Conduit Pharmaceuticals Inc. (Nasdaq: CDT) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The filing identifies the registrant as Conduit Pharmaceuticals Inc.; the merger with Murphy Canyon Acquisition Corp. closed September 22, 2023. Financial amounts below are in U.S. dollars.
Business context
Conduit is a clinical-stage biopharmaceutical company. Its pipeline includes a glucokinase activator described as Phase II-ready for several autoimmune conditions and an irreversible MPO inhibitor being developed for potential treatment of idiopathic male infertility. The company reported no revenue in the presented statements and expects to depend on financing while developing its assets.
Key financial metrics
| Metric | Q3 / September 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No revenue reported | No revenue reported |
| Operating expenses | $1.069 million for the quarter; $4.367 million for nine months | $0.933 million and $1.486 million, respectively, in 2022 |
| Operating loss | $1.069 million for the quarter; $4.367 million for nine months | $0.933 million and $1.486 million, respectively, in 2022 |
| Net income (loss) | $1.986 million for the quarter; $(2.314) million for nine months | $(0.956) million and $(1.816) million, respectively, in 2022 |
| Cash and cash equivalents | $8.644 million | Nil at December 31, 2022 |
| Operating cash flow | $(2.922) million for nine months | $(1.386) million for nine months in 2022 |
| Investing / financing cash flow | $0.228 million / $11.343 million for nine months | $(0.129) million / $1.515 million for nine months in 2022 |
| Total liabilities / stockholders’ deficit | $13.099 million / $(1.081) million | $10.094 million / $(10.089) million at December 31, 2022 |
Operating margins are not meaningful because the company reported no revenue. The quarter’s net income was driven primarily by noncash and transaction-related gains, rather than operating performance. Current liabilities were $4.603 million. Significant other liabilities included $5.739 million of deferred commission payable and $2.665 million related to the sale of future revenue. A $0.804 million convertible promissory note remained outstanding; the filing also reports $0.177 million of current notes payable.
Material changes versus prior periods
- General and administrative expense rose 38% to $1.069 million in Q3 and 229% to $4.367 million for the nine months, mainly reflecting merger/listing, legal, audit, director, travel and public-company costs.
- Research and development expense was nil in 2023, versus $38,000 for the 2022 nine-month period; funding expense was also nil versus $120,000.
- Q3 other income, net, was $3.102 million, compared with $23,000 of expense in Q3 2022. Major 2023 items included gains from changes in fair value of Cizzle and Vela options and recognition of Cizzle-related deferred revenue after its option exercise.
- The company revised 2022 comparative financials after identifying an error involving Cizzle-related shares receivable. For the nine months ended September 30, 2022, the revision increased reported net loss by $216,000 to $1.816 million.
- The merger and PIPE generated $20.0 million of gross PIPE proceeds, but net proceeds from the merger and PIPE after transaction costs were $8.494 million. The PIPE proceeds also funded sponsor-related promissory notes and transaction costs.
Outlook, risks and unusual items
- Going concern: Management says additional financing is required to fund operations for the next 12 months. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; the $8.644 million cash balance does not remove that uncertainty.
- Funding needs: Management estimates approximately $9.7 million of cash requirements for the next 12 months, including accrued liabilities and debt obligations, and expects to seek further equity or debt financing. Financing may be unavailable or dilutive.
- Development risk: Clinical development, regulatory approval, manufacturing, intellectual-property protection and commercialization remain uncertain and require substantial additional capital. Management expects research and development and public-company expenses to increase, but provides no quantified earnings or revenue guidance.
- Litigation: Strand Hanson claims $2 million in advisory fees and 6.5 million shares; Conduit disputes the claim and says it intends to defend against it.
- Controls: Management concluded disclosure controls were ineffective due to material weaknesses involving segregation of duties, financial-statement review and transaction monitoring. Remediation steps began after the merger; the company expected the weaknesses to be remedied by year-end 2023.
- Other unusual items: Cizzle exercised its option and received 395,460 shares; the company derecognized related deferred revenue. Vela holds an option to sell its royalty interest back to Conduit for $4.9 million of shares, subject to stated price limits and an exercise period. Related-party transactions and fair-value estimates for options and warrants involve judgment.
Important facts for investors to verify
- Whether Conduit secured financing sufficient to fund operations beyond the stated 12-month horizon, and on what terms.
- The nature and timing of the estimated $9.7 million cash requirement, including the deferred commission payment due no later than March 21, 2025.
- The status and potential financial or dilution impact of the Strand Hanson claim.
- The updated pipeline status, clinical milestones, development costs and any licensing or commercialization prospects.
- The effect of outstanding warrants and other equity awards on dilution; the filing lists substantial potentially dilutive securities.
- Progress in remediating material weaknesses and the reliability of future financial reporting, including the effects of the 2022 revision.