VACCITECH PLC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and the related notes appearing elsewhere in this unaudited Quarterly
Report on Form 10-Q and our audited financial statements and related notes
thereto for the year ended December 31, 2021 included in our Annual Report on
Form 10-K for the year ended December 31, 2021, which was filed with the SEC on
March 25, 2022. 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. Factors that
might cause future results to differ materially from those projected in the
forward-looking statements include, but are not limited to, those set forth in
our Annual Report on Form 10-K and in other filings with the SEC.

Overview

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, VTP-600 for the treatment of non-small cell lung cancer, or NSCLC,
VTP-1000 for treatment of celiac disease, and VTP-1100 for treatment of
HPV-associated cancers. 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 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. AstraZeneca has exclusive worldwide rights
to develop and commercialize Vaxzevria.

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, 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.

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. Our share of
payments in the three and nine months ended September 30, 2022, recognized as
revenue amount to approximately $6.2 million and $38.2 million, respectively,
representing the amounts we have been notified of as due by OUI to date. Because
of the limited history and continued volatility of receipts and the lack of
visibility we have of the arrangements between AstraZeneca and OUI, we continue
to fully constrain any revenue beyond the amounts that we have been notified of
by OUI to date. There is, however, no guarantee that such payments will continue
in the future and, if they do, that we will

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be notified of such payments in a timely manner. If we do not receive notification of our share of the payments in a timely manner, we may not be able to recognize the payments as revenue in the quarter they are earned.

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 September 30, 2022, we have not issued or sold
any ordinary shares represented by ADSs under the sales agreement.

We have incurred net losses each year since inception through to December 31,
2021. For the nine months ended September 30, 2022, we generated net income of
$26.5 million. For the nine months ended September 30, 2021, we incurred net
losses of $35.9 million. As of September 30, 2022, we had an accumulated deficit
of $82.1 million and we do not currently expect 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 investigational new drug applications, or 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;

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? 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 variables with respect to the
development of a product candidate could mean a significant change in the costs
and/or timing associated with the development of that product candidate or could
prevent continuation of that program being in the company's interests. For
example, if the FDA or another regulatory authority were to require us to
conduct clinical trials beyond those that we anticipate will be required for the
completion of clinical development of a product candidate, or if we experience
significant delays in our clinical trials due to patient enrollment or other
reasons, we might be required to expend significant additional financial
resources and time on the completion of clinical development. 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. We expect that our cash balance as of September 30, 2022 will enable us
to fund our operating expenses and capital requirements into the first quarter
of 2025.

Recent Developments

On September 20, 2022, we announced the promotion of Gemma Brown to Chief Financial Officer.

On October 27, 2022, we announced the publication of research from VTP-1100 in
Cell online that demonstrates anti-tumor activity achieved with intravenous, or
IV, vaccination of a SNAPvax construct in an animal model. The study
demonstrates that IV administration of SNAPvax primes and expands
antigen-specific T cells and reverses suppression in the tumor microenvironment,
which promotes T cell infiltration and tumor cell killing. An IND application
submission is expected during the first half of 2023 for HPV related cancer.

On October 31, 2022, we announced the dosing of the first patient in HBV003, a
Phase 2b clinical trial of VTP-300 to evaluate the optimal timing of low dose
nivolumab and the impact of additional doses of the MVA boost for a sustained
decline in HBsAG.

On November 7, 2022 Dr. Young-Suk Lim, Professor of Gastroenterology in the
Liver Center at University of Ulsan College of Medicine presented a poster Phase
1b/2a clinical trial data on VTP-300 at the American Association for the Study
of Liver Disease, or AASLD, Liver Meeting. The poster presentation showed
VTP-300 immunotherapy, as monotherapy and when combined with low dose nivolumab
at the boosting time point, was immunogenic and showed a reduction in HBsAg in
well-controlled CHB patients, while exhibiting an excellent safety profile. Two
of five patients dosed in cohort 3 (ChAdOx1-HBV + MVA-HBV with low dose
nivolumab given at the boost) with starting HBSAg levels below 100, achieved
non-detectable levels of surface antigen.

Impact of COVID-19

COVID-19 continues to have an impact, both directly and indirectly, on our
business and operations, including continuing disruption 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, participant recruitment was delayed, and the last
patient's first visit is anticipated to be in the fourth quarter of 2022 with
the last visit due by the end of 2023. Initial data is expected to be available
in the first quarter of 2023.

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. 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. 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.

