OXB Oxford Biomedica Plc

CHAIR'S STATEMENT

In 2023, Oxford Biomedica made significant advancements to become a leading pure-play cell and gene therapy CDMO. In the year, our efforts were concentrated on establishing global leadership in developing and manufacturing high-quality viral vectors for cell and gene therapy and achieving strong sustainable growth to provide attractive returns for shareholders.

Under the stewardship of our new CEO, Dr. Frank Mathias, we initiated a strategic reset which involved a comprehensive realignment of the business, together with significant restructuring of our business operations and streamlining of our cost base. This has enabled us to be optimally positioned to focus on serving our clients and facilitate the delivery of life-changing cell and gene therapies to patients.

Whilst 2023 was a challenging year for the Group with an impairment to the US business as a result of the termination of revenues from Homology Medicines Inc. (Homology), and financial performance impacted by the non-recurrence of COVID-19 vaccine bioprocessing volumes, the repositioning of our business has provided a clear pathway to profitability which is reflected in our medium-term financial guidance.

Building a world-leading cell and gene therapy CDMO

Dr. Frank Mathias who assumed the role of CEO in March 2023 has been instrumental in guiding OXB towards its goal of becoming a global pure-play quality and innovation-led CDMO. Under his leadership, we have implemented necessary restructuring to exit all non-CDMO activities and have strengthened our operations in the UK, the US and the EU through the acquisition of ABL Europe SAS (ABL Europe) from Institut Mérieux which completed on 29 January 2024. We have also significantly expanded our commercial capabilities, increasing business development activities to open up potential revenue opportunities. The acquisition of ABL Europe (recently renamed Oxford Biomedica (France) SAS) or Oxford Biomedica (France)), completed post period-end, provided us not only with a bioprocessing and manufacturing footprint in the EU, but also increased our capacity for process and analytical development, enabling OXB to unleash growth. With a multi-vector multi-site model spanning the UK, the US and the EU, we are uniquely positioned to build a world-leading cell and gene therapy CDMO.

Oxford Biomedica's market opportunity in a rapidly growing sector

Building on our strategic advancements and the establishment of a robust infrastructure, Oxford Biomedica is harnessing the anticipated surge in demand from the rapidly growing cell and gene therapy sector. This sector is characterised by a growing number of approvals, late-stage trials, and a pipeline of therapies in development, all of which indicate significant progress in the advancement of cell and gene therapy candidates. Specifically in 2023,  the pipeline of cell and gene therapy candidates in development reached nearly 2,100, up from 1,321 in 2010. By the end of 2023, 30 gene therapies had been approved globally, compared to 24 at the end of 2022. (Source: ASGCT, 2023; ASGCT, 2022).

Leveraging the promising market landscape, we have now strategically positioned ourselves to align to our clients' needs, including both biotech and large biopharma companies, with end-to-end process development and manufacturing solutions. Our well-resourced commercial team, with a viral vector-agnostic approach, has already achieved significant success in building commercial momentum and with our repositioned offering. Our orders grew by more than 50% during 2023 (excluding COVID-19 vaccine manufacturing), with a robust growing business pipeline across all key vector types and clinical stages.

Furthermore, in our pursuit of transparency and operational excellence, we have developed a new set of Key Performance Indicators (KPIs). These KPIs will help focus our efforts as a leading CDMO and also allow the financial markets to be able to track our commercial and future revenue progress from 2024 onwards.

Our governance and commitment to ethical operations

In the past year, we have continued to strengthen our Board and the Corporate Executive Team (CET - previously known as the Senior Executive Team (SET) until November 2023) to align with the repositioned business strategy whilst continuing to increase diversity. After CEO Dr. Frank Mathias was appointed as an Executive Director in March 2023, Leone Patterson joined the Board as an independent Non-Executive Director in May 2023. Meanwhile, biopharma veteran, Dr. Sam Rasty left the Board in June 2023, and I would like to express my gratitude for his service to OXB. As part of our annual Board performance review, our Senior Independent Director, on behalf of the Nomination Committee, initiated an in-depth skills review to fit the new pure-play CDMO strategy.

Post period-end, we announced the decision to streamline the Board and bolster its CDMO expertise, as part of our transformation into a pure-play CDMO. Peter Soelkner joined the Board as an independent Non-Executive Director in March 2024, bringing an impressive track record from a leading global non-competing CDMO. Having played a defining role in shaping OXB's new strategy, Catherine Moukheibir and Dr. Michael Hayden will not be standing for re-election at the forthcoming Annual General Meeting in June 2024. We thank them both for their impeccable service and contribution to the business. Dr Michael Hayden will remain an advisor to the Science and Technology Advisory Committee.

OXB remains dedicated to ethical and socially responsible operations. Our mission to facilitate the delivery of life-changing therapies is deeply embedded in our business focus and practices, and we are proud of our inclusion in the FTSE4Good index. In 2024, our sustainability strategy will be reviewed to reflect OXB's strategic reset as a pure-play CDMO to ensure that we continue to take a responsible and sustainable approach to managing our people, engaging with our communities, protecting the environment and governing our operations.

The future of Oxford Biomedica

While we had to take the difficult decision to reorganise our workforce during 2023, looking ahead, I am highly optimistic about our future success as a business, driven by our strategic focus on integration as "One OXB". With a highly skilled team in place, we are well-positioned to succeed as a global, client-centric cell and gene therapy CDMO. The current drivers in the cell and gene therapy market align perfectly with our strategy, and we are already seeing the positive effects of this, particularly with the progress of our client portfolio and robust business development activity. Oxford Biomedica's commitment to transforming lives through cell and gene therapy remains unwavering. I would like to thank all of our shareholders for their continued support and welcome our new shareholders such as Institut Mérieux. Finally, a huge thank you to all of our staff for their hard work and contributions to OXB, as well as their ability to embrace change, both now and in the future.

