What changed in this filing

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Item 1. Financial Statements

2020-08-14 compared with 2020-05-07 · 307 added, 550 removed, 119 unchanged (88% of the section changed)

Financial Statements

Condensed Consolidated

Balance Sheets as of June 30, 2020 and December 31, 2019

ANCHIANO THERAPEUTICS LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

in thousands, except share and per share data)

(Unaudited, in thousands, except share and per share data)

Current assets:

Cash and cash equivalents

Restricted cash

Prepaid expenses and other

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Shareholders' equity:

Ordinary shares, no par value - authorized 100,000,000 shares as of March 31, 2020 and December 31,2019;

issued and outstanding 37,099,352 shares at March 31, 2020 and December 31,2019

Ordinary shares, no par value - authorized 500,000,000 shares as of June 30, 2020

and 100,000,000 shares as of December 31,2019;

issued and outstanding 37,099,352 shares at June 30, 2020 and December

Paid-in capital

3 unchanged sentences

Total liabilities and shareholders' equity

See accompanying notes

to unaudited condensed consolidated financial statements

See accompanying notes to unaudited condensed consolidated financial statements

Condensed Consolidated

Statements of Operations and Comprehensive Loss for the Six Months Ended June 30, 2020 and 2019

ANCHIANO THERAPEUTICS LTD.

1 unchanged sentence

(Unaudited, in thousands, except share and per share data)

Three months ended March 31,

Three months ended June 30,

Six months ended June 30,

Operating expenses:

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Weighted average number of shares outstanding - basic and diluted

The accompanying notes

are an integral part of these unaudited consolidated financial statements.

accompanying notes are an integral part of these unaudited consolidated financial statements.

Condensed Consolidated

Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2020 and 2019

ANCHIANO THERAPEUTICS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

in thousands, except share data)

(Unaudited, in thousands, except share data)

Ordinary shares

Balance at January 1, 2020

Share-based compensation

Balance at March 31, 2020

Balance at June 30,

Balance at January 1, 2019

Issuance of shares, net

Reclassification of warrants due to reassessment

Reclassification of warrants due to modification

Share-based compensation

Issuance of shares,

Reclassification

of warrants due to reassessment

Reclassification

of warrants due to modification

Balance at March 31, 2019

The accompanying notes

are an integral part of these unaudited condensed consolidated financial statements

Balance at June 30,

The accompanying

notes are an integral part of these unaudited condensed consolidated financial statements

Condensed Consolidated

Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

ANCHIANO THERAPEUTICS LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

in thousands)

Three months ended March 31,

(Unaudited, in thousands)

Six months ended June 30,

Operating activities:

1 unchanged sentence

Financing costs, net

Gain on sale of property and equipment

Share-based payments

8 unchanged sentences

Purchase of property and equipment

Net cash used in investing activities

Proceeds from sale of property and equipment

Net cash provided by (used in) investing activities

Financing activities:

14 unchanged sentences

Interest paid in cash

The accompanying notes

are an integral part of these unaudited condensed consolidated financial statements

Anchiano Therapeutics Ltd.

Notes to Condensed Consolidated Financial

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

Notes to Condensed Consolidated

Financial Statements

The Company and Basis of Presentation

Anchiano Therapeutics Ltd.

an early-stage preclinical biopharmaceutical company committed to discovering

and developing new cancer therapies designed to target the products of mutated genes that are drivers of human malignancies.

The Company is developing small-molecule pan-mutant RAS inhibitors and inhibitors of PDE10 and the β-catenin pathway.

In November 2019, the Company

discontinued clinical development of inodiftagene vixteplasmid.

After a thorough evaluation of the available data, the Company

determined there was a low probability of surpassing the pre-defined futility threshold at the planned interim analysis of its

Phase 2 Codex study, which was evaluating inodiftagene vixteplasmid in patients with BCG-unresponsive non-muscle-invasive bladder

cancer (“NMIBC”), and announced the discontinuation of the study.

In January 2020, the Board of

Directors of the Company approved management’s recommendation to close the Company’s office and laboratories located

Following the closure of the Israeli facilities, the Company’s sole remaining office will be located in Cambridge,

Massachusetts (for details, see Note 4 below).

During the last two years, there has been a significant increase in the Company’s

activities in the United States, resulting from the Company’s management’s strategic decision to shift its development,

financing and ongoing operations from Israel to the United States.