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We continue to assess our business plans and the impact the COVID-19 is having
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 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.

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 unaudited condensed 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

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 a research grant from the Biomedical Advanced Research and
Development Authority, or BARDA, a research collaboration and license agreement
with Enara Bio, 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 recognized $2.4 million as revenue during
the year ended December 31, 2020. In March 2022, we were notified of the
commencement of payments relating to commercial sales of Vaxzevria. Our share of
payments for the three and nine month periods ended September 30, 2022, amount
to approximately $6.2 million and $38.2 million respectively, representing the
amounts we have been notified of as due by OUI to date. Because of the limited
history of receipts and the lack of visibility we have of the arrangements
between AstraZeneca and OUI, we continue to fully constrain any revenue beyond
the amounts that we have been notified of by OUI to date.

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.

Operating Expenses

Our operating expenses since inception have consisted of research and development costs and general administrative costs.

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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, VTP-300, and VTP-600 and readying VTP-850 and VTP-500 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. 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 CMOs,

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 costs,
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 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 United Kingdom and United States 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.

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Other Income (Expense)

Change in Fair Value

For the three and nine months ended September 30, 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
Technologies, Inc., or Avidea, on December 10, 2021. Significant judgment is
used to determine the probability of success of achievement of the milestone and
the date of the expected milestone.

We recognized a change in fair value in relation to the conversion and
redemption features embedded in the convertible loan notes in the condensed
consolidated statements of operations and comprehensive loss for the nine months
ended September 30, 2021. We had an embedded derivative liability related to the
conversion features, the cash redemption feature on maturity and the cash
redemption feature upon an exit event that settles in noncash consideration
embedded in convertible loan notes. The fair value of the embedded derivatives
is a Level 3 valuation with the significant unobservable inputs being the
probability of exercise of conversion and cash redemption features. Significant
judgment is employed in determining the appropriateness of certain of these
inputs.

Loss on Extinguishment of Convertible Loan Notes

On March 15, 2021, we issued 28,957 Series B preferred shares, or Series B
Shares, amounting to $125.2 million. Each Series B Share is convertible into 309
ordinary shares and nine deferred shares at the holders' option at any time. The
Series B funding 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.

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
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. 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.

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 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 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.

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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.

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 revenue and expenses during the reporting
period. On an ongoing basis, management evaluates its estimates, including those
related to revenue, expenses, 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. 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.

Going Concern

The condensed 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 through to December 31, 2021 and expect to
incur additional losses in the future in connection with research and
development activities and general and administrative expenses. 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 generated a net income of $26.5 million and used $3.1 million in cash to fund
our operating activities during the nine months ended September 30, 2022. During
the nine months ended September 30, 2021, we incurred a net loss of $35.9
million and used $24.6 million in cash to fund our operating activities. We had
an accumulated deficit of $82.1 million as of September 30, 2022. As of
September 30, 2022, we had $200.1 million in cash and cash equivalents mainly as
a result of equity issuance and the IPO in 2021, and revenues received from
Vaxzevria in 2022. Our management believes that we have sufficient cash to
support our operations into the first quarter of 2025, 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 condensed consolidated financial
statements.

Convertible Loan Notes and Embedded Derivatives

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

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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 in the condensed 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 condensed 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 in the condensed consolidated
statements of operations and comprehensive loss, using the effective interest
method.

Embedded derivatives bifurcated are presented along with the host contract on the condensed consolidated 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 15, 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.

Recognition of Revenue from Contracts with Customers

In 2020, we entered into the OUI License Agreement Amendment with OUI to
facilitate the license of our rights to the COVID-19 vaccine we co-invented with
OUI to AstraZeneca, which is now known as Vaxzevria. 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 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 payments, 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 use judgment to determine whether milestones or other
variable consideration, except for sales-based royalties, should be included in
the transaction price. The transaction price is allocated to each performance
obligation on a relative standalone selling price basis, for which we recognize
revenue as or when the performance obligations under the contract are satisfied.
In validating its estimated standalone selling price, we evaluate whether
changes in the key assumptions used to determine its estimated standalone
selling price will have a significant effect on the allocation of arrangement
consideration between performance obligations.

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 has not been provided.

Amounts received by us as non-refundable upfront payments prior to satisfying
the above revenue recognition criteria would be recorded as deferred revenue in
our condensed 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.

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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. 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. Upfront payments, milestone payments and annual payments made for
the licensing of technology are generally expensed as research and development
in the period in which they are incurred. Incremental sublicense fees triggered
by contracts with customers are capitalized and expensed as research and
development expenses over the period in which the relating revenue is
recognized.