Dr. Roch Doliveux

Chair

CHIEF EXECUTIVE OFFICER'S AND 2023 PERFORMANCE REVIEW

2023 was a year of strategic transformation for our Group, set against a backdrop of unfavourable economic conditions globally. We took important steps towards our vision of becoming a global pure-play cell and gene therapy CDMO, reorganising our operations and streamlining our focus under the banner of our new "One OXB" strategy. This repositioning has enhanced OXB's alignment with client needs and operational capabilities including the scalability of our operations globally, while maintaining high standards of quality and innovation. As part of our evolution into a pure-play viral vector CDMO, we have implemented extensive cost management initiatives. These initiatives have allowed us to refine our structure to better align it with the demands of a pure-play CDMO. By doing so we have laid the foundation for sustainable growth and profitability, while leveraging our expertise in viral vector manufacturing.

The introduction of our "One OXB" strategy is based on operations in the UK, the US and the EU which are globally aligned enabling the Group to benefit from increased efficiency and agility. This has already yielded results, with a more than 50% increase both in the contracted value of client orders in 2023 (excluding COVID-19 vaccine manufacturing) and our business development pipeline in 2023. Our expansion in key markets in the UK, the US, and the EU positions us well to seize further opportunities in the fast-growing cell and gene therapy sector.

With all efforts focused on the core business, OXB's financial performance in 2023 reflects the non-recurrence of any COVID-19 vaccine bioprocessing volumes, in line with expectations, which significantly contributed to the Group's revenues in the prior year. Alongside this, the one-off impairment charge arising from the cessation of revenues from Homology resulted in the Group reporting an operating loss for 2023.

Our robust operational performance in 2023, complemented by strategic cost management initiatives, has optimally positioned us to achieve our medium-term financial guidance of a three-year revenue CAGR in excess of 35% and Operating EBITDA margins in excess of 20% by the end of 2026.

Acquisition of ABL Europe from Institut Mérieux

In September 2023, Oxford Biomedica announced its intention to acquire ABL Europe from Institut Mérieux, for a consideration of €15 million (including €10 million of pre-completion cash funding in ABL Europe from Institut Mérieux). ABL Europe, recently renamed Oxford Biomedica (France), is a pure-play European CDMO with specialised expertise in the development and manufacturing of solutions for biotech and biopharma companies including viruses for gene therapy, oncolytic viruses and vaccine candidates.

The transaction completed on 29 January 2024, providing the Group with bioprocessing and manufacturing facilities in the EU, through sites in Lyon and Strasbourg, France. This strategic acquisition increases access to EU-based clients and broadens the Group's international development, manufacturing and testing presence, whilst increasing its capacity in process and analytical development and early-stage manufacturing, with over 70,000ft² of GMP manufacturing space. The addition of the sites in France brings more than 100 CDMO experts to the Group and adds expertise in Vaccinia, Modified Vaccinia Ankara (MVA), Pox Virus, Measles and Arenaviradea, to OXB's client offering.

As part of the transaction, Institut Mérieux has acquired a 6.3% stake in Oxford Biomedica, including through purchases in the open market, which it intends to increase to approximately 10.0% in aggregate by the end of Q3 2024. An additional €20 million of committed future funding will be provided by Institut Mérieux to cover capital expenditure and potential operational losses related to the acquisition of Oxford Biomedica (France), in exchange for Oxford Biomedica plc ordinary shares.

CDMO Services

Demand for the Group's CDMO services remains strong across all key viral vector types. Throughout 2023, OXB continued to grow and diversify its CDMO portfolio, which now consists of 51 client programmes at various stages of clinical development. There has been an increase in the number of late-stage and commercial client agreements, which now consist of 5 programmes compared to 2 at the same time in 2023. This increased maturity with multiple programmes moving into and progressing through the clinic is also a result of the Group's efforts to allocate resources towards areas of higher value and success as part of the Group's new commercial strategy.

Throughout the year, multiple new clients were onboarded with new programmes across lentiviral vectors, adenovirus and AAV, in line with OXB's multi-vector strategy. Additional agreements were signed post period-end, including with a new undisclosed US-based biotechnology company for the manufacture of lentiviral vectors as the client prepares for the commercial launch of its CAR-T programme. The Group has also continued to successfully develop existing client relationships globally with around one third of clients working with the Group on more than one programme. Existing clients expanding their work with OXB included US biotech companies Arcellx and Cargo. Whilst no further revenues are expected from Homology beyond the 2023 financial year following its announcement of a strategic review in July 2023 and its intention to merge with Q32 Bio, post period-end, two new programmes with existing clinical-stage clients were signed. The expansion of existing client relationships and the Group's growing client portfolio is testament to OXB's strong track record, expertise and know-how in manufacturing viral vectors.

(i)            As per the YE 2022 results release

(ii)           As of this results release (includes post-period events)

(iii)          Includes undisclosed stage programmes

Business development

The Group continues to intensify its business development activities. In 2023, Oxford Biomedica more than doubled the number of contracts and client orders signed compared to 2022, reflecting continued demand for its services from a diverse range of pharmaceutical and biotech clients. The contracted value of client orders signed in 2023 was £131 million, an increase of over 50% compared to £85 million in the year ended 31 December 2022 (excluding COVID-19 vaccine manufacturing).

The Group's business pipeline also showed positive momentum, with the business development pipeline growing by 51% from January to December 2023, from £291 million to £438 million. This includes growth across all segments from early phase clinical programmes to late-stage programmes close to commercialisation. Post period-end, the business development pipeline has continued to increase, instilling confidence in the Group's ability to further expand its backlog and receive orders.

