling.

Interest Expense

For the years ended December 31, 2021, and 2020, interest expense was $2.7 million and $3.6 million respectively, which primarily relate to our convertible loan notes, which carry a market rate of interest.

For the years ended December 31, 2022, interest expense was $0.02 million which mainly relates to dilapidation provision discounted over the length of the lease in respect of the Company headquarters, and $0.003 million interest paid on the debt recognized on the acquisition of Avidea, which was repaid in full in the first quarter of 2022.

For the year ended December 31, 2021 interest expense was $2.7 million which primarily related to our convertible loan notes, which carried a market rate of interest.

Research and Development Incentives

For the years ended December 31, 2021 and 2020, we accrued research and development incentives of $4.0 million and $3.3 million, respectively.

For the years ended December 31, 2022 and 2021, we accrued research and development incentives of $1.2 million and $4.0 million respectively, with the decrease attributable to a reduction in losses available to surrender for the receipt of the research and development incentives in Vaccitech (UK) Limited , due to amounts payable to the Company from the commercial sales of Vaxzevria.

Such research and development incentives relate to corporation tax relief on research and development projects incentive programs in the United Kingdom.

We account for such relief received as other income.

For the years ended December 31, 2022 and 2021, the tax benefit was $4.5 million and $0.03 million respectively, which primarily relates to movements in deferred tax resulting from the deferred tax liability recognised in respect of the acquired intangible asset.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have funded our operations primarily through private and public placements of our ordinary and preferred shares as well as from grants and research incentives, various agreements with public funding agencies, and most recently from an upfront payment from OUI in connection with the OUI License Agreement Amendment and the issuance of convertible loan notes.

Since our inception, we have funded our operations primarily through private and public placements of our ordinary and preferred shares as well as from grants and research incentives, various agreements with public funding agencies, the issuance of convertible loan notes and most recently from royalty and milestone payments from OUI in connection with the OUI License Agreement Amendment.

Through December 31, 2022, we had received gross proceeds of approximately $325.5 million from the issuance of our ordinary and preferred shares and convertible loan notes.

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● In May 2021, we raised gross proceeds of $110.5 million from the initial public offering of our ordinary shares on NASDAQ.

We do not expect positive cash flows from operations in the foreseeable future, if at all.

Historically, we have incurred operating losses as a result of ongoing efforts to develop our heterologous ChAdOx1-MVA prime-boost immunotherapy platform and our product candidates, including conducting ongoing research and development, preclinical studies, clinical trials, providing general and administrative support for these operations and developing our intellectual property portfolio.

We expect to continue to incur net operating losses for at least the next few years as we progress clinical development, seek regulatory approval, prepare for and, if approved, proceed to manufacture and commercialization of our most advanced product candidates.

Operating profits may arrive earlier if programs are licensed or sold to third parties before final approval, but this cannot be guaranteed.

● In 2022, we received $38.2 million of cash from OUI for the commercial sales of Vaxzevria.

● In December 2022, we raised gross proceeds of $0.7 million from the issuance of shares represented by ADSs through “at-the-market” offerings under the sales agreement with Jefferies LLC.

On August 9, 2022, we filed a Registration Statement on Form S-3 as amended, or the Shelf, with the Securities and Exchange Commission in relation to the registration and potential future issuance of ordinary shares, including ordinary shares represented by ADSs, debt securities, warrants and/or units of any combination thereof in the aggregate amount of up to $200.0 million.

The Shelf was declared effective on August 17, 2022.

As of December 31, 2022, we sold 307,139 ordinary shares represented by ADSs under the sales agreement, amounting to gross proceeds of $0.7 million.

We do not currently expect positive cash flows from operations in the foreseeable future, if at all.

Historically, we have incurred operating losses as a result of ongoing efforts to develop our heterologous prime-boost immunotherapy platforms and our product candidates, including conducting ongoing research and development, preclinical studies, clinical trials, providing general and administrative support for these operations and developing our intellectual property portfolio.

We expect to continue to incur net negative cash flows from operations for at least the next few years as we progress clinical development, seek regulatory approval, prepare for and, if approved, proceed to manufacture and commercialization of our most advanced product candidates.

Operating profits may arise earlier if programs are licensed or sold to third parties before final approval, but this cannot be guaranteed.

The following table sets forth a summary of the primary sources and uses of cash (in thousands) for each period presented:

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Effect of exchange rates on cash and cash equivalents

Net increase in cash and cash equivalents

Net (decrease)/increase in cash and cash equivalents

Cash Used in Operating Activities

During the year ended December 31, 2022, net cash used in operating activities was $14.4 million, primarily resulting from our net income of $5.3 million, adjusted by foreign exchange gain on translation of $24.8 million, share based compensation of $9.9 million, depreciation and amortization of $4.3 million, and changes in our operating assets and liabilities, net of $5.5 million primarily resulting from the OUI receivable, and an increase in prepaid expense due to the payment of annual insurance premiums that occurred in the second quarter of 2022.

During the year ended December 31, 2021, net cash used in operating activities was $32.6 million, primarily resulting from our net loss of $51.1 million, adjusted by fair value gain on embedded derivatives of $6.0 million, loss on conversion of convertible loan notes of $13.8 million, share-based compensation of $16.5 million, non-cash interest expense of $0.8 million, depreciation and amortization of $0.6 million, foreign exchange gain on convertible loan notes of $0.2 million and changes in our operating assets and liabilities, net of $7.0 million.