Anchiano Therapeutics

is an early-stage preclinical biopharmaceutical company committed to discovering and

developing new cancer therapies designed to target the products of mutated genes that are drivers of human malignancies .

The Company is developing small-molecule pan-mutant RAS inhibitors and inhibitors of PDE10 and the β-catenin pathway.

In November 2019,

the Company discontinued clinical development of inodiftagene vixteplasmid.

After a thorough evaluation of the available data,

the Company determined there was a low probability of surpassing the pre-defined futility threshold at the planned interim analysis

of its Phase 2 Codex study, which was evaluating inodiftagene vixteplasmid in patients with BCG-unresponsive non-muscle-invasive

bladder cancer (“NMIBC”), and announced the discontinuation of the study.

In January 2020, the

Board of Directors of the Company approved management’s recommendation to close the Company’s office and laboratories

located in Israel.

Following the closure of the Israeli facilities, the Company’s sole remaining office will be located in

Cambridge, Massachusetts (for details, see Note 4 below).

During the last two years, there has been a significant increase in the

Company’s activities in the United States, resulting from the Company’s management’s strategic decision to shift

its development, financing and ongoing operations from Israel to the United States.

2020, the Company’s Chief Executive Officer Dr.

Frank Haluska sent a letter to the Company’s Chairman outlining

Haluska’s belief that events had occurred that were sufficient to trigger his ability to resign for “Good

Reason” under his employment agreement.

The Board informed Dr.

Haluska that it disagreed with the letter’s

assertions regarding “Good Reason” and treated the letter as a constructive resignation effective as of July 2,

Until a new CEO is identified and appointed, the Board will handle all matters related to CEO duties.

On July 12, 2020,

Frank Haluska tendered his written resignation from the Company’s Board of Directors, effective immediately.

Haluska referenced the matters articulated in his letter of July 2, 2020, and the Company’s response and actions

following receipt of the letter as the basis for his resignation from the Board.

With regards to the resignation of Dr.

Haluska the Company has a potential maximum exposure of up to $0.4 million relating to claims of “Good Reason”

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.

In light of business

circumstances, and in order to conserve cash and preserve optionality while alternatives are being identified and assessed, the

Company made a decision during July 2020 to undertake reductions in headcount and other cost saving measures.

These include plans

to temporarily pause its internal and external research and development work on the Company’s pan-RAS-inhibitor program until

there is greater clarity regarding Anchiano’s ability to fund the program.

In the third quarter

of 2020 the Company anticipates taking a restructuring charge associated with severance, discontinuation of clinical development

activities, and vacating the Company’s Cambridge facility.

The Company is currently in the process of determining the amount

of the restructuring charge.

The Company is incorporated

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The Company's American Depositary Shares ("ADSs"), each representing five ordinary shares of

the Company with no par value (the "ordinary shares"), began trading on the Nasdaq Capital Market (“Nasdaq”)

in February 2019 under the symbol "ANCN".

The Company’s ordinary shares traded on the Tel Aviv Stock Exchange (“TASE”)

between August 2006 and June 2019, at which time the Company voluntarily delisted from the TASE.

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Anchiano Therapeutics Israel Ltd., which itself wholly owns a Delaware-incorporated subsidiary, Anchiano Therapeutics, Inc.

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 March 31, 2020 of $109.0 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.

The Company believes that its existing cash and cash equivalents

will only be sufficient to fund its projected cash needs until 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.

any such financing may not be on favorable terms or may not be available to the Company on any terms.

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.

The condensed consolidated financial statements

do not include any adjustments that might result from the outcome of this uncertainty.

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 condensed 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 $112.4 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.

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 may not be available

to the Company on any terms.

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.

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.

The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Unaudited Interim Financial Information

The interim condensed consolidated

financial statements included in this quarterly report are unaudited.

The unaudited interim financial statements have been prepared

in accordance with accounting principles generally accepted in the United States (“U.S.

GAAP”) and applicable rules

and regulations of the SEC regarding interim financial reporting and reflect, in the opinion of management, all adjustments of

a normal and recurring nature that are necessary for a fair statement of the Company’s financial position as of March 31,

2020, and its results of operations for the three months ended March 31, 2020 and 2019, changes in shareholders’

the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019.

of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year

ending December 31, 2020 or for any other future annual or interim period.