Share-based Compensation

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 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 United Kingdom employees and
directors. Options issued pursuant to such agreements have an exercise price
agreed with HM Revenue & Customs. 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 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. 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
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. 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 and the dividend yield
(which is assumed to be zero, as we have not paid any cash dividends). 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 nine months ended September 30, 2022 and 2021
were:

                              Nine months           Nine months
                                 ended                 ended
                           September 30, 2022    September 30, 2021
Expected volatility                      94.6 %               110.8 %
Expected term (years)                    6.00                  6.31
Risk-free interest rate                   2.4 %                 1.1 %
Expected dividend yield                   0.0 %                 0.0 %


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  Table of Contents

For the nine months ended September 30, 2022, 2,265,040 share options were granted and 1,909,086 share options were granted for the nine months ended September 30, 2021.

Business Combinations

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).

We 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 American
Depositary Shares of the Company. In addition, Avidea's stockholders may be
entitled to receive an aggregate of up to $40 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 the condensed 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 our 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. 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 $12.6 million recognized to September 30, 2022 wholly relates to the
acquisition of Avidea on December 10, 2021. During the first quarter of 2022,
the Company identified qualitative indicators of impairment due to a sustained
decline in the price of the Company's American Depositary Shares, whereby the
market capitalization fell below the value of the net assets of the Company,
which continued through the second and third quarters of 2022. Therefore, the
Company performed an interim qualitative assessment as of September 30, 2022 to
determine whether it is more likely than not that the fair value of the
reporting unit is less than its carrying

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amount. Based on this assessment, management determined it is not more likely
than not that the fair value of the reporting unit is less than its carrying
amount. No additional qualitative indicators of impairment were identified
during the three months period ended September 30, 2022. The Company will
perform its annual goodwill impairment test as of November 30, 2022.

Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

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

                                                         Three months        Three months
                                                        ended September     ended September
                                                           30, 2022            30, 2021         Change

Revenue from Licenses, Grants & Services               $           6,165   

             19       6,146
Operating expenses:
Research & development                                             9,744              4,371       5,373
General and administrative                                      (11,132)              1,184    (12,316)

Total operating (income)/expenses                                (1,388)              5,555     (6,943)
Income/(loss) from operations                                      7,553            (5,536)      13,089
Other income (expense)
Change in fair value of contingent consideration                   (317)   

              -       (317)
Interest income                                                    1,024                  -       1,024
Interest expense                                                      11                  -          11

Research and development incentives                                (724)   

            959     (1,683)
Total other income                                                   (6)                959       (965)
Tax benefit                                                          674                  7         667
Net income/(loss)                                      $           8,221            (4,570)      12,791


Revenue

For the three months ended September 30, 2022, our revenue primarily consisted
of $6.2 million from the OUI License Agreement Amendment with respect to
payments from OUI in connection with commercial sales of Vaxzevria. For the
three months ended September 30, 2021, our revenue consisted of service revenue
from a research, collaboration and license agreement with Enara Bio.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended September 30, 2022 and 2021:

                                                           Three months       Three months
                                                          ended September    ended September
                                                             30, 2022           30, 2021        Change
Direct research and development expenses by program:
VTP-200 HPV                                                         1,310                787       523
VTP-300 HBV                                                         2,418              1,552       866
VTP-600 NSCLC                                                         111                 43        68
VTP-800/850 Prostate cancer                                         1,160                634       526

Other and earlier stage programs                                    1,687              (124)     1,811
Total direct research and development expenses                      6,686              2,892     3,794
Internal research and development expenses:
Personnel-related (including share-based compensation)              2,626  

           1,376     1,250
Facility related                                                      308                 96       212
Other internal costs                                                  124                  7       117

Total research and development expense                              9,744  

           4,371     5,373


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  Table of Contents

Our research and development expenses for the three months ended September 30,
2022 and 2021 were $9.7 million and $4.4 million, respectively.
Personnel-related expenses were $2.6 million and $1.4 million, respectively, as
a result of the relative increase in our headcount across the offices in both
the United Kingdom and United States. Direct research and development expenses
for outside services, consultants and laboratory materials increased $3.8
million to $6.7 million for the three months ended September 30, 2022 from $2.9
million for the three months ended September 30, 2021 and mainly comprised of
costs for clinical trials, manufacturing of clinical trial materials, as well as
costs for external preclinical services and sample testing. Of this, $1.8
million of the increase relates to other and earlier stage programs due to an
increase in earlier stage activity including the preclinical programs launched
in 2022 for VTP-1000 Celiac disease and VTP-1100 HPV cancer. $0.9 million of the
increase pertains to progress in VTP-300, as announced at AASLD.

