You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes included elsewhere in this Quarterly Report on Form 10-Q.
Some of the information contained in this discussion and analysis, particularly
with respect to our plans and strategy for our business and related financing,
includes forward-looking statements that involve risks and uncertainties. You
should read "Risk Factors" in Item 1A of our Annual Report on Form 10-K for the
year ended December 31, 2019 as filed with the SEC for a discussion of important
factors that could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained in the
following discussion and analysis.



Overview



We are a preclinical biotechnology company committed to discovering and
developing new cancer therapies designed to target the products of mutated genes
that are drivers of human malignancies. Throughout most of 2019, we ran a Phase
2 study, designated Codex, evaluating inodiftagene vixtepasmid in patients with
BCG-unresponsive NMIBC. However, in November 2019, after a thorough evaluation
of data, we determined there was a low probability of surpassing the pre-defined
futility threshold at the planned interim analysis of the study, and announced
the discontinuation of the study and of active clinical development of
inodiftagene vixtepasmid.



On September 13, 2019, we entered into a Collaboration and License Agreement
(the "License Agreement") with ADT Pharmaceuticals, LLV ("ADT"), pursuant to
which we acquired the rights to two small molecule developmental programs
targeting oncogenic pathways, focused on pan-mutant RAS inhibitors (our
"pan-RAS-inhibitor program") and inhibitors of PDE10 and the ?-catenin pathway,
respectively. Under the License Agreement, we are primarily responsible for the
research, development, manufacturing, regulatory and commercial activities with
respect to the compounds conveyed and contemplated thereunder. Our operations
are focused on the successful development, regulatory approval and
commercialization of products derived from such compounds.



Since entering into the License Agreement, we have focused our efforts on the
development of our pan-RAS-inhibitor program. In order to advance this program,
our management had been working to identify additional financing sources and/or
potential co-development partners. Such efforts, however, have not resulted in
opportunities that are sufficiently mature to date. As a result, we have decided
to undertake certain cost-saving measures, including a workforce reduction and
temporary pause of our internal and external research and development activities
with respect to our pan-RAS-inhibitor program, in order to conserve cash and
preserve optionality while alternatives are being identified and assessed. The
workforce reduction is expected to include 3 employees, which represent
approximately 60% of our workforce as of June 30, 2020, and is expected to be
completed in the 3rd quarter of 2020. We may incur severance related charges and
other costs due to events associated with or resulting from the workforce
reduction.



We have also engaged Oppenheimer & Co. to act as our financial advisor to review
strategic alternatives focused on maximizing stockholder value. Despite
undertaking this process, we may not be successful in completing a transaction,
and, even if a strategic transaction is completed, it ultimately may not deliver
the anticipated benefits or enhance stockholder value.

Our corporate structure consists of a parent company, Anchiano Therapeutics Ltd., incorporated in Israel, which wholly owns a subsidiary, Anchiano Therapeutics Israel Ltd, incorporated in Israel, which itself wholly owns a subsidiary, Anchiano Therapeutics, Inc. incorporated in Delaware. We currently maintain offices in Cambridge, Massachusetts.





                                       13





License Agreement



In September 2019, we publicly announced that we had entered into the License
Agreement with ADT. Pursuant to the terms and conditions set forth in the
License Agreement, we mutually agreed to use commercially reasonable efforts to
conduct research and development activities of novel small-molecule inhibitors
(RAS and PDE10/?-catenin). As part of the arrangement, we are primarily
responsible for the research, development, manufacturing and regulatory
activities and ADT will assist with the research activities as necessary in
exchange for a quarterly fee. In connection with the License Agreement, ADT also
granted us exclusive rights to research, develop, manufacture and commercialize
the aforementioned compounds relating to patents owned by ADT and any products
containing such compounds worldwide. In consideration for the rights granted
under the License Agreement, we paid ADT a $3 million upfront fee in 2019, and
agreed to pay to ADT (i) a fee upon transfer of the know-how and intellectual
property rights to us; and (ii) additional payments, including milestone and
royalty payments. We have the ability to terminate the License Agreement at any
time in its entirety or on a compound-by-compound basis after providing 90 days
written notice to ADT. Since there is no alternative future use for the upfront
fee, we accounted for it as a research and development expense.



In April 2020, we notified Yissum Technology Transfer Company of the Hebrew
University Ltd. ("Yissum") that as a result of our previous decision to
discontinue clinical development of inodiftagene, we will cease payments to
maintain intellectual property ("IP") we licensed from Yissum that supported the
development. Yissum informed us that it deems the our decision a breach of the
licensing and development agreement between the parties ("License Agreement")
and expects us to take steps necessary to return the licensed IP to Yissum
promptly. Yissum did not assert any demands for monetary relief in its notice to
us. We and Yissum have agreed on terms to terminate the License Agreement,
return all IP documentation to Yissum and to mutually waive, release and
discharge the other party from all claims of any type. An agreement relating to
such is expected to be signed in the third quarter of 2020.