The December 31, 2019 balance sheet was derived

from audited financial statements, but does not include all disclosures required by U.S.

These financial statements should

be read in conjunction with the audited financial statements included in the Company’s Form 10-K for the year ended December

31, 2019 as filed with the SEC.

The Company’s significant accounting policies are disclosed in the audited financial statements

for the year ended December 31, 2019 included in the Company’s Form 10-K.

Since the date of such financial statements, there

have been no changes to the Company’s significant accounting policies.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements

in conformity with U.S.

GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported

in the condensed consolidated financial statements and accompanying notes.

The Company evaluates its assumptions on an ongoing

basis, including those related to share-based compensation, leases and derivatives.

The Company's management believes that the

estimates, judgment and assumptions used are reasonable based upon information available at the time they are made.

These estimates,

judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

at the dates of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting periods.

interim condensed consolidated financial statements included in this quarterly report are unaudited.

The unaudited interim

financial statements have been prepared in accordance with accounting principles generally accepted in the United States

GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting and reflect,

in the opinion of management, all adjustments of a normal and recurring nature that are necessary for a fair statement of the

Company’s financial position as of June 30, 2020, and its results of operations for the three and six months ended June

30, 2020 and 2019, changes in shareholders’ equity for the three and six months ended June 30, 2020 and 2019,

and cash flows for the six months ended June 30, 2020 and 2019.

The results of operations for the three and six months ended

June 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for

any other future annual or interim period.

The December 31, 2019 balance sheet was derived from audited financial statements,

but does not include all disclosures required by U.S.

These financial statements should be read in conjunction with the

audited financial statements included in the Company’s Form 10-K for the year ended December 31, 2019 as filed with the

The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended

December 31, 2019 included in the Company’s Form 10-K.

Since the date of such financial statements, there have been no

changes to the Company’s significant accounting policies.

Summary of Significant Accounting

The preparation of

financial statements in conformity with U.S.

GAAP requires management to make estimates, judgments and assumptions that affect

the amounts reported in the condensed consolidated financial statements and accompanying notes.

The Company evaluates its assumptions

on an ongoing basis, including those related to share-based compensation, leases and derivatives.

The Company's management believes

that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made.

estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets

and liabilities at the dates of the condensed consolidated financial statements, and the reported amounts of expenses during the

reporting periods.

Actual results could differ from those estimates.

Reclassifications

prior year amounts shown in the accompanying unaudited condensed consolidated financial statements have been reclassified to conform

to the 2020 presentation.

These reclassifications did not have any effect on total current assets, total assets, total current

liabilities, total liabilities, total shareholders’

equity, net loss, or loss per share.

Recent Accounting Pronouncements

accounting pronouncements, other than below, issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC

did not or are not believed by management to have a material effect on the Company’s present or future financial statements.

2019, the FASB issued “ASU 2019-12, Simplifying the Accounting for Income Taxes.”

The objective of the standard

Certain prior year

amounts shown in the accompanying unaudited condensed consolidated financial statements have been reclassified to conform to the

2020 presentation.

These reclassifications did not have any effect on total current assets, total assets, total current liabilities,

total liabilities, total shareholders’ equity, net loss, or loss per share.

Recent Accounting

Pronouncements

Recent accounting

pronouncements, other than below, issued by the FASB (including its Emerging Issues Task Force), the AICPA and the SEC did not

or are not believed by management to have a material effect on the Company’s present or future financial statements.

In December 2019,

the FASB issued “ASU 2019-12, Simplifying the Accounting for Income Taxes.” The objective of the standard

is to improve areas of GAAP by removing certain exceptions permitted by ASC 740 and clarifying existing guidance to facilitate

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Accrued expenses and other

Accrued and other current liabilities

consist of the following for the periods indicated (in thousands):

Accrued and other

current liabilities consist of the following for the periods indicated (in thousands):

Accrued expenses

2 unchanged sentences

Liability for employee rights upon retirement

In January 2018, the Company

signed an agreement to rent a laboratory and offices in Jerusalem through May 2023.

The Company had an option to extend the

agreement by another five years.

The annual rent (including management fees) is approximately $0.4 million and is linked to the

Israeli Consumer Price Index.