General and Administrative Expenses

General and administrative expenses for the three months ended September 30,
2022 were a gain of $11.1 million due to the foreign exchange gain of $18.7
million primarily on revaluation of cash balances due to the fluctuations
between the United States dollar and pound sterling exchange rates. General and
administrative expenses for the three months ended September 30, 2022 excluding
foreign exchange were $7.6 million, which were mainly attributable to personnel
expenses of $2.8 million, including the share-based payment charge of $0.6
million, insurance costs of $1.5 million and legal and professional fees of $2.3
million.

General and administrative expenses for the three months ended September 30,
2021 were $1.2 million, which were mainly attributable to personnel expenses of
$4.4 million, including the share-based payment charge of $2.9 million,
insurance costs of $1.8 million and legal and professional fees of $0.8 million,
offset by unrealized foreign exchange gain on cash revaluation of $5.8 million.

Change in fair value of contingent consideration

For the three months ended September 30, 2022, we recognized a change in fair
value of $0.3 million in relation to the updated assumptions in the fair value
assessment of the contingent consideration recognized for the acquisition of
Avidea on December 10, 2021. For the three months ended September 30, 2021,
there was no change in fair value of contingent consideration.

Interest Income

For the three months ended September 30, 2022, interest income was $1.0 million resulting from the interest earned on our short-term cash deposits held by Vaccitech (UK) Limited in United States dollars. For the three months ended September 30, 2021, interest income was $nil.

Research and Development Incentives

For the three months ended September 30, 2022 research and development incentives were an expense of $0.7 million as a result of a reduction in forecast losses available to surrender for the receipt of the research and development incentive in Vaccitech (UK) Limited. For the three months ended September 30, 2021, we accrued research and development incentives of $1.0 million.

Tax benefit

For the three months ended September 30, 2022 and 2021, the tax benefit was $0.7
million and $0.01 million respectively, which primarily relates to movements in
deferred tax.

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  Table of Contents

Comparison of the Nine Months Ended September 30, 2022 and 2021

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

                                                      Nine months          Nine months
                                                    ended September      ended September
                                                        30, 2022             30, 2021         Change

Revenue from Licenses, Grants & Services           $          38,246    $  

          269      37,977
Operating expenses:
Research & development                                        30,165               13,490      16,675
General and administrative                                  (13,914)               15,332    (29,246)
Total operating expenses                                      16,251               28,822    (12,571)

Income/(loss) from operations                                 21,995             (28,553)      50,548
Other income (expense)
Change in fair value of derivatives embedded in
convertible loan notes                                             -                5,994     (5,994)
Change in fair value of contingent
consideration                                                  (943)                    -       (943)
Unrealized exchange gain on convertible loan
notes                                                              -                  209       (209)
Loss on extinguishment of convertible loan
notes                                                              -             (13,789)      13,789
Interest income                                                1,776                    2       1,774
Interest expense                                                   3              (2,650)       2,653

Research and development incentives                            1,150       

        2,789     (1,639)
Others                                                            51                  (3)          54
Total other income/(expenses)                                  2,037              (7,448)       9,485
Tax benefit                                                    2,452                   60       2,392
Net income/(loss)                                  $          26,484    $        (35,941)      62,425

1 indicates amount less than thousand

Revenue

For the nine months ended September 30, 2022, our revenue primarily consisted of
$38.2 million from the OUI License Agreement Amendment with respect to payments
from OUI in connection with commercial sales of Vaxzevria. For the nine months
ended September 30, 2021, our revenue consisted of $0.2 million of reimbursement
of research and development expenses from BARDA and $0.05 million of service
revenue from a research, collaboration and license agreement with Enara Bio.