As part of its new commercial strategy, the Group is in the process of introducing multi-viral vector CDMO capabilities across its multiple sites. This allows for the opening up of new potential revenue opportunities based on complementary capabilities as well as expanded capacities throughout the sites.

Significant progress has already been made in transferring the Group's lentiviral vector capabilities to its Bedford, US site, with the first production runs initiated post period-end in February 2024. OXB successfully delivered the 5L scale down model process and accompanying analytics at the end of March 2024. It is expected that by expanding viral vector capabilities across the UK, the US and the EU sites, investing in the OXB platform and prioritising innovation that directly supports clients, OXB will be able to work with a broader range of companies and support them as they grow and progress through clinical trials. Furthermore, the addition of new sites acquired in the EU (France) in January 2024 will help to increase capacity in process and analytical development and early-stage manufacturing, as well as the addition of new vector types.

To ensure that the commercial team is sufficiently resourced and optimally positioned to leverage the expected increase in cell and gene therapy opportunities, this team has been restructured and is now vector-agnostic, with all members of the team covering lentivirus, AAV, adenovirus and other vectors. The team comprises three different units: Commercial Operations, Sales; and Strategy and Marketing, and is located across the East and West Coast of the US as well as the EU and the UK, within close proximity to potential and existing clients.

Innovation

The Group adopts a client-centric approach, focusing on delivering value through innovative solutions tailored to the unique challenges of cell and gene therapy. By enhancing viral vector production, the Group is not only industrialising the process, but also achieving higher productivity, better quality, and lower costs, thereby benefiting clients and ultimately patients. This combination of platform and process innovation is expected to significantly reduce the cost per dose, accelerating clinical development and expanding patient access to these therapies.

The Group's latest innovation is the TetraVecta™ system which launched in May 2023. This 4^th generation lentiviral vector delivery system allows for higher quality, potency, safety, expression level and packaging capacity, and enables cell and gene therapy companies to overcome barriers in therapeutic development, caused by features of the therapeutic cargo, such as size, complexity, or interference of the payload to be delivered. The TetraVecta™ system is the result of years of development and direct experience of understanding of industry challenges. The TetraVecta™ system can be used to accelerate the adoption of in vivo gene therapies, as well as support the creation of high-titre stable producer cell lines to facilitate scale-up for improved yield (up to 3-fold higher) and improved vector quality (1kb additional space). The new technology is currently being investigated by a number of existing clients and several CDMOs.

Additionally, the Group has developed additive technologies that are already being used in GMP for client programmes (U1) or expected later in the second half of 2024 (I3A). These allow for an increase in the number of lentiviral particles generated and an improvement in their potency such that less vector has to be used to achieve the same benefit; a continuing challenge for the industry.

TetraVecta^TM system outperforms traditional 3^rd generation lentiviral vectors

Post period-end, the Group launched the inAAVate™ platform, which offers a proprietary 'plug and play' Dual-Plasmid system for transient transfection, as well as a standard triple transfection system for AAV-based gene therapies. The inAAVate™ platform has demonstrated cell culture titre to over 1E15 vg/L for multiple serotypes across multiple genomes, and shown a significant increase in AAV vector productivity and quality with >50% full capsids in the bioreactor and >90% full capsids in the final drug substance. The Dual-Plasmid system, together with the Group's proprietary transfection process has been successfully scaled up to 2,000L with multiple GMP runs at 500L scale, and represents a high-quality platform with industry-leading productivity to enable successful AAV product development.

Gene therapeutics pipeline

The Group has concluded the review of strategic options for its therapeutics portfolio and, in line with its strategy to become a pure-play CDMO, discontinued work on internal product development in the second half of 2023. No material costs associated with the therapeutics portfolio are expected to be carried by the Group in 2024.

Corporate and organisational development

Streamlining operations

Oxford Biomedica has made significant progress in streamlining its operations. The Group has concluded the reorganisation of its workforce, which, among other measures to increase efficiency, includes a more streamlined structure across the UK and the US. Approximately 200 positions in both the UK and the US were affected by the streamlining of roles, in a move expected to boost client-centricity, and align roles and operations with the specific requirements of a pure-play CDMO. Across the organisation, other changes to increase efficiencies have included adapting the batch scheduling process to optimise cross-site flexibility and increase the capacity that can be offered for manufacturing, as well as refining review processes to accelerate speed of delivery.

As part of this operational streamlining, the Group has moved to a site-based model, with operations in the UK and the US (and post period-end, the EU (France)), and has appointed Site Heads for each of these locations. The Group's Bedford, US site is based near Boston, Massachusetts and is led by Mark Caswell who joined the Group in July 2023. The Group's UK sites are led by Thierry Cournez who joined the Group in October 2023 as Chief Operating Officer & Site Head of UK Operations. Post period-end in January 2024, following the acquisition of ABL Europe from Institut Mérieux, the French sites are led by Stéphanie Colloud. The shift to a site-based structure allows the Group to maximise efficiency as well as be better adapted to serve clients' needs.

In accordance with the Group's re-positioning as a quality and innovation led pure-play CDMO, the Senior Executive Team (renamed the Corporate Executive Team in November 2023) has been restructured to reflect a more client-centric structure, with Dr. Kyriacos Mitrophanous appointed as Chief Innovation Officer (formerly Chief Scientific Officer), whilst Dr. James Miskin has taken on the role of Chief Quality and Technical Officer (formerly Chief Technical Officer).

Outlook

Looking ahead, the Group will continue to execute on the new strategy implemented in 2023 and strengthen its position as a leading global quality and innovation-led cell and gene therapy CDMO. With the streamlining of the Group's operations now complete, the Group's focus will turn to integrating all sites, including its recently acquired operations in the EU (France), to "One OXB", alongside growing its global portfolio of clients and projects. Through our ongoing dedication to delivering the highest quality to our clients and focusing on client-centric innovation, OXB can better facilitate the delivery of life-changing cell and gene therapies to patients and deliver long-term sustainable profitability to the Group's shareholders.

FINANCIAL REVIEW

Transformation to a global pure-play cell and gene therapy CDMO

2023 was a transformational year, with the Group executing on its strategy to become a quality and innovation-led pure-play cell and gene therapy CDMO with a global reach. This has been achieved by the closing of the legacy product development division, organisational realignment and the recent acquisition of ABL Europe, recently renamed Oxford Biomedica (France). The acquisition has provided the Group with a manufacturing and development foothold in the EU, together with the existing operations in the UK and the US.

Lentiviral vector manufacturing volumes have continued their post pandemic upward trajectory, with revenues from the core business achieving low single digit revenue growth compared with 2022. COVID-19 vaccine bioprocessing volumes reduced to zero, which is reflected in the overall variance from the prior year. Throughout 2023, the Group continued to sign new clients, whilst also expanding existing client agreements. OXB's CDMO portfolio (including France) comprises 51 client programmes at various stages of clinical development, which includes multiple new clients onboarded and expansion of work with existing clients during 2023.

As part of its evolution into a quality and innovation-led pure-play cell and gene therapy CDMO, the Group made the difficult decision to reorganise its workforce, affecting approximately 200 positions. This reorganisation included a more streamlined structure across the UK and the US to ensure strategic alignment of resources, boost efficiency and client-centricity, and align roles and operations with the specific requirements of a pure-play CDMO.

In 2023, the Group remained dedicated to expanding its core business. This involved attracting new clients, enhancing its services for existing clients, and pursuing growth through the acquisition of technologies, capabilities, and additional client partnerships. The Group achieved total revenues of £89.5 million and incurred an Operating EBITDA loss of £(52.8) million in  2023 compared to revenues of £140.0 million and an Operating EBITDA¹ profit of £1.6 million in the prior year. The variance in revenues from the prior year reflects the non-recurrence of any COVID-19 vaccine bioprocessing volumes in 2023, which were in excess of £40.0 million in 2022. Excluding COVID-19 vaccine revenues, manufacturing and development revenues showed a low single digit increase, driven by growth in lentiviral vector manufacturing revenues.

At a cost level, there was a decrease in operating expenditure in 2023 of £5.1 million reflecting the impact of the restructuring of the business and closure of the Product division, which was partly offset by one off restructuring costs, and inflationary operational cost increases. The business reorganisation has resulted in an annualised like for like reduction to the ongoing fixed cost base from 1 January 2024 of circa £30 million compared to 2023, driven by streamlining of roles, synergies achieved from the move to a site-based model, and focusing R&D expenditure on revenue-generating activities for clients.

In September 2023, Oxford Biomedica announced that it had entered into exclusive negotiations with Institut Mérieux for the proposed acquisition of ABL Europe, with the transaction closing in January 2024. Through this transaction, the Group has broadened its client base, both in Europe and the cell and gene therapy space. OXB acquired ABL Europe for a consideration of €15 million by means of a share for share exchange, with Institut Mérieux now becoming a major shareholder in the Group. Assets acquired as part of the acquisition include €10 million of pre-completion cash funding from Institut Mérieux.

^1.          Operating EBITDA (Earnings Before Interest, Tax, Depreciation, Amortisation, Impairment, revaluation of investments and assets at fair value through profit and loss, and Share Based Payments) is a non-GAAP measure often used as a surrogate for operational cash flow as it excludes from operating profit or loss all non-cash items, including the charge for share based payments. However, deferred bonus share option charges are not added back to operating profits in the determination of Operating EBITDA as they may be paid in cash upon the instruction of the Remuneration Committee. A reconciliation to GAAP measures is provided on page 17.

At the end of June 2023, the Group completed a sale and leaseback of its Harrow House facility for £4.5 million to Kadans Science Partner. Under the agreement, Kadans has granted the Group an occupational lease of the property for approximately 15 years at a rent of £0.5 million per annum rising to £0.6 million after five years, with a further market rent review after 10 years. In the year 2023, the Group recognised a profit on the sale of £0.5 million, a right of use asset of £2.1 million and a lease liability of £3.1 million.

In July 2023, Homology Medicines Inc. (Homology), a genetic medicines company and client of Oxford Biomedica (US) LLC (OXB (US) LLC), previously named Oxford Biomedica Solutions LLC, announced a strategic review of its business. Subsequently in H2 2023, Homology announced its intention to merge with Q32 Bio Inc. No further revenues will be received from Homology beyond the 2023 financial year. As a result of this development, the Group has performed an impairment review of the US business' Cash Generating Unit (CGU) as at 31 December 2023 resulting in an impairment charge of £99.3 million to the intangible assets and fixed assets of the US business being recognised in the 2023 financial statements.

Selected highlights of the Group's financial results are as follows:

·              Total revenues decreased by 36% to £89.5 million (2022: £140.0 million) due to the non-recurrence of revenues from the manufacturing of vaccine batches for AstraZeneca as well as lower revenues from milestones licences and royalties, partly offset by a small increase in the underlying bioprocessing and commercial development revenues when compared to the prior year.

·              Revenues from bioprocessing and commercial development activities decreased by 35% to £82.8 million (2022: £128.1 million) driven by the non-recurrence of revenues from the manufacturing of vaccine batches for AstraZeneca, which were in excess of £40.0 million in 2022. Revenues from viral vector commercial development and manufacturing activities performed on behalf of the Group's existing clients showed a low single digit increase when compared to the prior year.

·              Revenues from milestones, licences and royalties decreased by 44% to £6.7 million (2022: £11.9 million); this decrease was driven by lower licence fees from new client programmes.

·              Acquisition of ABL Europe from Institut Mérieux for a consideration of €15 million (including the value of €10 million of pre-completion cash funding in ABL Europe) by means of a share-for-share exchange.

·              Due to the decision by Homology to cease clinical activities, the Group performed an impairment assessment of OXB (US) LLC, resulting in an impairment of £99.3 million (2022: £nil).

·              Operating EBITDA² loss and operating loss benefited from a profit on sale of the Harrow House facility of £0.5 million.

·              Operating EBITDA loss and operating loss of £(52.8) million and £(184.2) million respectively (2022 Operating EBITDA profit and operating loss of £1.6 million and £(30.2) million respectively) worsened as a result of the decrease in revenues, restructuring costs of £5.6 million, a smaller profit on sale of property when compared to 2022, partly offset by a lower overall cost base. The 2023 operating loss was also negatively impacted by the impairment of the US business of £99.3 million.

·              Cash burn³ of £38.2 million in 2023 (2022: £33.0 million) reflected no cash inflows from vaccine production, restructuring costs of £5.6 million, offset by lower operational cash flows and capital expenditure.

·              Cash at 31 December 2023 was £103.7 million (2022: £141.3 million); Net cash at 31 December 2023 was £65.2 million (2022: £101.5 million)

¹        Non-cash items include depreciation, amortisation, revaluation of investments, fair value adjustments of assets held at fair value through profit and loss and the share based payment charge. A reconciliation to GAAP measures is provided on page 17.

Key Financial and Non-Financial Performance Indicators

The Group evaluates its performance inter alia by making use of alternative performance measures as part of its Key Financial Performance Indicators (refer to the table below). The Group believes that these Non-GAAP measures, together with the relevant GAAP measures, provide a comprehensive, accurate reflection of the Group's performance over time. The Board has taken the decision that the Key Financial Performance Indicators against which the business will be assessed are Revenue, Operating EBITDA and Operating profit/(loss). The figures presented in this section for prior years are those reported in the Annual Reports for those years.

^1.          Operating EBITDA (Earnings Before Interest, Tax, Depreciation, Amortisation, Impairment, revaluation of investments and assets at fair value through profit and loss, and Share Based Payments) is a non-GAAP measure often used as a surrogate for operational cash flow as it excludes from operating profit or loss all non-cash items, including the charge for share based payments. However, deferred bonus share option charges are not added back to operating profits in the determination of Operating EBITDA as they may be paid in cash upon the instruction of the Remuneration Committee. A reconciliation to GAAP measures is provided on page 17.

^2.          This is purchases of property, plant and equipment as per the cash flow statement which excludes additions to right-of-use assets. A reconciliation to GAAP measures is provided on page 26.

^3.          Cash burn/(accretion) is net cash generated from operations plus net interest paid plus capital expenditure. A reconciliation to GAAP measures is provided on page 19.

Revenue

The Group's revenues decreased by 36% to £89.5 million (2022 £140.0 million). Revenue generated from bioprocessing/commercial development decreased by 35% to £82.8 million (2022: £128.1 million) due to the non-recurrence of revenues from the manufacturing of vaccine batches for AstraZeneca. Revenues from lentiviral vector and AAV commercial development and manufacturing activities performed on behalf of the Group's existing clients exhibited a low single digit increase when compared to the prior year.

Revenues from licence fees, milestones and royalties of £6.7 million (2022: £11.9 million), decreased by 44% when compared to the prior year due to a generally lower level of milestones achieved from existing clients and licence fees from new clients.

Operating EBITDA

^1.          Operating EBITDA (Earnings Before Interest, Tax, Depreciation, Amortisation, Impairment, revaluation of investments and assets at fair value through profit and loss, and Share Based Payments) is a non-GAAP measure often used as a surrogate for operational cash flow as it excludes from operating profit or loss all non-cash items, including the charge for share based payments. However, deferred bonus share option charges are not added back to operating profits in the determination of Operating EBITDA as they may be paid in cash upon the instruction of the Remuneration Committee. A reconciliation to GAAP measures is provided on page 17.

^2.          Non-cash items include depreciation, amortisation, revaluation of investments, fair value adjustments of available-for-sale assets and the share-based payment charge. A reconciliation to GAAP measures is provided on page 17.

^3.          Total expenses are operating expenses including cost of goods incurred by the Group. A reconciliation to GAAP measures is provided on page 16.

Revenue decreased by 36% in 2023 whilst the Group's cost base decreased by 10% to £(146.1) million. Costs included a decrease in operational spend due to the restructuring completed and the closure of the Product division at the end of 2023, with annualised savings of £30 million expected from 2024 onwards. These cost savings were partly offset by an increase in operational spend due to the consolidation of the results of OXB (US) LLC for a full 12 months, one off restructuring costs of £5.6 million, acquisition-related due diligence costs of £1.4 million, and inflationary increases. The Group benefited from a profit on sale of its Harrow House facility of £0.5 million in a sale and lease back transaction. The Operating EBITDA loss of £(52.8) million is therefore £54.4 million lower than the £1.6 million Operating EBITDA profit generated in 2022 as a result of the decrease in revenues, a smaller profit on sale of property when compared to 2022, and then partly offset by a lower overall cost base

Total Expenses

In order to provide the users of the accounts with a more detailed explanation of the reasons for the year on year movements of the Group's operational expenses included within Operating EBITDA, the Group has added together research and development, bioprocessing and administrative costs and has removed depreciation, amortisation and the share option charge as these are non-cash items which do not form part of the Operating EBITDA alternative performance measure. As Operating profit/(loss) is assessed separately as a key financial performance measure, the year on year movement in these non-cash items is then individually analysed and explained specifically in the Operating and Net profit/(loss) section. Expense items included within Total Expenses are then categorised according to their relevant nature with the year on year movement explained in the second table.

^1.          Includes the RDEC tax credit.

^2.          Research, development, bioprocessing and administrative expenses excluding depreciation, amortisation, impairment and the share option charge.

^3.          Included £5.1 million in one-off acquisition-related due diligence costs in 2022 relating to the transaction to acquire Oxford Biomedica Solutions.

^4.          Cost of goods plus research, development, bioprocessing and administrative expenses excluding depreciation, amortisation, impairment and the share option charge.

^5.          1 Total expenses are operating expenses including cost of goods incurred by the Group. A reconciliation to GAAP measures is provided above.

·       Raw materials, consumables and other external bioprocessing costs have decreased as no materials were required for vaccine manufacture in 2023. Materials used in lentivector and AAV batch manufacturing and development remained consistent with 2022.

·       The decrease in manpower-related costs is due to the restructuring completed at the end of 2023 with the loss of approximately 200 roles across the UK and the US business, as well as the fact that no bonuses accrued with regards to 2023 performance. The lower costs were partly offset by redundancy costs incurred as a result of the restructuring of £5.6 million.

·       External R&D expenditure decreased as a result of the closure of the product division in the second half of the year.

·       Due diligence costs incurred in 2023 were as a result of the acquisition of ABL Europe (recently renamed Oxford Biomedica (France)). Due diligence costs incurred in 2022 related to the establishment of OXB (US) LLC.

·       Other costs were higher as a result of the full 12-month impact of the inclusion of the administrative expenditure of OXB (US) LLC, and inflationary increases.

·       The RDEC credit has increased to £6.3 million (2022: £4.5 million) due to a more generous Research and Development tax scheme introduced by the UK Government.

Operating and Net profit/(loss)

^1.          Operating EBITDA (Earnings Before Interest, Tax, Depreciation, Amortisation, Impairment, revaluation of investments and assets at fair value through profit and loss, and Share Based Payments) is a non-GAAP measure often used as a surrogate for operational cash flow as it excludes from operating profit or loss all non-cash items, including the charge for share based payments. However, deferred bonus share option charges are not added back to operating profits in the determination of Operating EBITDA as they may be paid in cash upon the instruction of the Remuneration Committee. A reconciliation to GAAP measures is provided on page 17.

In arriving at Operating (loss)/profit it is necessary to deduct from Operating EBITDA the non-cash items referred to above. The depreciation (£21.5 million) and amortisation (£7.2 million) charge was higher in 2023 due to fixed assets acquired during 2022 and 2023 as well as the 12 month impact of the acquisition of the fixed assets and intangible assets of OXB (US) LLC. Due to the decision by Homology to cease clinical activities, the Group performed an impairment assessment of the US business, resulting in an impairment of £99.3 million (2022: £nil). The share option charge decreased by £1.9 million due to the lower share price, employee restructuring, as well as the non-vesting of certain share options with performance conditions.

The impact of these charges resulted in an operating loss of £184.2 million in 2023 compared to a loss of £30.2 million in the prior year.

The net interest charge decreased by £1.5 million as a result of an increase in interest received of £3.9 million due to improved interest rates on cash balances held by the Group but offset by a £2.4 million increase in IFRS 16 interest on the lease liabilities related to the Group's Bedford Massachusetts, Windrush Court and Harrow House facilities. Foreign exchange gains of £1.9 million were recognised in 2023 on the Oaktree loan, as opposed to foreign exchange losses of £8.0 million in 2022. The corporation tax charge was negative due to the release of the deferred tax liability as a result of the impairment of the OXB (US) LLC intangible asset. The negative tax charge was partly offset by an increase in the notional tax charge due to an increase in the RDEC tax credit expected for 2023.

Other Comprehensive Income

The Group recognised a loss within other comprehensive income in 2023 of £5.3 million (2022: £10.6 million income) in relation to movements on the foreign currency translation reserve.

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, including gains arising from monetary items that in substance form part of the net investment in foreign operations.

Segmental Analysis

During 2023, in order to reflect the way the business has been managed by the Corporate Executive Team (CET) (previously known as the Senior Executive Team (SET) until November 2023), the Group reported its results within two segments, namely:

·    the 'Platform' segment which includes the revenue generating bioprocessing and process development activities for third parties (i.e. the Partner programmes CDMO business), and internal technology projects to develop new potentially saleable technology, improve the Group's current processes, and bring development and manufacturing costs down within the LentiVector® platform; and

·    the 'Product' segment, which includes the costs of research and development of new gene therapeutic product candidates.

^1.          1 Operating EBITDA (Earnings Before Interest, Tax, Depreciation, Impairment, Amortisation, revaluation of investments and assets at fair value through profit and loss, and Share Based Payments) is a non-GAAP measure often used as a surrogate for operational cash flow as it excludes from operating profit or loss all non-cash items, including the charge for share based payments. However, deferred bonus share option charges are not added back to operating profits in the determination of Operating EBITDA as they may be paid in cash upon the instruction of the Remuneration Committee. A reconciliation to GAAP measures is provided on page 17.

The Platform segment in 2023 experienced a decrease in revenue of 36% from £139.9 million to £89.4 million due to the non-recurrence of vaccine batches manufactured for AstraZeneca. Excluding the impact of the loss of vaccine revenues, lentivector and AAV revenues exhibited a low single digit increase when compared to the prior year. From a cost perspective, operating results were positively impacted by the restructuring and the closure of the product segment, although this was partly offset by an increase in operational spend due to the consolidation of the results of OXB (US) LLC for a full 12 months, one off restructuring costs incurred, acquisition-related due diligence costs and inflationary increases.