Pursuant to the agreement, bank guarantees of $0.1 million were provided to the property owner.

January 2020, pursuant to the Company’s decision to close its Israeli operations, the agreement was modified such that

the Company will vacate the facilities on May 31, 2020 but will continue to make scheduled lease payments through October 31, 2020.

The Company recorded restructuring expense of $247,000 related to the modification of the Israeli lease agreement and other closure

In May 2018, the Company

signed an agreement to rent space for its headquarter offices in Cambridge, Massachusetts.

This agreement was amended in October

2019 to reflect relocating to a new 2,400 square foot suite within the same facility effective February 1, 2020.

The annual rent

is approximately $0.2 million.

The amended lease term ends January 31, 2022 and there are no options to extend the lease.

In January 2018,

the Company signed an agreement to rent a laboratory and offices in Jerusalem through May 2023.

The Company had an option

to extend the agreement by another five years.

The annual rent (including management fees) is approximately $0.4 million and is

linked to the Israeli Consumer Price Index.

Pursuant to the agreement, bank guarantees of $0.1 million were provided to the property

In January 2020, pursuant to the Company’s decision to close its Israeli operations, the agreement was modified

such that the Company vacated the facilities on May 30, 2020 but will continue to make scheduled lease payments through October

The Company recorded restructuring expense of $247,000 related to the modification of the Israeli lease agreement and

settled all obligations associated with the lease.

the Company signed an agreement to rent space for its headquarter offices in Cambridge, Massachusetts.

This agreement was amended

in October 2019 to reflect relocating to a new 2,400 square foot suite within the same facility effective February 1, 2020.

annual rent is approximately $0.2 million.

The amended lease term ends January 31, 2022 and there are no options to extend the

Pursuant to the changes

detailed in Note 1 above, in July 2020, the Company initiated discussions to vacate the Cambridge facility as part of its restructuring

of operations.

License Agreement

In September 2019, the

Company announced that it entered into an option to license agreement with ADT Pharmaceuticals, LLC (“ADT”).

Pursuant to the terms and conditions set forth in the agreement, the parties agreed to conduct research and development

activities of novel small-molecule inhibitors (RAS and PDE10/β-catenin).

As part of the arrangement, the Company is

primarily responsible for the research, development, manufacturing and regulatory activities and ADT assists with the

research activities as necessary in exchange for a quarterly fee from the Company.

In connection with the agreement, ADT also

granted the Company 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 agreement, the Company committed to pay ADT (i) a $3 million upfront fee;

(ii) a fee upon

transfer of the know-how and intellectual property rights to the Company;

and then (iii) additional payments, including

milestone and royalty payments.

The Company has the ability to terminate the agreement at any time in its entirety or on a

compound-by-compound basis after providing 90 days written notice to ADT.

The upfront payment was paid in the third quarter

The Company accounted for the upfront fee and additional payments as research and development expense.

In September 2019,

the Company announced that it entered into an option to license agreement with ADT Pharmaceuticals, LLC (“ADT”).

to the terms and conditions set forth in the agreement, the parties agreed to conduct research and development activities of novel

small-molecule inhibitors (RAS and PDE10/β-catenin).

As part of the arrangement, the Company is primarily responsible for

the research, development, manufacturing and regulatory activities and ADT assists with the research activities as necessary in

exchange for a quarterly fee from the Company.

In connection with the agreement, ADT also granted the Company 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 agreement, the Company committed to pay

ADT (i) a $3 million upfront fee;

(ii) a fee upon transfer of the know-how and intellectual property rights to the Company;

and then (iii) additional payments, including milestone and royalty payments.

The Company has the ability to terminate the

agreement at any time in its entirety or on a compound-by-compound basis after providing 90 days written notice to ADT.

fee was paid in the third quarter of 2019.

The Company accounted for the upfront fee and additional payments as a research and

development expenses.

In April 2020, the Company notified Yissum

Technology Transfer Company of the Hebrew University Ltd.

(“Yissum”) that as a result of the Company’s previous

decision to discontinue clinical development of inodiftagene, it will cease payments to maintain intellectual property (“IP”)

it licensed from Yissum that supported the development.

Yissum informed the Company that it deems the Company’s decision

a breach of the licensing and development agreement between the parties (“License Agreement”) and expects the Company

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 the Company.

Yissum and the Company 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.

Restructuring

Restructuring provisions are recognized

for the direct expenditures arising from restructuring initiatives, where the plans are sufficiently detailed and where appropriate

communication has been made to those affected.

The Company has recorded restructuring

expenses related principally to contract termination costs due to the discontinuation of the clinical trials to CROs and manufacturers

and contractual involuntary termination benefits to employees which have been accounted for as ongoing benefit arrangements and

associated termination costs related to the reduction of its workforce.

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 pursuant to contract for its remaining term without

economic benefit, is recognized only when the contract is terminated or when the entity permanently ceases using the rights granted

under the contract.

In November 2019, the Company

decided to discontinue its Phase 2 Codex study in patients with BCG-unresponsive NMIBC.

In connection with this decision, the Company

is required to make certain payments under contracts with CROs and with manufactures of the drug in order to terminate the contracts

and close the trials.

This restructuring plan included a reduction in the workforce of seven employees.

In January 2020, the Board

of Directors approved management’s recommendation to close the Company’s office and laboratories located in Israel.

In connection with this restructuring, the employment of the remaining five Israeli employees will be terminated in the second

quarter of 2020.

As noted above, in conjunction

with this decision the Company renegotiated its lease for Israeli laboratory and office space.

In connection with this decision,

the Company expects to vacate the facilities on May 30, 2020 but continue to make scheduled lease payments through October 31,

In the first quarter of 2020, the Company recorded a restructuring charge to adjust its operating lease right of use asset

and operating lease liability to reflect the loss on the early termination of the Israeli lease obligation.

The following table represents

a roll forward of the restructuring and other activities noted above (in thousands):

Restructuring

provisions are recognized for the direct expenditures arising from restructuring initiatives, where the plans are sufficiently

detailed and where appropriate communication has been made to those affected.

Company has recorded restructuring expenses related principally to contract termination costs due to the discontinuation of the

clinical trials to CROs and manufacturers and contractual involuntary termination benefits to employees which have been accounted

for as ongoing benefit arrangements and associated termination costs related to the reduction of its workforce.

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 pursuant to contract for its remaining

term without economic benefit, is recognized only when the contract is terminated or when the entity permanently ceases using

the rights granted under the contract.

November 2019, the Company decided to discontinue its Phase 2 Codex study in patients with BCG-unresponsive NMIBC.

In connection

with this decision, the Company is required to make certain payments under contracts with CROs and with manufactures of the drug

in order to terminate the contracts and close the trials.

This restructuring plan included a reduction in the workforce of seven

January 2020, the Board of Directors approved management’s recommendation to close the Company’s office and laboratories

located in Israel.

In connection with this restructuring, the employment of the remaining five Israeli employees was

terminated in the second quarter of 2020.

noted above, in conjunction with this decision the Company renegotiated its lease for Israeli laboratory and office space.

connection with this decision, the Company vacated the facilities on May 31, 2020 but will continue to make scheduled lease payments

through October 31, 2020.

In the first quarter of 2020, the Company recorded a restructuring charge to adjust its operating lease

right of use asset and operating lease liability to reflect the loss on the early termination of the Israeli lease obligation.

following table represents a roll forward of the restructuring and other activities noted above (in thousands):

Manufacturing

and other related

Balance, January 1, 2020

Paid or consummed

Balance, March 31, 2020

Outstanding liabilities for

restructuring related activities at March 31, 2020 included in trade payables and accrued expenses and other were $90,000 and $1,322,000,

respectively.

Shareholders’

January 1, 2020

June 30, 2020

Shareholders’

2018 Private Placement

In June 2018, the Company

completed a $22.9 million fundraising round from investors in the United States and Israel.

In consideration for the investment,

the Company issued 5,960,787 ordinary shares at a price per share of approximately $3.842, as well as 2,713,159 warrants to acquire

additional shares equal to 80% of the shares issued, at an exercise price per share of NIS 16.20 (approximately $4.32).

are exercisable for five years from December 31, 2018, the closing date of the transaction, and may be exercised on a cashless

In addition, the investors were

granted price protection rights (to shares and warrants) in the event of a future share issuance by the Company wherein the price

does not increase by at least approximately 42.86% over the price per share in the fundraising (or is less than the adjusted price

per share, if the price has already been adjusted).

For details of an allocation that took place in 2019 pursuant to these rights,

see Note 7b below.

The warrants and shares were recorded within equity on the issuance date.

Effective January 1, 2019, the

Company changed its functional currency from NIS to USD.

Due to this change, the exercise price of the warrants was no longer denominated

in the Company’s functional currency and therefore not considered indexed to the Company’s own stock according to ASC

June 2018, the Company completed a $22.9 million fundraising round from investors in the United States and Israel.

In consideration

for the investment, the Company issued 5,960,787 ordinary shares at a price per share of approximately $3.842, as well as 2,713,159

warrants to acquire additional shares equal to 80% of the shares issued, at an exercise price per share of NIS 16.20 (approximately

The warrants are exercisable for five years from December 31, 2018, the closing date of the transaction, and may

be exercised on a cashless basis.

addition, the investors were granted price protection rights (to shares and warrants) in the event of a future share issuance

by the Company wherein the price does not increase by at least approximately 42.86% over the price per share in the fundraising

(or is less than the adjusted price per share, if the price has already been adjusted).

For details of an allocation that took

place in 2019 pursuant to these rights, see Note 7b below.

The warrants and shares were recorded within equity on the issuance

January 1, 2019, the Company changed its functional currency from NIS to USD.

Due to this change, the exercise price of the warrants

was no longer denominated in the Company’s functional currency and therefore not considered indexed to the Company’s

own stock according to ASC 815-40.

Accordingly, the Company recorded the fair value of the warrants as a liability at January

Subsequently, upon the Company’s

Nasdaq initial public offering on February 14, 2019, the warrants’

term was modified such that the exercise price currency

was changed to USD.

As a result, the warrants were once again considered indexed to the Company’s own stock according to

Accordingly, the fair value of the warrants at February 14, 2019 was reclassified from a liability to equity on that

The following table summarizes

the activity for the warrants whose fair value measurements are estimated utilizing Level 3 inputs (in thousands):

Subsequently,

upon the Company’s Nasdaq initial public offering on February 14, 2019, the warrants’ term was modified such

that the exercise price currency was changed to USD.

As a result, the warrants were once again considered indexed to the Company’s

own stock according to ASC 815-40.

Accordingly, the fair value of the warrants at February 14, 2019 was reclassified from a liability

to equity on that date.

following table summarizes the activity for the warrants whose fair value measurements are estimated utilizing Level 3 inputs:

Fair value on January 1, 2019

Adjustments-finance expenses

Adjustments-finance

Fair value on February

The Company has determined the

fair value of the warrants (a Level 3 valuation) as of January 1, 2019 and February 14, 2019.

The fair value of these

warrants was estimated by implementing the Probability-Weighted Expected Return Method or the Black-Scholes Method.

The following

parameters were used:

Derivative Financial Instrument

February 14, 2019

January 1, 2019

Company has determined the fair value of the warrants (a Level 3 valuation) as of January 1, 2019 and February 14, 2019.

The fair value of these warrants was estimated by implementing the Probability-Weighted Expected Return Method or the Black-Scholes

The following parameters were used:

Expected term

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Public Offering

On February 14, 2019, the

Company raised gross proceeds of $30.5 million in its Nasdaq initial public offering (“IPO”), allocating 2,652,174

ADSs, each representing five ordinary shares of the Company.

The ADSs are listed under the symbol “ANCN.”

In accordance

with price protection rights granted in 2018 and activated in the offering (see Note 7a above for details and accounting treatment),

the Company issued an additional 8,262,800 ordinary shares (equivalent to 1,652,560 ADSs) to rights holders and adjusted their

warrants to be exercisable for an additional 6,207,330 ordinary shares (equivalent to 1,241,466 ADSs).

February 14, 2019, the Company raised gross proceeds of $30.5 million in its Nasdaq initial public offering (“IPO”),

allocating 2,652,174 ADSs, each representing five ordinary shares of the Company.

The ADSs are listed under the symbol “ANCN.”

In accordance with price protection rights granted in 2018 and activated in the offering (see Note 7a above for details and accounting

treatment), the Company issued an additional 8,262,800 ordinary shares (equivalent to 1,652,560 ADSs) to rights holders and adjusted

their warrants to be exercisable for an additional 6,207,330 ordinary shares (equivalent to 1,241,466 ADSs).

