XTL BIOPHARMACEUTICALS LTD.

In January 2007, XTL Development, Inc., or XTL Development, our wholly-owned subsidiary, signed an agreement with DOV to in-license
the worldwide rights for Bicifadine, a serotonin and norepinephrine reuptake inhibitor. XTL Development is developing Bicifadine for the treatment of
diabetic neuropathic pain, a chronic condition resulting from damage to peripheral nerves. In accordance with the terms of the license agreement, XTL
Development made an initial up-front license payment of $7.5 million in cash. In addition, XTL Development will make milestone payments of up to
$126.5 million over the life of the license, of which up to $115 million will be due upon or after regulatory approval of the product. These milestone
payments may be made in either cash and/or our ordinary shares, at our election, with the exception of $5 million in cash, due upon or after regulatory
approval of the product. XTL Development is also obligated to pay royalties to DOV on net sales of Bicifadine. In connection with the license
agreement, XTL Development committed to pay a transaction advisory fee to certain third party intermediaries. The transaction advisory fee was
structured in the form of stock appreciation rights (“SARs”) in the amount equivalent to (i) 3% of our fully diluted ordinary shares at the close of the
transaction (representing 8,299,723 ordinary shares), vesting immediately and exercisable one year after the close of the transaction, and (ii) 7% of our
fully diluted ordinary shares at the close of the transaction (representing 19,366,019 ordinary shares), vesting following the first to occur of successful
Phase 3 clinical trial results or the acquisition of our company. Payment of the SARs by XTL Development can be satisfied, at our discretion, in cash
and/or by issuance of our registered ordinary shares. Upon the exercise of a SAR, the amount paid by XTL Development will be an amount equal to
the amount by which the fair market value of one ordinary share of our company on the exercise date exceeds the $0.34 grant price for such SAR (fair
market value equals (i) the greater of the closing price of an ADR on the exercise date, divided by ten, or (ii) the preceding five day ADR closing price
average, divided by ten). The SARs expire on January 15, 2017. In the event of the termination of the license agreement, any unvested SARs will
expire.
Business Overview
Introduction
We are a biopharmaceutical company engaged in the acquisition and development of pharmaceutical products for the treatment of unmet
medical needs, particularly the treatment of diabetic neuropathic pain and hepatitis C.
Our lead compound is Bicifadine. We are developing Bicifadine for the treatment of diabetic neuropathic pain, a chronic condition resulting
from damage to peripheral nerves. In September 2007, we initiated a Phase 2b trial that is aimed at demonstrating the efficacy of Bicifadine in diabetic
neuropathic pain. Bicifadine is a serotonin and norepinephrine reuptake inhibitor, or SNRI. Compared to the currently approved SNRI’s, Bicifadine has
a unique ratio of serotonin versus norepinephrine reuptake inhibition, which is weighted toward norepinephrine reuptake inhibition, thereby providing
a strong scientific rationale for testing Bicifadine for the treatment neuropathic pain indications. Prior to it being in-licensed, Bicifadine was
extensively tested in more than 15 clinical trials involving over 3,000 patients, and has been shown to be safe and generally well tolerated. Bicifadine
was evaluated in various acute pain indications, including two large, randomized clinical trials (n=750 and n=540) in patients suffering from acute post
dental surgery pain, where Bicifadine demonstrated statistically significant efficacy. Bicifadine was also studied in chronic lower back pain studies,
where it did not demonstrate statistically meaningful improvement in pain scores. Given the heterogeneity of the patient population, the diversity of
sources of pain, and the significant psychological component, chronic lower back pain is considered a highly challenging pain model. XTL believes
that a positive statistical and clinical benefit can be shown by assessing the drug’s effect in a more homogenous and well-studied model such as
diabetic neuropathic pain in which other SNRIs have been shown to be effective.
Our second program is the Diversity Oriented Synthesis, or DOS, program, which is focused on the development of novel pre-clinical
hepatitis C small molecule inhibitors. Compounds developed to date inhibit HCV replication in a pre-clinical cell-based assay with potencies
comparable to clinical stage drugs. On March 20, 2008, we announced that we had out-licensed the DOS program to Presidio.
To date, we have not received approval for the sale of any of our drug candidates in any market and, therefore, have not generated any
commercial revenues from the sales of our drug candidates. Moreover, preliminary results of our pre-clinical or clinical tests do not necessarily predict
the final results, and acceptable results in early preclinical or clinical testing might not be obtained in later clinical trials. Drug candidates in the later
stages of clinical development may fail to show the desired safety and efficacy traits despite having progressed through initial clinical testing.
Our Strategy
Under our current strategy, we plan to:
• complete our Phase 2b program for Bicifadine for the treatment of diabetic neuropathic pain;
• advance the development of Bicifadine towards approval in diabetic neuropathic pain and possibly in other related indications either
alone or with a corporate partner; and
• seek to in-license or acquire additional candidates.
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