The Product segment has generated revenues of £0.1 million (2022: £0.1 million) and an Operating EBITDA loss and Operating loss of £7.7 million and £9.2 million respectively (2022: loss of £10.0 million and £12.3 million respectively). Product operating expenses were lower due the closure of the product division in the second half of 2023.

The Group has concluded the review of strategic options for its therapeutics portfolio and, in line with its strategy to become a pure-play CDMO, discontinued work on internal product development in the second half of 2023. No material costs associated with the therapeutics portfolio are expected to be carried by the Group in 2024.

2024 and beyond

As part of the restructuring of the business and the closure of the product segment at the end of 2023, the CET has re-assessed the reporting segments to reflect the way the business will be managed in future. Management reporting is currently being reworked to align with these new segments going forward and the Group expects to be able to report on these new segments during 2024 and thereafter.  No changes from the current basis have been reflected in the 2023 Annual report and accounts.

Cash flow

1      Depreciation, Amortisation, Impairment, revaluation of investments and assets at fair value through profit and loss, and Share Based Payments.

^2.          Operating EBITDA (Earnings Before Interest, Tax, Depreciation, Amortisation, Impairment, revaluation of investments and assets at fair value through profit and loss, and Share Based Payments) is a non-GAAP measure often used as a surrogate for operational cash flow as it excludes from operating profit or loss all non-cash items, including the charge for share based payments. However, deferred bonus share option charges are not added back to operating profits in the determination of Operating EBITDA as they may be paid in cash upon the instruction of the Remuneration Committee. A reconciliation to GAAP measures is provided on page 17.

^3.          This is Changes in working capital and reversal of the Gain on sale of building as outlined in note 17: Cash flow from operating activities on page 43.

^4.          This is Purchases of property, plant and equipment as per the cash flow statement which excludes additions to Right-of-use assets. A reconciliation to GAAP measures is provided on page 26.

^5.          Cash burn/(inflow) is net cash generated from operations plus net interest paid plus capital expenditure.

^6.          This is net cash generated from financing activities as per the Cash flow statement on page 26 excluding interest paid.

The Group held £103.7 million of cash at 31 December 2023, having begun the year with £141.3 million. Significant movements across the year are explained below:

·    The positive working capital movement of £16.8 million was mainly as a result of the decrease in trade and other receivables due to amounts received from clients outstanding as at 31 December 2022;

·    Interest paid less interest received decreased by £4.2 million due to improved interest rates received on cash balances held;

·    The Group received the 2021 RDEC tax credit in January 2023 and the 2022 RDEC tax credit in October 2023;

·    Purchases of property, plant and equipment decreased from £16.3 million to £9.8 million, as the Group limited capex spend to replacement requirements except for some highly strategic and specifically approved projects;

·    The net outflows from financing during 2023 was £8.6 million, consisting of share option equity issued of £0.7 million, and reduced by lease payments of £9.3 million which have increased due to the sale and leaseback of the Group's Harrow House and Windrush Court facilities;

·    The result of the above movements is a net decrease of £38.4 million which, together with a negative movement in foreign currency balances of £0.8 million, leads to a decrease in cash from £141.3 million to £103.7 million.

Statement of financial position review

The most notable items on the Statement of financial position, including changes from 31 December 2022, are as follows:

·    Intangible assets decreased from £105.9 million to £31.0 million due to amortisation of £7.2 million, an impairment of £62.6 million and foreign exchange movements of 5.1 million;

·    Property, plant and equipment has decreased from £133.8 million to £75.7 million due to disposals of property of £9.0 million, impairments of £36.7 million, depreciation of £21.5 million, foreign exchange movements of £4.5 million reallocations and change in estimate of £0.5 million, and offset by capital expenditure of £14.2 million on mainly plant and equipment;

·    Inventories have increased slightly from £12.6 million to £12.9 million;

·    Trade and other receivables decreased from £61.6 million to £24.7 million mainly as a result of the receipt of amounts outstanding from clients as at December 2022, but also lower levels of un-invoiced client work as compared to year end;

·    Trade and other payables have decreased from £36.6 million at the start of the year to £17.8 million due to due to lower levels of client and other operational activities leading to lower levels of accruals and trade creditors outstanding, including no bonus accrual required at the end of 2023;

·    Contract liabilities increased from £18.5 million in 2022 to £26.1 million due to an increased level of client orders invoiced in advance for the goods and services being provided by the Group;

·    Deferred Income decreased from £2.0 million in 2022 to £1.4 million due to the release of amounts deferred as part of the Innovate UK capex grant funding;

·    Provisions remained stable at £8.5 million as an increase of £0.8 million as a result of the recognition of a liability for the costs of restoring the newly leased Harrow House manufacturing facility to its original state at the end of the lease term was offset by a change in the estimate of restoring the existing properties to their original state;

·    Lease liabilities increased by £1.6 million to £72.9 million due to the recognition of the lease liability on the sale and lease back of our Harrow House facility more than offsetting lease payments made by the Group during the period;

·    The dollar denominated loan has decreased by £1.2 million to £38.5 million ($50 million) due to foreign currency movements; and

·    Put option liability - the put option liability to acquire the remaining 20% of OXB (US) LLC that the Group doesn't already own has decreased from £38.2 million at 31 December 2022 to £9.3 million at the end of December 2023 due to a decrease in the value at which the option is expected to be exercised.

Subsequent events

On 29 January 2024, the Group acquired ABL Europe (recently renamed Oxford Biomedica (France)) from Institut Mérieux SAS for a consideration of €15 million, which included €10 million of pre-completion cash funding from Institut Mérieux in ABL Europe, in exchange for 3,149,374 new ordinary shares in the Company which have been issued at a price of 407.4p.