Components of Operating Results





Revenues




To date, we have not generated any revenue. We do not expect to receive any
revenue unless and until we obtain regulatory approval and commercialize a
future product candidate, or until we receive revenue from a collaboration such
as a co-development or out-licensing agreement. There can be no assurance that
we will receive such regulatory approvals, and if a future product candidate is
approved, that we will be successful in commercializing it.

Research and Development Expenses





Research and development activities are our primary focus. Due to the inherently
unpredictable nature of preclinical and clinical development, we are unable to
estimate with certainty the costs we will incur and the timelines that will be
required in the continued development and approval of our product candidates.
Clinical and preclinical development timelines, the probability of success and
development costs can differ materially from expectations. In addition, we
cannot forecast which product candidates may be subject to future
collaborations, if and when such arrangements will be entered into, if at all,
and to what degree such arrangements would affect our development plans and
capital requirements. We expect our research and development expenses to
increase over the next several years as our development programs progress and as
we seek to initiate clinical trials. We also expect to incur increased research
and development expenses as we selectively identify and develop additional
product candidates.

Research and development expenses include the following:

· employee-related expenses, such as salaries and share-based compensation;

· expenses relating to outsourced and contracted services, such as CROs, external


   laboratories and consulting, research and advisory services;

· preclinical study expenses and related developmental costs; and

· costs associated with regulatory compliance.

We recognize research and development expenses as we incur them.


Starting in the third quarter of 2020, we expect our primary focus to shift away
from research and development activities to general and administrative expenses
as we execute our review of strategic alternatives focused on maximizing
stockholder value.

General and Administrative Expenses





General and administrative expenses consist primarily of personnel costs,
including share-based compensation related to directors and employees, facility
costs, patent application and maintenance expenses, and external professional
service costs, including legal, accounting, audit, finance, business
development, investor relations and human resource services, and other
consulting fees. Beginning with the third quarter of 2020, our general and
administrative expenses are also expected to include costs related to the
engagement of advisors in connection with our review of strategic alternatives
to maximize stockholder value.



                                       14

Finance (Income) Expense, Net





Finance (Income) expense, net, consisted primarily of finance expenses recorded
due to revaluation of investor warrants at fair value during a period where
these could not be classified within equity (for more details, see Note [7a] in
"Item 1. Financial Statements Unaudited" above), offset by interest income
received on the Company's cash and cash equivalents and foreign currency
exchange gains and losses.



Restructuring Expense



We have recognized restructuring provisions for the direct expenditures arising
from restructuring initiatives, where the plans are sufficiently detailed and
where appropriate communication to those affected has been made to this end, we
have recorded restructuring expenses comprised principally of contract
termination costs, employee severance and associated termination costs related
to the reduction of our workforce and costs associated with the early
termination of facility leases.



One-time termination benefits are expensed at the date the employees are
notified, unless the employees must provide future services beyond a minimum
retention period, in which case the benefits are expensed ratably over the
future service periods. A provision for contract termination costs, in which a
contract is terminated or the entity will continue to incur costs under a
contract for its remaining term without economic benefit (an onerous contract),
is recognized only when the contract is terminated or when the entity
permanently ceases using the rights granted under the contract.



Pursuant to our strategic decision to temporarily pause development of the
pan-RAS-inhibitor program and to preserve liquid resources, we have decided to
undertake certain cost-saving measures. These measures will include severing
employees and vacating our Cambridge facility. We anticipate taking a
restructuring charge in the third quarter of 2020 as a result of these
restructuring activities. The Company is currently in the process of determining
the amount of the restructuring charge. With regards to the resignation of Dr.
Frank Haluska the Company has a potential maximum exposure of up to $0.4 million
relating to claims of "Good Reason" resignation. It is the Company's position
that the CEO resigned without Good Reason, is not entitled to severance, and the
Company will contest any and all claims for severance.