During the year ended December 31, 2020, net cash used in operating activities was $11.0 million, primarily resulting from our net loss of $17.9 million, adjusted by share based compensation of $3.6 million, depreciation of $0.2 million and changes in our operating assets and liabilities, net of $2.0 million.

Net Cash Used in Investing Activities

During the year ended December 31, 2021, cash used in investing activities was $12.9 million, including $11.8 million which was related to the acquisition of Avidea Technologies, Inc, and $1.1 million from capital expenditures.

During the year ended December 31, 2020, cash used in investing activities was $0.3 million, which resulted from capital expenditures in connection with the new laboratory, improvements to expand our laboratory space and purchases of property and equipment.

During the year ended December 31, 2022, cash used in investing activities was $5.8 million primarily resulted from capital expenditures related to our new headquarters in Harwell, United Kingdom.

During the year ended December 31, 2021, cash used in investing activities was $12.9 million, including $11.8 million which was related to the acquisition of Avidea, and $1.1 million related to capital expenditures.

Net Cash Provided by Financing Activities

During the year ended December 31, 2021, cash provided by financing activities was $222.7 million consisting of $121.8 million of net proceeds from the issuance of Series B shares, $102.8 million of net proceeds from our initial public, offering costs of $2.2 million and $0.3 million of proceeds from issuance of shares to non-controlling interest.

During the year ended December 3l, 2020, cash provided by financing activities was $41.4 million, consisting of $41.2 million of proceeds from the issuance of convertible loan notes and $0.3 million of capital contributions from non-controlling interest.

During the year ended December 31, 2022, cash provided by financing activities was $0.3 million resulting from $0.5 million net proceeds from the issuance ordinary shares through the “at-the-market” sales agreement, offset by $0.2 million repayment of debt incurred previously by the acquired company Avidea (acquired on December 10, 2021, that subsequently became Vaccitech North America, Inc.).

During the year ended December 3l, 2021, cash provided by financing activities was $222.7 million consisting of $121.8 million of net proceeds from the issuance of Series B shares, $102.8 million of net proceeds from the IPO after offering costs of $2.2 million and $0.3 million of capital contributions from non-controlling interest.

Effect of exchange rates on cash and cash equivalents

During the year ended December 31, 2021 and 2021, the effect of foreign exchange on cash and cash equivalents was $6.5 million loss and $1.7 million gain respectively, primarily as a result of fluctuations between the U.S dollar and pound sterling exchange rates.

During the year ended December 31, 2022 and 2021, the effect of foreign exchange on cash and cash equivalents was a $0.2 million gain and $6.5 million loss respectively, primarily as a result of fluctuations between the United States dollar and pound sterling exchange rates.

Future Funding Requirements

To date, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, undertaking preclinical studies and conducting clinical trials of our product candidates.

As a result, we are not yet profitable and have incurred losses in each period since our inception in 2016.

As a result, we have incurred losses in each year since our inception in 2016, through to December 31, 2021.

We were profitable in 2022 but continue to maintain negative operating cash flows.

As of December 31, 2022, we had an accumulated deficit of $103.2 million.

We expect to continue to incur significant losses for the foreseeable future.

We expect to continue to incur significant losses and negative cash flows from operations for the foreseeable future.

We anticipate that our expenses will increase substantially as we:

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We may require substantial additional financing in the future to meet any such unanticipated factors and a failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations.

Since our foundation, we have invested a significant portion of our efforts and financial resources in research and development activities for our ChAdOx1, ChAdOx2 and MVA technologies, development of new technologies, and our product candidates derived from these technologies.

Since our foundation, we have invested a significant portion of our efforts and financial resources in research and development activities for our ChAdOx1, ChAdOx2 and MVA technologies, acquisition of additional complementary platforms such as SNAPvax, development of new technologies in house, and our product candidates derived from these technologies.

Preclinical studies and especially clinical trials and additional research and development activities will require substantial funds to complete.

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Furthermore, our operating plans may change in the future owing to research outcomes or other opportunities, and we may need additional funds to meet operational needs and capital requirements associated with such altered operating plans.

Based on our research and development plans, we expect that the net proceeds from our IPO, together with our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2024.

Unless and until we can generate a substantial amount of revenue from our product candidates, we expect to finance our future cash needs through public or private equity offerings, debt financings, collaborations, licensing arrangements or other sources, or any combination of the foregoing.

Based on our research and development plans, we expect that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2025.

These estimates are based on assumptions that may prove to be wrong, and we could use our available capital resources more quickly than we expect.

If we raise additional funds through collaborations, strategic alliances, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds when needed, we would be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Lease, Purchase, and Other Obligations

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The details of these leases are disclosed in Item 2.

"Properties.".

The obligations related to both short- and long-term lease arrangements is set forth in Note 16 "Commitment and Contingencies"

to our consolidated financial statements.

“Properties.”.

The obligations related to both short- and long-term lease arrangements are set forth in Note 17 “Commitment and Contingencies” to our consolidated financial statements.

We enter into contracts in the normal course of business with CROs and other third parties for clinical trials and preclinical research studies and testing.

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however, the amount, timing and likelihood of such payments are not known as of December 31, 2022.

See section entitled “Business - Our Collaboration and License Agreements.

Emerging Growth Company Status

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Recent Accounting Pronouncements

A description of recently issued accounting pronouncement that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements.

A description of recently issued accounting pronouncement that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis