CONDUIT PHARMACEUTICALS INC

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) as well as the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on April 16, 2024. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. The following discussion contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other parts of this Quarterly Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Conduit Pharmaceuticals Limited entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Murphy Canyon Acquisition Corp. (“MURF”) on November 8, 2022. The transaction contemplated by the terms of the Merger Agreement was completed on September 22, 2023, in conjunction with which MURF changed its name to Conduit Pharmaceuticals Inc. (hereafter referred to, collectively with is subsidiaries as “Conduit”, the “Company”, “we”, “us” or “our”, unless the context otherwise requires). All dollar amounts are expressed in thousands of United States dollars (“$”), unless otherwise indicated.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) as well as the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2023 that was filed with the SEC on April 16, 2024. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. The following discussion contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” or in other parts of this Quarterly Report. Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Conduit Pharmaceuticals Limited entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Murphy Canyon Acquisition Corp. (“MURF”) on November 8, 2022. The transaction contemplated by the terms of the Merger Agreement was completed on September 22, 2023 (the “Merger”), in conjunction with which MURF changed its name to Conduit Pharmaceuticals Inc. (hereafter referred to, collectively with is subsidiaries as “Conduit”, the “Company”, “we”, “us” or “our”, unless the context otherwise requires).

Previous wording

While simultaneously leveraging the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or develop proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio comprises a 20-year patent pending solid-form compound, the AZD1656 Cocrystal (a HK-4 Glucokinase Activator), targeting a wide range of autoimmune diseases. Our pipeline research includes a number of compounds that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which we have identified as having an opportunity to develop further intellectual property positions through solid-form technology.

Current wording

While simultaneously leveraging the capabilities of our Cambridge laboratory facility and highly experienced team of solid-form experts to extend or develop proprietary solid-form intellectual property for our existing and future clinical assets. Our own intellectual property portfolio comprises a 20-year patent pending (in certain remaining jurisdictions) solid-form compound, the AZD1656 Cocrystal (a HK-4 Glucokinase Activator), targeting a wide range of autoimmune diseases. Our pipeline research includes a number of compounds that serve as promising alternatives to existing clinical assets currently marketed and sold by large pharmaceutical companies, which we have identified as having an opportunity to develop further intellectual property positions through solid-form technology.

Previous wording

In connection with the funding and development of clinical assets, we evaluate and select the specific molecules to be developed and collaborate with external CROs and KOLs to run clinical trials that are managed, funded, and overseen by us. We intend to leverage our comprehensive clinical and scientific expertise in order to facilitate development of clinical assets through Phase II trials in an efficient manner by using CROs and third-party service providers. We will also collaborate closely with disease specific KOLs to collectively assess and determine the most appropriate indications for all our current and forthcoming assets.

Current wording

In connection with the funding and development of clinical assets, we evaluate and select the specific molecules to be developed and collaborate with external contract research organizations (“CROs”) and Key Opinion Leaders (“KOLs”) to run clinical trials that are managed, funded, and overseen by us. We intend to leverage our comprehensive clinical and scientific expertise in order to facilitate development of clinical assets through Phase II trials in an efficient manner by using CROs and third-party service providers. We will also collaborate closely with disease specific KOLs to collectively assess and determine the most appropriate indications for all our current and forthcoming assets.

Previous wording

Through this relationship, there are considerable APIs that were manufactured by AstraZeneca in conducting its clinical trials available. As a result, Conduit may not have to develop the APIs, which is often a time consuming and expensive process, and the APIs already produced were subject to rigorous quality control measures.

Current wording

Through this relationship, there are considerable active pharmaceutical ingredients (“APIs”) that were manufactured by AstraZeneca in conducting its clinical trials available. As a result, Conduit may not have to develop the APIs, which is often a time consuming and expensive process, and the APIs already produced were subject to rigorous quality control measures.

Previous wording

Furthermore, Conduit is well positioned, and intends, to pursue additional relationships and/or partnerships with third parties for the licensing of further assets which are currently deprioritized. We plan to focus our efforts on developing clinical assets to address diseases that impact a large population where there is no present treatment or the present treatment, carries significant unwanted side effects.

Current wording

Furthermore, Conduit is well positioned to pursue, and intends, to pursue additional relationships and/or partnerships with third parties for the licensing of further assets which are currently deprioritized. We plan to focus our efforts on developing clinical assets to address diseases that impact a large population where there is no present treatment or the present treatment, carries significant unwanted side effects.

Previous wording

We incurred approximately $128,000 on research and development activities during the three months ended March 31, 2024. There was no comparable research and development funding during the three months ended March 31, 2023. Our research and development activities have been wholly focused on developing co-crystals of AZD1656 to increase patent life. Some of this work was completed by third-party CROs but all intellectual property is retained by us. We currently have one pending international patent application and two pending national patent applications. The successful completion of clinical trials increases the value of clinical assets and may lead to the commercialization and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical trials on the assets owned or licensed by us will be successful.

Current wording

We incurred approximately $25,000 and $153,000 on research and development activities during the three and six months ended June 30, 2024, respectively. There was no comparable research and development funding during the three and six months ended June 30, 2023. Our research and development activities have been wholly focused on developing co-crystals of AZD1656 to increase patent life. Some of this work was completed by third-party CROs but all intellectual property is retained by us. We currently have one pending international patent application and two pending national patent applications. The successful completion of clinical trials increases the value of clinical assets and may lead to the commercialization and/or licensing of such assets to other pharmaceutical companies. There is no assurance that any clinical trials on the assets owned or licensed by us will be successful.

Previous wording

Research and development expenses increased by $0.1 million, or 100%, for the three months ended March 31, 2024, as compared to nil for the three months ended March 31, 2023. The increase was primarily due to the development of certain co-crystals of AZD1656 (AZD1656 Co-Crystal PCT/IB2022/00075 - Patent Expires 02/09/2042) during the quarter ended March 31, 2024. We will seek to develop the AZD1656 Co-Crystal in psoriasis, Crohn’s disease, lupus, sarcoidosis, diabetic wound healing, idiopathic pulmonary fibrosis, and nonalcoholic steatohepatitis (NASH). There was no comparative activity during the three months ended March 31, 2023.

Current wording

Research and development expenses increased by $25,000, or 100%, for the three months ended June 30, 2024, as compared to $0 for the three months ended June 30, 2023. The increase was primarily due to the development of certain co-crystals of AZD1656 (AZD1656 Co-Crystal PCT/IB2022/00075 - Patent Expires 02/09/2042) during the quarter ended June 30, 2024. We will seek to develop the AZD1656 Co-Crystal in psoriasis, Crohn’s disease, lupus, sarcoidosis, diabetic wound healing, idiopathic pulmonary fibrosis, and nonalcoholic steatohepatitis (“NASH”). There was no comparative activity during the three months ended June 30, 2023.

Previous wording

General and administrative expenses increased by $1.3 million, or 87%, to $2.7 million for the three months ended March 31, 2024, as compared to $1.5 million for the three months ended March 31, 2023. The increase was primarily driven by a $0.9 million increase in salaries and stock compensation expense and $0.5 million increase in insurance related the amortization of D&O insurance, partially offset by $0.2 million decrease in professional fees.

Current wording

General and administrative expenses increased by $1.8 million, or 137%, to $3.1 million for the three months ended June 30, 2024, as compared to $1.3 million for the three months ended June 30, 2023. The increase was primarily driven by a $1.1 million increase in salaries and stock compensation expense, a $0.4 million increase in insurance related the amortization of D&O insurance, and $0.3 million in professional fees and other general and administrative expenses.

Previous wording

Other income (expense), net changed by $0.3 million, or 210%, to $0.5 million of expense for the three months ended March 31, 2024, as compared to $0.2 million of net expense for the three months ended March 31, 2023. The increase was primarily driven by an increase of $0.5 million related to the issuance of warrants during the three months ended March 31, 2024. The $0.2 million expense in for the three months ended March 31, 2023 was primarily driven by a $0.3 million change in fair value on the convertible notes payable, partially offset by a gain of $0.1 million on the change in fair value of the Cizzle option.

Current wording

Other income (expense), net changed by $1.3 million, or 169%, to $2.1 million of expense for the three months ended June 30, 2024, as compared to $0.8 million of net expense for the three months ended June 30, 2023. The increase was primarily driven by an increase of $2.2 million related to the issuance of warrants in exchange for stockholders’ entering into lock-up agreements during the three months ended June 30, 2024. The $0.8 million expense for the three months ended June 30, 2023 was primarily driven by a $1.0 million loss on the Vela option in the prior period offset by a, $0.2 million gain on the change in fair value of the Cizzle option.

Previous wording

For further details refer to Note 13, “Other income (expense), net,” in the unaudited financial statements as of March 31, 2024 and March 31, 2023 included elsewhere in this Quarterly Report.

Current wording

For further details refer to Note 14, “Other income (expense), net,” in the unaudited financial statements as of June 30, 2024 and June 30, 2023 included elsewhere in this document.

Previous wording

Interest expense was $0.1 million for the three months ended March 31, 2024 compared to nil for the three months ended March 31, 2023. The change was driven by $79 thousand of interest expense on the deferred commission payable to an advisor for fees related to the Merger and $40 thousand of interest expense for interest on convertible notes for the three months ended March 31, 2024.

Current wording

Interest expense was $0.1 million for the three months ended June 30, 2024 compared to $0 for the three months ended June 30, 2023. The change was driven by $79,000 of interest expense on the deferred commission payable to an advisor for fees related to the Merger and $40,000 of interest expense for interest on convertible notes for the three months ended June 30, 2024.

