Barinthus Biotherapeutics plc. 10-K

Item 7. 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. 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. 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. Overview We are a clinical-stage biopharmaceutical company developing novel T cell immunotherapeutic candidates designed to guide the immune system to overcome chronic infectious diseases, autoimmunity and cancer. Helping patients and their families is the guiding principle at the heart of Barinthus Bio. The Company stands apart through its broad pipeline, built around four proprietary platform technologies; two viral vector platforms, ChAdOx and MVA; and two synthetic SNAP platforms, SNAP-Tolerance Immunotherapy ("SNAP-TI") and SNAP-Cancer Immunotherapy ("SNAP-CI").These platforms are enabling us to develop antigen-specific immunotherapeutic candidates designed to optimize the disease-fighting capabilities of T cells and guide them towards a healthy balance. Our immunotherapeutic candidates are designed to work by increasing disease-specific CD8+ T cell activity in the case of chronic infectious diseases and cancers, or by dampening CD4+ and CD8+ T cells, and increasing regulatory T cells in autoimmunity. Harnessing our range of proprietary viral vector and synthetic platform technologies, we are advancing a pipeline of four product candidates across a diverse range of therapeutic areas, including: VTP-300, a Phase 2 immunotherapeutic candidate designed as a potential component of a functional cure for chronic HBV infection; VTP-200, a Phase 2 non-surgical product candidate for persistent high-risk HPV with near term clinical read-outs; VTP-1000, our first preclinical autoimmune candidate designed to utilize the SNAP-TI platform to treat patients with celiac disease; and VTP-850, a second-generation Phase 2 immunotherapeutic candidate designed to treat recurrent prostate cancer. Alongside these proprietary programs, we have partnerships in place to advance three additional prophylactic and therapeutic product candidates in MERS, Zoster and Non-Small Cell Lung Cancer ("NSCLC"). The Company also co-invented a COVID-19 vaccine with the University of Oxford, which has been exclusively licensed worldwide to AstraZeneca. The co-invention of the COVID-19 vaccine demonstrated our ability to navigate a changing environment with speed and efficiency and lead the way in responding to urgent medical needs, as well as providing a strong proof-of-concept for the ChAdOx platform. We believe our proven scientific expertise, diverse portfolio and focus on product candidate development uniquely positions us to navigate towards delivering treatments for patients with infectious diseases, autoimmune disorders and cancers that have a significant impact on their every day lives. On May 4, 2021, we completed our 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, 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 116 Table of Contents 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. On August 9, 2022, we filed a Registration Statement on Form S-3, as amended (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, 2023, we sold 1,139,444 ordinary shares represented by ADSs under the sales agreement, amounting to gross proceeds of $3.1 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, 2023, we incurred net losses of $73.4 million. As of December 31, 2023 and 2022, we had an accumulated deficit of $176.6 million and $103.2 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. We are also unable to predict when, if ever, material net cash inflows will commence from sales of product candidates we develop, if at all. This is due to the numerous risks and uncertainties associated with developing product candidates to approval and commercialization, including the uncertainty of: • successful completion of preclinical studies and clinical trials; • sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials; • acceptance of INDs for our planned clinical trials or future 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; • 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; • entry into collaborations where appropriate to further the development of our product candidates; • obtaining and maintaining intellectual property and trade secret protection or regulatory exclusivity for our product candidates as well as qualifying for, maintaining, enforcing and defending such intellectual property rights and claims; • successfully launching or assisting with the launch of commercial sales of our product candidates following approval; • acceptance of each product’s benefits and uses by patients, the medical community and third-party payors following approval; 117 Table of Contents • the prevalence and severity of any adverse events experienced with our product candidates in development; • establishing and maintaining a continued acceptable safety profile of the product candidates following approval; • obtaining and maintaining healthcare coverage and adequate reimbursement from third-party payors if necessary or desirable; and • effectively competing with other therapies. A change in the outcome of any of these or other variables with respect to the development of any of our current and future product candidates could significantly change the costs and timing associated with the development of that product candidate, in either direction. 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. Unless and until we can generate a substantial amount of revenue from our product candidates, if approved, 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 and other financial resources, will enable us to fund our operating expenses and capital expenditure requirements into the fourth 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. Impact of Israel and Gaza Conflict In respect of the international conflict in Israel and Gaza, we have no operations or suppliers based in Israel or Gaza, and as a result, as of the date of this Annual Report, we believe the impact on our business, operations and financial condition will be minimal. Impact of the Ukraine Crisis In respect of the international situation in Ukraine, we have assessed the impact on us 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 our 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 Revenue 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 the OUI License Agreement Amendment with OUI relating to Vaxzevria. 