Research and Development Expenses

The following table summarizes our research and development expenses for the nine months ended September 30, 2022 and 2021:

                                                      Nine months          Nine months
                                                    ended September      ended September
                                                       30, 2022             30, 2021          Change
Direct research and development expenses by
program:
VTP-200 HPV                                                    3,271                2,192       1,079
VTP-300 HBV                                                   10,964                4,630       6,334
VTP-600 NSCLC                                                    349                  628       (279)
VTP-800/850 Prostate cancer                                    2,959                1,342       1,617

Other and earlier stage programs                               3,933                  609       3,324
Total direct research and development expenses                21,476                9,401      12,075
Internal research and development expenses:
Personnel-related (including share-based
compensation)                                                  7,549                3,821       3,728
Facility related                                                 888                  182         706
Other internal costs                                             252                   86         166

Total research and development expense             $          30,165    $  

       13,490      16,675


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Our research and development expenses for the nine months ended September 30,
2022 and 2021 were $30.2 million and $13.5 million, respectively.
Personnel-related expenses were $7.5 million and $3.8 million, respectively, as
a result of the increase in our headcount across the offices in both the United
Kingdom and United States. Direct expenses for outside services and consultants
and laboratory materials increased $12.1 million to $21.5 million for the nine
months ended September 30, 2022 from $9.4 million for the nine months ended
September 30, 2021 and were mainly comprised of costs for clinical trials,
manufacturing of clinical trial materials, as well as costs for external
preclinical services and sample testing. $6.3 million of the increase pertains
to progress in VTP-300, having completed the last patient visit in our HBV001
Phase 1 clinical trial in the United Kingdom in May 2022, and also completing
enrollment in HBV002 in May 2022. Other and earlier stage programs increased
$3.3 million due to an increase in earlier stage activity including the
preclinical programs launched in 2022 for VTP-1000 Celiac disease and VTP-1100
HPV cancer.

General and Administrative Expenses

General and administrative expenses for the nine months ended September 30, 2022
were a gain of $13.9 million due to the foreign exchange gain of $39.1 million
primarily on revaluation of cash balances due to the fluctuations between the
United States dollar and pound sterling exchange rates, offset by general and
administrative expenses. General and administrative expenses for the nine months
ended September 30, 2022, excluding foreign exchange gain, were $25.2 million,
which were mainly attributable to personnel expenses of $12.1 million, including
the share-based payment charge of $5.8 million, insurance costs of $4.8 million
and legal and professional fees of $4.6 million.

General and administrative expenses for the nine months ended September 30, 2021
were $15.3 million, which were mainly attributable to personnel expenses of
$15.5 million, including the share-based payment charge of $11.6 million,
insurance costs of $3.0 million and legal and professional fees of $2.2 million,
offset by unrealized foreign exchange gain on cash balances of $6.2 million. The
share-based payment charge includes a one-off expense relating to the RSUs that
vested upon the successful completion of our IPO.

Change in fair value of derivatives embedded in convertible loan notes

For the nine months ended September 30, 2022, the change in fair value of
embedded derivatives was $nil. For the nine months ended September 30, 2021, we
recognized a change in fair value of $6.0 million in relation to the conversion
and redemption features embedded in the convertible loan notes.

Change in fair value of contingent consideration

The change in fair value of contingent consideration for the nine months ended
September 30, 2022 was a $0.9 million expense in relation to the updated
assumptions in the fair value assessment of the contingent consideration
recognized for the acquisition of Avidea on December 10, 2021. The change in
fair value of contingent consideration for the nine months ended September 30,
2021 was $nil.

Loss on extinguishment of convertible loan notes

There was no loss on extinguishment of convertible loan notes for the nine
months ended September 30, 2022. For the nine months ended September 30, 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 of $25.6 million, and the
bifurcated conversion and redemption feature liability of $14.4 million.

Interest Expense

For the nine months ended September 30, 2022, interest expense was $0.003
million, which relates to the interest paid on the debt recognized on the
acquisition of Avidea on December 10, 2021, which was repaid in full in the
first quarter of 2022. For the nine months ended September 30, 2021, interest
expense was $2.7 million, which primarily relates to our convertible loan notes,
which carried a market rate of interest.

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Interest Income

For the nine months ended September 30, 2022 and 2021, interest income was $1.8 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.

Research and Development Incentives

For the nine months ended September 30, 2022 and 2021, we accrued research and
development incentives of $1.2 million and $2.8 million, respectively. Such
research and development incentives relate to corporation tax relief on research
and development projects incentive programs primarily in the United Kingdom. We
account for such relief received as other income.

Tax benefit

For the nine months ended September 30, 2022 and 2021, the tax benefit was $2.5
million and $0.06 million respectively, which primarily relates to movements in
deferred tax.