Previous wording

Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Since our inception, and in line with our growth strategy, we have prepared our financial statements assuming we will continue as a going concern. Since our inception, we have incurred net losses and experienced negative cash flows from operations. To date, our primary sources of capital have been through private placements of equity securities and convertible debt as well as PIPE financing as a result of the Merger. During the three months ended March 31, 2024 and 2023, we had net losses of $3.6 million and $1.7 million, respectively. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development programs. We have determined that additional financing will be required to fund our operations for the next 12 months and our ability to continue as a going concern is dependent upon obtaining additional capital and financing.

Current wording

Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Since our inception, and in line with our growth strategy, we have prepared our financial statements assuming we will continue as a going concern. Since our inception, we have incurred net losses and experienced negative cash flows from operations. To date, our primary sources of capital have been through private placements of equity securities and convertible debt as well as PIPE financing as a result of the Merger. During the six months ended June 30, 2024 and 2023, we had net losses of $8.9 million and $3.8 million, respectively. We expect to incur additional losses and higher operating expenses for the foreseeable future as we continue to invest in research and development programs. We have determined that additional financing will be required to fund our operations for the next 12 months and our ability to continue as a going concern is dependent upon obtaining additional capital and financing.

Previous wording

Our primary uses of cash are to fund our operations as we continue to grow our business. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and business operations. Until such time as we can generate significant revenue from commercialization of our product, we expect to finance our cash needs for ongoing research and development and business operations through public or private equity or debt financings or other capital sources, including strategic partnerships. However, we may be unable to raise additional funds or enter into such other arrangements, when needed, on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce research and development efforts. While the Company believes in the viability of its ability to raise additional funds, there can be no assurances to that effect. These matters raise substantial doubt about the Company’s ability to continue as a going concern for a period of twelve months from the date the financial statements are issued. These financial statements have been prepared assuming the Company will continue as a going concern and do not include adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Current wording

Our primary uses of cash are to fund our operations as we continue to develop our product candidates. We will require a significant amount of cash for expenditures as we invest in ongoing research and development and business operations. Until such time as we can generate significant revenue from commercialization or licensing, we expect to finance our cash needs for ongoing research and development and business operations through public or private equity or debt financings or other capital sources, including strategic partnerships. However, we may be unable to raise additional funds or enter into such other arrangements, when needed, on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be, or could be, diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, or substantially reduce research and development efforts. While the Company believes in the viability of its ability to raise additional funds, there can be no assurances to that effect.

Previous wording

The promissory convertible note matures and is payable in full, 18 months from the date of the note. The note carries 20% interest and is payable every six months from the date of the note until the maturity date. The note is subject to conversion of Conduit’s common stock following the consummation of the Merger taking place prior to the maturity date of the promissory convertible note.

Current wording

The promissory convertible note matures and is payable in full, 18 months from the date of the note. The note carries 20% interest and is payable every six months from the date of the note until the maturity date. The notes became convertible into shares Conduit’s common stock following the consummation of the Merger.

Previous wording

We currently anticipate that cash required for working capital for the next 12 months is approximately $14.4 million, which includes deferred financing fees payable of $5.7 million, accrued expenses and other current liabilities of $0.9 million, a convertible promissory note, if not converted prior to maturity, of $0.8 million, income taxes payable of $0.1 million and a note payable of $0.2 million that matures within the next 12 months. We do not anticipate being able to fund required capital expenditures for the next 12 months with cash and cash equivalents on hand as we have a history of limited cash on hand. We have historically been able to access funds through the issuance of our convertible notes and believe we can continue to obtain funding through debt and equity financing agreements as needed to meet cash requirements for the next 12 months.

Current wording

We currently anticipate that cash required for working capital for the next 12 months is approximately $17.1 million, which includes deferred financing fees payable of $5.7 million, accrued expenses and other current liabilities of $1.7 million, a convertible promissory note, if not converted prior to maturity, of $0.8 million, and a note payable of $0.2 million that matures within the next 12 months. We do not anticipate being able to fund required capital expenditures for the next 12 months with cash and cash equivalents on hand as we have a history of limited cash on hand. We have historically been able to access funds through the issuance of our convertible notes and believe we can continue to obtain funding through debt and equity financing agreements as needed to meet cash requirements for the next 12 months.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024, was $2.4 million, resulting primarily from a net loss of $3.6 million, adjusted for non-cash items including a $0.4 million of stock-based compensation, a $0.4 million of amortization expense, a $0.5 million expense on the issuance of warrants and a $0.1 million interest expense of the deferred commission payable. The $0.2 million cash outflow from operating assets and liabilities is primarily due to a $0.1 cash inflow from accrued expense and other current liabilities due to differences in the timing of disbursements and a $0.2 million cash outflow from prepaid expenses.