118 Table of Contents 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. 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, 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. Our revenue for the year ending December 31, 2023 was $0.8 million (year ended December 31, 2022 $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. 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 earned, and it is probable that a significant reversal of revenue will not occur. 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. Operating Expenses Our operating expenses since inception have consisted of research and development costs and general administrative costs. 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 new next generation adenoviral vector, acquiring new technology platforms including SNAP (SNAP-TI and SNAP-CI), 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 and VTP-850 and readying, VTP-500 and VTP-1000 for clinical trials. Research and development activities account for a large 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. These costs include: • salaries, benefits and other related costs, including share-based compensation, for personnel engaged in research and development functions; • expenses incurred in connection with the development of our programs including preclinical studies and clinical trials of our product candidates, under agreements with third parties, such as consultants, contractors, academic institutions and ("CROs"); • the cost of manufacturing drug products for use in preclinical development and clinical trials, including under agreements with third parties, such as contract manufacturing organizations, consultants and contractors; • laboratory costs; and • leased facility costs, equipment depreciation and other expenses, which include direct and allocated expenses. General and Administrative Expenses Our general and administrative expenses consist primarily of personnel-related expenses, including share-based compensation, in our executive, finance, business development and other administrative functions. 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, other central non-research costs and changes in fair value of contingent consideration. 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 used in the valuation model of the contingent consideration. 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 119 Table of Contents Nasdaq Global Market and the Securities and Exchange Commission, directors’ and officers’ liability insurance premiums and investor relations activities. Other Income/ (Expense) Interest Income Interest income results primarily from the interest earned on our short-term cash deposits and cash balances held by Barinthus Biotherapeutics (UK) Limited in United States dollars and pounds sterling. Interest Expense Interest expense results primarily from the asset retirement obligation provision discounted over the length of the lease in respect of our headquarters. Research and Development Incentives Research and development incentives contain payments receivable from the United Kingdom government related to corporation tax relief on research and development projects 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 ("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 ("RDEC Program"). Until March 2023, under the SME Program, we were able to surrender some of its trading losses that arise from qualifying research and development activities for a cash rebate of (after taking into account the enhanced rate of deduction) 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 staff, consumables (including utilities), subcontractors and externally provided workers qualifying research and development expenditures are eligible for a cash rebate of up to 21.67%. 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 April 2023, under the SME Program the enhanced rate of deduction has decreased from 230% to 186%, the SME credit rate has was or has been reduced from 14.5% to 10% (except for R&D intensive SMEs, which are expected to benefit form a credit rate of 14.5%), and the SME cash rebate for us was or has been reduced from an effective rate of 33.35% to 18.6% (or 26.97% for R&D intensive SMEs) and from 21.67% to 12.1% for subcontractors. Furthermore, the SME credit rate will decrease to 10% for expenditure incurred on or after April 1, 2023 unless the SME qualifies as an R&D intensive business, i.e., R&D expenditure constitutes at least 40% (from April 1, 2023) or 30% (from accounting periods starting on or after April 1, 2024) of total expenditure. 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 our 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 ("PAYE"), and National Insurance Contributions ("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 an 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 were further restricted by the available tax losses in the UK for the period. There was no tax loss restriction applied to the R&D tax credits in the UK for the year ended December 31, 2023. 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. 120 Table of Contents Critical Accounting Policies and Use of Estimates 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 accounting principles generally accepted in the United States ("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 revenue, income and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to fair value of contingent consideration and impairment of goodwill and intangible assets. 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. Actual results could differ from those estimates. 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. Goodwill and Purchased Intangible Assets We assess goodwill and intangible assets for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying amounts 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. Accordingly, our review of goodwill impairment indicators is performed at the entity-wide level. This requires us to assess and make judgments regarding a variety of factors, including clinical data results, business plans, anticipated future cash flows, economic projections and other market data. 