Oxford Biomedica (France) is a pure-play European CDMO with specialised expertise in the development and manufacturing of solutions for biotech and biopharma companies including viruses for gene therapy, oncolytic viruses and vaccine candidates. The acquisition of Oxford Biomedica (France) broadens the Group's international presence by establishing a footprint within the European Union through facilities located in Lyon and Strasbourg, France. In addition, the acquisition increases OXB's capacity in process and analytical development, and early-stage manufacturing, and addresses increased client demand for the Group's process development services.

Financial outlook

The Group expects 2024 revenues to be between £126 million and £134 million, with revenues for the year being second half-weighted, as previously communicated. This includes revenues from the newly acquired sites in France, existing client programmes progressing through development and the acquisition of new clients, driven by high levels of business development activity.

The Group's revenue backlog as at 31 March 2024, including contributions from Oxford Biomedica (France), stood at £104 million, a growth of 11% from £94 million at 31 December 2023. This is the amount of future revenue available to earn from current orders. Since the end of March 2024, the Group has signed a new order with a US-based client preparing for commercial launch (agreement announced in March 2024) which is excluded from this backlog figure. The contracted value of client orders signed in the year ended 31 December 2023 was £131 million, an increase of over 50% compared to £85 million in the year ended 31 December 2022, which instils confidence in the Group's ability to further expand its backlog and receive orders.

With the streamlining of the Group's operations completed in 2023, including the transition to a global site-based model, and the acquisition of ABL Europe, Oxford Biomedica reiterates its guidance of achieving broadly breakeven EBITDA in 2024, excluding the impact of the acquisition. Including the impact of the acquisition, the Group anticipates a modest operating loss attributed to the recently acquired operations in France. This is expected to be fully funded by the €10 million cash funding in ABL Europe from Institut Mérieux received prior to completion of the transaction. This improvement compared to the Operating EBITDA loss of £(52.8) million reported in 2023 demonstrates the effectiveness of the Group's strategic initiatives.

Capital expenditure is expected to be limited to maintenance capex required as well as modest spend on certain key capital expenditure projects, such as the transfer of the Group's lentiviral vector capabilities into its US site.

Medium term financial guidance

Building on its leading position in lentiviral vectors, the Group aims to ultimately have a market leading position in the viral vector outsourced supply market across all key vector types. As previously guided, the Group expects a three-year revenue CAGR of more than 35% for the year's 2023-2026. With increased operational efficiencies, targeted cost management, and targeted investment, the Group expects to achieve Operating EBITDA margins in excess of 20% by the end of 2026, and to be profitable on an EBITDA level in 2025.

Going concern

The financial position of the Group and Company, their cash flows and liquidity position are described in the Financial Statements and notes to these financial statements section of this Annual report and accounts. 

The Group and the Company made a loss after tax for the year ended 31 December 2023 of £184.2 million and £120 million respectively, and consumed net cash flows from operating activities for the year of £28.5 million and £9.8 million. The Group also:

·    Sold its Harrow House manufacturing facility in a sale and leaseback transaction for £4.5 million to Kadans Science Partner in June, whilst also agreeing an occupational lease of the property for 15 years;

·    Closed the acquisition of ABL Europe in January 2024 for a consideration of €15 million, (including €10million of pre-completion cash funding from Institut Mérieux); and

·    Ended the year with cash and cash equivalents of £103.7 million. 

In considering the basis of preparation of the Annual Report and accounts, the Directors have prepared cash flow forecasts for a period of at least 12 months from the date of approval of these financial statements, based in the first instance on the Group's 2024 annual budget and forecasts for 2025. The Directors have undertaken a rigorous assessment of the forecasts in a base case scenario and assessed identified downside risks and mitigating actions. These cash flow forecasts also take into consideration severe but plausible downside scenarios including: 

·    Commercial challenges leading to a substantial manufacturing and development revenue downside affecting both the LentiVector® platform and AAV businesses;

·    No revenues from new clients;

·    Decreases in forecasted existing client milestones and removal of any future licence revenues; and

·    The potential impacts of a downturn in the biotechnology sector on the Group and its clients including expected revenues from existing clients under long term arrangements.

Under both the base case and mitigated downside scenario, the Group and Company have sufficient cash resources to continue in operation for a period of at least 12 months from the date of approval of these financial statements.

In the event of all the downside scenarios above crystallising, the Group and Company would continue to meet their existing loan covenants until March 2025 without taking any mitigating actions, but the Board has mitigating actions in place that are largely within its control that would enable the Group to reduce its spend within a reasonably short time-frame to increase the Group and Company's cash covenant headroom as required by the loan facility with Oaktree Capital Management. Specifically, the Group will continue to monitor its performance against the base case scenario and if base case cash-flows do not crystallise, start taking mitigating action by the end of Q3 2024 which may include rationalisation of facilities and rightsizing the workforce.

In addition, the Board has confidence in the Group and Company's ability to continue as a going concern for the following reasons:

·    As noted above, the Group has cash balances of £103.7 million at the end of December 2023;

·    More than 50% of 2024 base case forecasted revenues are covered by binding purchase orders and rolling client forecasts which give confidence in the level of revenues forecast over the next 12 months; 

·    The Group intends to delay the construction element of its Oxbox manufacturing facility expansion to now take place during 2028 and 2029;

·    The Group's ability to continue to be successful in winning new clients and building its brand as demonstrated by successfully entering into new client agreements including with Arcellx, Cargo Therapeutics, Cabaletta Bio and Oxford University over the last 12 months; and

·    The Group has the ability to control capital expenditure costs and lower other operational spend, as necessary. 

Taking account of the matters described above, the Directors are confident that the Group and Company will have sufficient funds to continue to meet their liabilities as they fall due for at least 12 months from the date of approval of the financial statements and therefore have prepared the financial statements on a going concern basis.

Stuart Paynter

Chief Financial Officer