Results of Operations

Below is a summary of our results of operations for the periods indicated:





                                      Three months ended                                                Six months ended
                                           June 30,                   Increase/(decrease)                   June 30,                  Increase/(decrease)
                                     2020            2019             $                  %             2020           2019             $                %
                                                                                          (in thousands)

Operating expenses: Research and development $ 1,307 $ 2,576 $ (1,269 )

             -49 %   $    2,357     $    6,711     $     (4,354 )           -65 %
General and administrative              2,176          1,962              214                11 %        4,001          3,253              748              23 %
Restructuring expense                       -              -               

-                 -            670              -              670               -
Operating loss                         (3,483 )       (4,538 )         (1,055 )              23 %       (7,028 )       (9,964 )         (2,936 )            29 %

Financing (income) expense, net            (2 )          (99 )            

97               -98 %          (12 )        4,388           (4,400 )          -100 %
Net loss                          $    (3,481 )   $   (4,439 )   $       (958 )              22 %   $   (7,016 )   $  (14,352 )   $     (7,336 )            51 %




Our results of operations have varied in the past and can be expected to vary in
the future due to numerous factors. We believe that period-to-period comparisons
of our operating results are not necessarily meaningful and should not be relied
upon as indications of future performance.



                                       15

Three and Six Months Ended June 30, 2020 Compared to the Three and Six Months Ended June 30, 2019

Research and development expenses





Research and development expense decreased by approximately $1.3 million, or
49%, and $4.4 million, or 65%, in the three and six months ended June 30, 2020,
respectively, from the comparable periods of 2019. The decrease is primarily due
to reductions in third-party clinical trial and manufacturing costs associated
with the Phase 2 Codex clinical trial which was discontinued in November 2019,
partially offset by third-party development costs incurred in 2020 associated
with the RAS program acquired in September 2019.



As a result of the restructuring decisions made in July 2020, we anticipate
research and development expenses will decrease significantly in future periods
as the Company temporarily pauses its research activities on the RAS programs,
severs its research and development employees and vacates its facilities.

General and administrative expenses





General and administrative costs increased by approximately $0.2 million, or
11%, and $0.7 million, or 23%, in the three and six months ended June 30, 2020,
respectively, from the comparable period of 2019. The increase is primarily due
to increased personnel costs, insurance costs and professional fees associated
with establishing an infrastructure to support a U.S. publicly traded company
after the Company's initial public offering in February 2019.

As a result of the restructuring decisions made in July 2020, we anticipate general and administrative expenses will decrease significantly in future periods as the Company rationalizes its general and administrative employees and other corporate activities and vacates its Cambridge facility.





Restructuring expense



In November 2019, we decided to discontinue our Phase 2 Codex study in patients
with BCG-unresponsive NMIBC. In connection with this decision, we are required
to make certain payments under contracts with CROs and with other manufactures
of the drug in order to terminate the contracts and close the trials. Moreover,
the restructuring plan included a reduction in the workforce of seven employees.



In January 2020, our Board of Directors approved management's recommendation to
close our office and laboratories located in Israel. The closure resulted in the
termination of employment of the Company's remaining five Israeli employees.



Restructuring expenses incurred during the second quarter of 2020 were comprised
principally of contract termination costs, employee severance and associated
termination costs related to the reduction of our workforce, and costs
associated with the early termination of our lease facility.



In July 2020, we made the strategic decision to temporarily pause development of
our RAS program and to institute various cost savings measures to preserve
liquid resources. These activities will include severing employees and vacating
our Cambridge facility. We anticipate taking a restructuring charge in the third
quarter of 2020 as a result of these restructuring activities. The Company is
currently in the process of determining the amount of the restructuring charge.

Financing (income) expense, net

Financing (income) expense, net decreased by approximately $0.1 million, or 98%, and $4.4 million, or 100%, in the three and six months ended June 30, 2020, respectively, from the comparable periods of 2019.





In the three and six months ended June 30, 2020, finance expense was primarily
interest income, foreign currency exchange rate gains and gains associated with
the sale of laboratory equipment from our now closed Israeli operation.



                                       16





For the three and six months ended June 30, 2019, finance expense of was
primarily related to the revaluation of investor warrants at fair value during a
period where these could not be classified within shareholders' equity, due

to
the following circumstances:




On initial measurement, the warrants together with their price protections were
classified as equity instruments that are not subsequently measured at fair
value, and thus we allocated the proceeds according to the relative fair value
of the instruments. However, we changed our functional currency from NIS to USD
as of January 1, 2019. Due to this change from this date, the exercise price of
the warrants was no longer denominated in our functional currency and the
warrants were therefore not considered indexed to our own stock according to ASC
815-40 and no longer met all the criteria to be classified within equity.
Therefore, the warrants were reclassified as a liability at their fair value as
of January 1, 2019, and any difference was accounted for as an adjustment to
equity. Upon our Nasdaq initial public offering of February 14, 2019, the
warrants' exercise price currency was changed to US dollars. As a result, the
warrants were reclassified within equity. Consequently, the warrants were
measured at fair value from January 1, 2019 until February 14, 2019, with
resulting finance expenses of $4.6 million, until they were reclassified within
equity.