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 $12.2 million and the intangible asset of $25.1 million recognized as at December 31, 2023 wholly relate to the acquisition of Avidea on December 10, 2021. The Company performed the annual impairment assessment as of December 31, 2023, 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 year ended December 31, 2023. Contingent consideration The Company recognizes a contingent consideration liability related to the acquisition of Avidea. The liability is remeasured to fair value at each reporting date until the contingency is resolved. The fair value of the contingent consideration is a Level 3 valuation determined using significant unobservable inputs being the probability of success of achievement of the milestones and the expected date of the milestone achievement. Changes in fair value are recognized in general and administrative expenses in the consolidated statement of operations and comprehensive loss. Avidea’s stockholders may be entitled to receive an aggregate of up to $40.0 million in additional payments, payable in a combination 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 general and administrative expenses 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. 121 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table sets forth the significant components of our results of operations (in thousands): Year ended December 31, 2023 Year ended December 31, 2022 Change Revenue from Licenses, Grants and Services $ 802 $ 44,703 $ (43,901) Operating expenses: Research and development 44,874 42,350 2,524 General and administrative 39,842 6,394 33,448 Total operating expenses 84,716 48,744 35,972 Loss from operations (83,914) (4,041) (79,873) Other income/(expense): Interest income 2,877 3,103 (226) Interest expense (28) (19) (9) Research and development incentives 3,461 1,240 2,221 Other income, net 1,082 567 515 Total other income 7,392 4,891 2,501 (Loss)/profit before income tax (76,522) 850 (77,372) Tax benefit 3,075 4,471 (1,396) Net (loss)/income $ (73,447) $ 5,321 $ (78,768) Revenue For the year ended December 31, 2023, our revenue consisted of $0.8 million from the OUI License Agreement Amendment with respect to amounts owed to us by OUI for the commercial sales of Vaxzevria. The decrease in revenue from the OUI License Agreement Amendment, compared to the prior period, resulted from substantially declined sales of Vaxzevria in 2023. There is no guarantee that further payments will be received pursuant to the agreement in the future and, if such payments are made, that we will be notified of such payments in a timely manner. 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 Vaxzevria, and $0.8 million attributable to upfront fees associated with a research and license agreement with Scancell. 122 Table of Contents Research and Development Expenses The following table summarizes our research and development expenses for the years ended December 31, 2023 and 2022: Year ended December 31, 2023 Year ended December 31, 2022 Change Direct research and development expenses by program: VTP-200 HPV $ 4,950 $ 4,050 $ 900 VTP-300 HBV 11,276 13,700 (2,424) VTP-600 NSCLC 597 532 65 VTP-850 Prostate cancer 2,726 5,011 (2,285) VTP-1000/VTP-1100 Celiac/HPV Cancer 8,420 5,118 3,302 Other and earlier stage programs 1,787 1,916 (129) Total direct research and development expenses $ 29,756 $ 30,327 $ (571) Indirect research and development expenses: Personnel-related (including share-based compensation) 12,702 10,424 2,278 Facility related 1,339 1,308 31 Other indirect costs 1,077 291 786 Total indirect research and development expenses 15,118 12,023 3,095 Total research and development expenses $ 44,874 $ 42,350 $ 2,524 Our research and development expenses for the years ended December 31, 2023 and 2022 were $44.9 million and $42.4 million, respectively, and consisted of direct and indirect research and development expenses. Direct expenses for the years ended December 31, 2023 and 2022 were $29.8 million and $30.3 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 $0.6 million decrease, a $2.4 million decrease pertains to VTP-300 as a result of completing the HBV002 Phase 2 clinical trial with final data that was presented at the EASL Congress in June 2023, and continuing enrollment in the HBV003 Phase 2b clinical trial and the AB-729-202 Phase 2a clinical collaboration with Arbutus. A $2.3 million decrease pertains to VTP-850 which is currently enrolling PCA001, a Phase 1/2 open-label clinical trial, compared to the prior year which was a result of manufacturing spend. These decreases were partially offset by a $3.3 million increase in SNAP candidates, namely in VTP-1000 Celiac disease program costs which increased as the program progresses to regulatory submissions and towards the clinic. Indirect research and development expenses for the years ended December 31, 2023 and 2022 were $15.1 million and $12.0 million, respectively. Of the $3.1 million increase, $2.3 million pertains to personnel-related expenses as a result of an increase in headcount across locations in the United Kingdom and United States and $0.8 million increase relates to other indirect cost mainly due to overhead allocations from the new U.S. laboratory and office facility that we relocated to in June 2023. General and Administrative Expenses General and administrative expenses for the years ended December 31, 2023 and 2022 were $39.8 million and $6.4 million, respectively. The increase of $33.4 million relates primarily to a change in foreign exchange gains and losses of $33.8 million from a gain of $26.0 million for the year ended December 31, 2022 to a loss of $7.8 million for the year ended December 31, 2023. Interest Income For the years ended December 31, 2023 and 2022, interest income was $2.9 million and $3.1 million respectively, which primarily resulted from the interest earned on our short-term cash deposits and cash balances held by Barinthus Biotherapeutics (UK) Limited in United States dollars and pound sterling. 