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 upfront, royalty and milestone payments from OUI in
connection with the OUI License Agreement Amendment and the issuance of
convertible loan notes. Through September 30, 2022, we had received gross
proceeds of approximately $324.8 million from the issuance of our ordinary and
preferred shares and convertible loan notes. As of September 30, 2022, we had
cash and cash equivalents of $200.1 million. Key financing and corporate
milestones include the following:

? In March 2016, we raised gross proceeds of approximately $14.0 million from the

issuance of our seed round of ordinary shares.

? Between November 2017 and December 2018, we raised gross proceeds of $33.9

million from the issuance of our Series A Shares.

? 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 initial public

offering of our ordinary shares on NASDAQ.

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 September 30, 2022, we have not issued or sold
any ordinary shares represented by ADSs under the sales agreement.

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 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 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.

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  Table of Contents

Cash Flows

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

                                                             Nine months           Nine months
                                                            ended September       ended September
                                                               30, 2022              30, 2021
Net cash used in operating activities                                (3,088)              (24,611)
Net cash used in investing activities                                (5,164)                 (722)
Net cash (used)/provided by financing activities                       (159)               222,733
Effect of exchange rates on cash and cash equivalents                (5,539)               (6,795)
Net (decrease)/increase in cash and cash equivalents                (13,950)               190,605

Cash Used in Operating Activities

During the nine months ended September 30, 2022, net cash used in operating
activities was $3.1 million, primarily resulting from our net income of $26.5
million primarily as a result of $38.2 million in revenue, adjusted by foreign
exchange gain on translation of $36.6 million, share based compensation of $7.8
million, depreciation and amortization of $3.1 million, non-cash lease expenses
of $0.8 million, and changes in our operating assets and liabilities, net of
$2.9 million primarily resulting from the OUI receivable for the third quarter
revenue, and an increase in prepaid expenses due to the payment of annual
insurance premiums that occurred in the second quarter, netted by an increase in
accrued expenses.

During the nine months ended September 30, 2021, net cash used in operating
activities was $24.6 million, primarily resulting from our net loss of $35.9
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 $12.9 million, non-cash interest expense of $0.8 million,
depreciation and amortization of $0.3 million, unrealized foreign exchange gain
on convertible loan notes of $0.2 million and changes in our operating assets
and liabilities, net of $10.2 million.

Net Cash Used in Investing Activities

During the nine months ended September 30, 2022, cash used in investing
activities was $5.2 million primarily resulted from capital expenditures related
to our new headquarters in Harwell, United Kingdom. During the nine months ended
September 30, 2021, cash used in investing activities was $0.7 million, which
resulted from capital expenditures in connection with laboratory improvements
and purchases of property and equipment for our office in Oxford, United
Kingdom.

Net Cash (Used)/Provided by Financing Activities

During the nine months ended September 30, 2022, cash used in financing
activities was $0.2 million resulting from the repayment of debt incurred
previously by the acquired company Avidea (acquired on December 10, 2021, and
subsequently became Vaccitech North America, Inc.). During the nine months ended
September 30, 2021, cash provided by financing activities was $222.7 million
primarily consisting of $121.8 million net proceeds from the issuance of Series
B shares and $102.8 million of net proceeds from the IPO.

Effect of exchange rates on cash and cash equivalents

During the nine months ended September 30, 2022 and 2021, the effect of foreign
exchange on cash and cash equivalents was losses of $5.5 million and $6.8
million respectively, primarily as a result of fluctuations between the United
States dollar and pound sterling exchange rates.

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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 began to be profitable in 2022 but continue to
maintain negative operating cash flows. As of September 30, 2022, we had an
accumulated deficit of $82.1 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 shareholders' 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,
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

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estimate now the actual amounts which will be necessary to complete the development and commercialization of our current or future product candidates successfully.

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 CanSino, CRUK and the Ludwig Institute

and any future collaboration partners;

? the success of OUI's licensed product candidate with AstraZeneca;

? 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.

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
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.

Lease, Purchase, and Other Obligations

We have operating lease obligations related to our property, plant and equipment. The obligations related to both short- and long-term lease arrangements are set forth in Note 15 "Commitment and Contingencies" to our condensed 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 cancellation consist only of payments for services provided or expenses
incurred, including noncancellable obligations of our service providers, up

to
the date of cancellation.

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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 September 30,
2022.

Emerging Growth Company Status

We are an emerging growth company under the Jumpstart Our Business Startups Act
of 2012, as amended, or 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 pronouncements that may potentially
impact our financial position and results of operations is disclosed in Note 2
to our condensed consolidated financial statements.

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