Cash Flows



The table below shows a summary of our cash flow activities for the periods
indicated:



                                                 Six months ended
                                                     June 30,               Increase/(decrease)
                                                 2020         2019            $               %
                                                  (in thousands)

Net cash used in operating activities          $ (8,966 )   $ (7,037 )   $      1,929            27 %
Net cash provided by (used in) investing
activities                                           85          (91 )           (176 )        -193 %
Net cash provided by financing activities             -       26,621          (26,621 )        -100 %
Net increase (decrease) in cash, cash
equivalents and restricted cash                $ (8,881 )   $ 19,493     $ 

  (28,374 )        -146 %




Operating activities



Net cash used in operating activities increased by $1.9 million, or 27%, for the
six months ended June 30, 2020 compared to the same period of 2019. Net loss
adjusted for non-cash activities was $6.5 million for the six months ended June
30, 2020 compared to $8.9 million resulting in favorable cash flow of $2.4
million. This was more than offset by unfavorable changes in working capital of
approximately $4.3 million. The unfavorable changes in working capital was
primarily driven by a significant prepayment for contract manufacturing in 2018
which reversed and generated favorable cash flow in 2019 with no similar impact
in 2020, and a decrease in accounts payables and accruals in 2020 reflecting the
overall reduction in research and development expense in addition to payment of
severance and contractual cancellation costs associated with restructuring
activities accrued at December 31, 2019.



Investing activities



Investing activities in the six months ended June 30, 2020 reflect net proceeds
of $0.1 million from the sale of laboratory equipment from our now closed
facility in Israel, partially offset by purchases of fixed assets. Investing
activities in the six months ended June 30, 2019 were purchases of fixed assets.



Financing activities

Financing activities in the six months ended June 30, 2019 reflect the net proceeds from our IPO on February 14, 2019. There were no financing activities in the six months ended June 30, 2020.





Contractual Commitments



The Company's contractual commitments are as follows at June 30, 2020 (in
thousands):



                                       17





                                           Operating Lease
                      Remainder of 2020   $             117
                      2021                              189
                      2022                               16
                      Total               $             322

Effects of Currency Fluctuation


Currency fluctuations could affect us through increased or decreased costs,
mainly for goods and services acquired outside of the United States. Currency
fluctuations have not had a material effect on our results of operations during
the six months ended June 30, 2020 or 2019.

Off-Balance Sheet Arrangements





We have not entered into any transactions with unconsolidated entities as to
which we have financial guarantees, subordinated retained interests, derivative
instruments or other contingent arrangements that would expose us to material
continuing risks, contingent liabilities or any other obligation under a
variable interest in an unconsolidated entity that provides us with financing,
liquidity, market risk or credit risk support.



Critical Accounting Policies



The discussion and analysis of our financial condition and results of operations
is based on our financial statements, which we prepared in accordance with U.S.
GAAP. Comparative figures, which were previously presented and publicly reported
in accordance with IFRS as issued by the International Accounting Standards
Board, have been adjusted as necessary to be compliant with our policies under
U.S. GAAP. The preparation of our financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported revenues and expenses
during the reporting periods. On an ongoing basis, we evaluate such estimates
and judgments, including those described in greater detail throughout this
section. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.



For a discussion of our critical accounting policies, please read Part II, Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations in our 2019 Form 10-K. There have been no material changes to these
critical accounting policies since our 2019 Form 10-K.

Recently-Issued Accounting Pronouncements

Certain recently-issued accounting pronouncements are discussed in Note [2], Summary of Significant Accounting Policies, to the unaudited condensed consolidated financial statements included in "Item 1. Financial Statements Unaudited."

Liquidity and Capital Resources





The condensed consolidated financial statements have been prepared on a
going-concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
accompanying consolidated financial statements, the Company has incurred losses
and cash flow deficits from operations since inception, resulting in an
accumulated deficit at June 30, 2020 of $112.3 million. The Company has financed
operations to date primarily through public and private placements of equity
securities. The Company anticipates that it will continue to incur net losses
for the foreseeable future, including in connection with costs associated with
its strategic review process. The Company believes that its existing cash and
cash equivalents will only be sufficient to fund its projected cash needs into
the first quarter of 2021. Accordingly, these factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern. To
meet future capital needs, the Company would need to raise additional capital
through equity or debt financing or other strategic transactions. However, any
such financing may not be on favorable terms or even available to the Company.
The failure of the Company to obtain sufficient funds on commercially-acceptable
terms when needed, would have a material adverse effect on the Company's
business, results of operations and financial condition. The forecast of cash
resources is forward-looking information that involves risks and uncertainties,
and the actual amount of the Company's expenses could vary materially and
adversely as a result of a number of factors. The Company has based its
estimates on assumptions that may prove to be wrong, and the Company's expenses
could prove to be significantly higher than it currently anticipates.



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