123 Table of Contents Interest Expense For the year ended December 31, 2023, interest expense was $0.03 million which related to an asset retirement obligation provision discounted over the length of the lease term in respect of the laboratory and office facilities in the United Kingdom and the United States. For the year ended December 31, 2022 interest expense was $0.02 million which related to an asset retirement obligation provision discounted over the length of the lease in respect of our headquarters in the United Kingdom, 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. Research and Development Incentives For the years ended December 31, 2023 and 2022, we accrued research and development incentives of $3.5 million and $1.2 million respectively, with the increase mainly attributable to an increase in losses available to surrender for the receipt of research and development incentives in Barinthus Biotherapeutics (UK) Limited due to a reduction in revenue received from commercial sales of Vaxzevria. Such research and development incentives relate to corporation tax relief on research and development project incentive programs in the United Kingdom. We account for such relief received as other income. Tax benefit For the years ended December 31, 2023 and 2022, the tax benefit was $3.1 million and $4.5 million respectively, which primarily relates to movements in deferred tax resulting from the deferred tax liability recognized 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, 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, 2023, we had received gross proceeds of approximately $327.9 million from the issuance of our ordinary and preferred shares and convertible loan notes. As of December 31, 2023, we had cash and cash equivalents of $142.1 million. Key financing and corporate milestones include the following: • Between July 2020 and November 2020, we raised gross proceeds of $41.2 million from the issuance of convertible loan notes. • In March 2021, we raised gross proceeds of $125.2 million from the issuance of our Series B shares. • In May 2021, we raised gross proceeds of $110.5 million from the IPO of our ordinary shares on NASDAQ. • Between April 2022 and December 2023, we received $44.5 million of cash from OUI for the commercial sales of Vaxzevria. • Between December 2022 and December 2023, we raised net proceeds of $3.0 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 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, 2023, we have sold 1,139,444 ordinary shares represented by ADSs under the sales agreement, amounting to net proceeds of $3.0 million. We do not currently expect positive cash flows from operations in the foreseeable future, if at all. In most periods, we have incurred operating losses as a result of ongoing efforts to develop our novel T cell immunotherapeutic 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 124 Table of Contents 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. Cash Flows The following table sets forth a summary of the primary sources and uses of cash (in thousands) for each period presented: Year ended December 31, 2023 Year ended December 31, 2022 Net cash used in operating activities $ (50,925) $ (14,431) Net cash used in investing activities (5,413) (5,750) Net cash provided by financing activities 1,872 325 Effect of exchange rates on cash and cash equivalents 2,171 187 Net decrease in cash and cash equivalents $ (52,295) $ (19,669) Cash Used in Operating Activities During the year ended December 31, 2023, net cash used in operating activities was $50.9 million, primarily resulting from our net loss of $73.4 million, adjusted by foreign exchange loss on translation of $7.5 million, share based compensation of $5.1 million, depreciation and amortization of $5.4 million, deferred tax benefit of $3.1 million and changes in our operating assets and liabilities, net decrease of $6.2 million primarily related to a $5.8 million decrease in accounts receivable, a $2.2 million decrease in prepaid expenses and other current assets, a $3.4 million decrease in accounts payable and a $2.0 million increase in accrued expenses. 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. Net Cash Used in Investing Activities During the year ended December 31, 2023, cash used in investing activities was $5.4 million primarily resulted from capital expenditures related to leasehold improvements on our new office in Germantown, Maryland, United States. 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. Net Cash Provided by Financing Activities During the year ended December 31, 2023, cash provided by financing activities was $1.9 million primarily resulting from the issuance of ordinary shares in the form of ADSs through the “at-the-market” sales agreement with Jefferies LLC. During the year ended December 31, 2022, cash provided by financing activities was $0.3 million resulting from $0.5 million from the issuance ordinary shares through the “at-the-market” sales agreement with Jefferies LLC, offset by $0.2 million repayment of debt incurred previously by the acquired company Avidea (acquired on December 10, 2021, that subsequently became Barinthus North America, Inc.). Effect of exchange rates on cash and cash equivalents During the years ended December 31, 2023 and 2022, the effect of foreign exchange on cash and cash equivalents was a $2.2 million gain and $0.2 million gain respectively, primarily as a result of fluctuations between the United States dollar and pound sterling exchange rates. 125 Table of Contents 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 have incurred losses in each year since our inception in 2016, through to December 31, 2021. We were profitable in 2022, however we have negative operating cash flows for the period ending December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $176.6 million. 