Current wording

Net cash used in operating activities for the six months ended June 30, 2024, was $3.9 million, resulting primarily from a net loss of $8.9 million and a change in the fair value of warrants of $0.1 million, adjusted for non-cash items including $0.9 million of stock-based compensation, $0.9 million of amortization expense, $2.7 million expense on the issuance of warrants, $0.2 million interest expense of the deferred commission payable, $0.2 million non-cash share issuance and a $0.4 million cash inflow from operating assets and liabilities. The $0.4 million cash inflow from operating assets and liabilities is primarily due to a $0.8 million cash inflow from accounts payable, partially offset by a $0.1 million cash outflow from accrued expenses and other current liabilities and a $0.3 million cash outflow from prepaid expenses.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2023, was $1.9 million, resulting primarily from a net loss of $1.7 million, adjusted for non-cash charges of $0.3 million for a loss on the change in fair value of convertible notes payable, a $0.2 million loss change in reserve on a related party loan, and a $0.1 million loss on the change in fair value of the Cizzle option. The $0.7 million cash outflow from operating assets and liabilities is primarily due to a $0.2 cash outflow from accrued expense and other current liabilities due to differences in the timing of disbursements and a $0.4 million cash outflow from prepaid expenses due to capitalized costs incurred in connection with the Company’s Merger.

Current wording

Net cash used in operating activities for the six months ended June 30, 2023, was $2.4 million, resulting primarily from a net loss of $3.8 million, adjusted for non-cash charges of $0.3 million for a loss on the change in fair value of convertible notes payable, a $0.3 million loss change in reserve on a related party loan, and a $0.6 million loss on the change in fair value of the Cizzle option. The $0.1 million cash inflow from operating assets and liabilities is primarily due to a $1.0 million cash inflow from accrued expense and other current liabilities due to differences in the timing of disbursements and a $0.9 million cash outflow from prepaid expenses.

Previous wording

Net cash used in investing activities for the three months ended March 31, 2023, was $0.3 million, resulting from the issuance of a loan to a related party.

Current wording

Net cash used in investing activities for the six months ended June 30, 2023, was $0.3 million, resulting from the issuance of a loan to a related party of $0.03 million and proceeds on issuance of an option of $0.5 million.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2023, was $2.2 million, resulting from the issuance of a convertible note payable of $1.4 million, and $0.7 million from the issuance of a convertible promissory note payable.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2023, was $2.7 million, resulting from the issuance of a convertible note payable of $1.4 million and $0.7 million from the issuance of a convertible promissory note payable.

Previous wording

Accounting Standards Codification (“ASC”) Topic 820,Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. In determining fair value, the Company used various valuation approaches. A fair value hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.

Current wording

ASC Topic 820,Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. Fair value is to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. In determining fair value, the Company used various valuation approaches. A fair value hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are those that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.

Previous wording

The warrant liability is valued using a Black-Scholes model, with the most judgmental non-observable input being the volatility measure. Changes in the assumptions around the volatility can cause significant changes in the estimated fair value of the warrant liability. See Note 4 for further information on the Company’s financial liabilities carried at fair value.

Current wording

As of June 30, 2024, the Company had outstanding warrants that are classified as a liability within the condensed consolidated balance sheets. The fair value of the warrant liability is determined each balance sheet date based on Level 2 inputs as such inputs are based on observable inputs other than quoted prices. The warrant liability is valued using a Black-Scholes model, with the most judgmental non-observable input being the volatility measure. Changes in the assumptions around the volatility can cause significant changes in the estimated fair value of the warrant liability. See Note 4 for further information on the Company’s financial liabilities carried at fair value.

Previous wording

Upon closing of the Merger, the surviving company remained an emerging growth company, as defined by the Jumpstart Our Business Startups act of 2012, until the earliest of (i) the last day of the combined entity’s first fiscal year following the fifth anniversary of the completion of MURF’s initial public offering, (ii) the last day of the fiscal year in which the combined entity has total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which the combined entity is deemed to be a large accelerated filer, which means the market value of the combined entity’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior December 31st or (iv) the date on which the combined entity has issued more than $1.0 billion in non-convertible debt securities during the prior three year period.

Current wording

Upon closing of the Merger, the surviving company remained an emerging growth company, as defined by the JOBS Act until the earliest of (i) the last day of the combined entity’s first fiscal year following the fifth anniversary of the completion of MURF’s initial public offering, (ii) the last day of the fiscal year in which the combined entity has total annual gross revenue of at least $1.235 billion, (iii) the last day of the fiscal year in which the combined entity is deemed to be a large accelerated filer, which means the market value of the combined entity’s common stock that is held by non-affiliates exceeds $700.0 million as of the prior December 31st or (iv) the date on which the combined entity has issued more than $1.0 billion in non-convertible debt securities during the prior three year period.