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: • pursue the clinical and preclinical development of our current product candidates; • use our technologies to advance additional product candidates into preclinical and clinical development; • seek marketing authorizations for product candidates that successfully complete clinical trials, if any; • attract, hire and retain additional clinical, regulatory, quality control and other scientific personnel; • establish our manufacturing capabilities through third parties or by ourselves and scale-up manufacturing to provide adequate supply for clinical trials and commercialization, including any manufacturing finishing and logistics personnel; • expand our operational, financial and management systems and increase personnel appropriately, including personnel to support our manufacturing and commercialization efforts and our operations as a public company; • maintain, expand, enforce, and protect our intellectual property portfolio as appropriate; • establish sales, marketing, medical affairs and distribution teams and infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly; • acquire or in-license other companies, product candidates and technologies; and • incur additional legal, accounting and other expenses in operating our business, including office expansion and the additional costs associated with operating as a public company. Even if we succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development and other expenditure to develop and market additional product candidates. We may encounter unforeseen expenses, difficulties, complications, delays and other factors that may adversely affect our business. The size of our future net losses will depend on the rate of future growth of our expenses combined with our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital unless and until eliminated by revenue growth. 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, acquisition of additional complementary platforms such as SNAP-TI and SNAP-CI, 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. We believe that we will continue to expend substantial resources for the foreseeable future in connection with the development of our current product candidates and programs as well as any future product candidates we may elect to pursue, as well as the gradual gaining of control over our required manufacturing capabilities and other corporate functions. These expenditures will include costs associated with conducting preclinical studies and clinical trials, obtaining regulatory approvals, and potentially in-house manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise as outlined above. Because the outcome of any preclinical study or clinical trial is uncertain and the rate of change of third-party costs is also unpredictable, we cannot reasonably estimate now the actual amounts which will be necessary to complete the development and commercialization of our current or future product candidates successfully. 126 Table of Contents Our future capital requirements may depend on many factors, including: • the scope, progress, results and costs of researching and developing our current and future product candidates and programs, and of conducting preclinical studies and clinical trials; • the number and development requirements of other product candidates that we may pursue, and of other indications for our current product candidates that we may pursue; • the stability, scale and yield of future manufacturing processes as we scale-up production and formulation of our product candidates either internally or externally for later stages of development and commercialization; • the timing of, success achieved and the costs involved in obtaining regulatory and marketing approvals and developing our ability to establish license or sale transactions and/or sales and marketing capabilities, if any, for our current and future product candidates if clinical trials and approval processes are successful; • the success of our collaborations with CEPI, CanSino, CRUK and the Ludwig Institute and any future collaboration partners; • our ability to establish and maintain collaborations, strategic licensing or other arrangements and the financial terms of such agreements; • the cost to the company of commercialization activities for our current and future product candidates that we may take on, whether alone or with a collaborator; • the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent and other intellectual property claims, including litigation costs and the outcome of such litigation; • the timing, receipt and amount of sales of, or royalties or other income from, our future products, if any; and • the emergence and success or otherwise of competing oncology and infectious disease therapies and other market developments. A change in the outcome of any of these or other variables with respect to the development of any of our current and future product candidates could significantly change the costs and timing associated with the development of that product candidate, in either direction. 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. 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 and other financial resources, will enable us to fund our operating expenses and capital expenditure requirements into the fourth 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 We have operating lease obligations related to our property and equipment. The details of these leases are disclosed in Item 2. “Properties.”. The obligations related to both short- and long-term lease arrangements are set forth in Note 16 “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. These contracts are generally cancellable by us upon prior notice. Payments due upon 127 Table of Contents cancellation consist only of payments for services provided or expenses incurred, including noncancellable obligations of our service providers, up to the date of cancellation. We have contingent payment obligations that we may incur upon achievement of clinical, regulatory and commercial milestones, as applicable, or royalty payments that we may be required to make under our licenses; however, the amount, timing and likelihood of such payments are not known as of December 31, 2023. See section entitled “Business - Our Collaboration and License Agreements. Emerging Growth Company Status We are an emerging growth company under the JOBS Act. As an emerging growth company, we may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the closing of our IPO, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ADSs held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. 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 consolidated financial statements.