Share-based compensation

The Company has two share-based

compensation plans under which share options or other share-based awards have been granted:

the 2011 Share Option Plan and the

2017 Share Option Plan (the “2017 Plan”).

The 2017 Plan replaced the 2011 Share Option Plan with respect to future

Company has two share-based compensation plans under which share options or other share-based awards have been granted:

Share Option Plan and the 2017 Share Option Plan (the “2017 Plan”).

The 2017 Plan replaced the 2011 Share Option Plan

with respect to future grants;

and, therefore, no further awards may be made under 2011 Share Option Plan.

The Compensation Committee of the Board of

Directors and the Board of Directors administer these plans.

The fair value of each option

granted is estimated using the Black-Scholes option pricing method.

The volatility is based on the Company’s historical volatility.

The risk-free interest rate assumption is based on observed Treasury yields over the expected term of the options granted with

USD-denominated exercise prices (options granted in the past with NIS-denominated exercise prices used the equivalent Israeli government

bond yields).

The Company’s management uses the mid-point between the vesting date and the contractual term for each vesting

tranche or its expectations, as applicable, of each option as its expected term.

The expected term of the options granted represents

the period of time that granted options are expected to remain outstanding

The fair value of each option

granted in the three months ended March 31, 2019 was estimated on the grant date using the Black-Scholes option pricing model

with the following assumptions:

Three months ended

March 31, 2019

The Compensation Committee

of the Board of Directors and the Board of Directors administer these plans.

fair value of each option granted is estimated using the Black-Scholes option pricing method.

The volatility is based on the Company’s

historical volatility.

The risk-free interest rate assumption is based on observed Treasury yields over the expected term of the

options granted with USD-denominated exercise prices (options granted in the past with NIS-denominated exercise prices used the

equivalent Israeli government bond yields).

The Company’s management uses the mid-point between the vesting date and the

contractual term for each vesting tranche or its expectations, as applicable, of each option as its expected term.

term of the options granted represents the period of time that granted options are expected to remain outstanding

fair value of each option granted in the six months ended June 30, 2019 was estimated on the grant date using the Black-Scholes

option pricing model with the following assumptions:

Value of ordinary share

Dividend yield

Expected volatility

52.3% - 68.6%

Risk-free interest rate

Expected term (years)

The were no grants of stock options

in the three months ended March 31, 2020.

The following table summarizes

the number of options outstanding and exercisable as of March 31, 2020:

fair value of each option granted in the six months ended June 30, 2020 was estimated on the grant date using the Black-Scholes

option pricing model with the following assumptions:

Value of ordinary

interest rate

following table summarizes the number of options outstanding and exercisable as of June 30, 2020:

Exercise Price

Weighted Average

Contractual Life in

Average Remaining Contractual Life in Years

Options outstanding - January 1, 2020

Forfeited/expired/cancelled

Options outstanding - March 31, 2020

Options exercisable - March 31, 2020

The aggregate intrinsic value

of both outstanding and exercisable options at March 31, 2020 is $0.

The following table illustrates

the effect of share-based compensation on the statements of operations (in thousands):

Three months ended

Research and development

General and administrative

Net Loss per share

Basic loss per share is computed

on the basis of the net loss for the period divided by the weighted-average number of ordinary shares outstanding during the period.

Diluted loss per share is based upon the weighted-average number of ordinary shares and of ordinary shares equivalents outstanding

when dilutive.

Ordinary share equivalents include outstanding stock options which are included under the treasury stock method

when dilutive.

The following ordinary shares

underlying stock options and warrants were excluded from the calculation of diluted net loss per ordinary share, because their

effect would have been anti-dilutive for the years presented:

Three months ended

Options outstanding - June 30, 2020

Options exercisable - June 30, 2020

aggregate intrinsic value of both outstanding and exercisable options at June 30, 2020 is $0.

following table illustrates the effect of share-based compensation on the statements of operations (in thousands):

and development

and administrative

Loss per share

loss per share is computed on the basis of the net loss for the period divided by the weighted-average number of ordinary shares

outstanding during the period.

Diluted loss per share is based upon the weighted-average number of ordinary shares and of ordinary

shares equivalents outstanding when dilutive.

Ordinary share equivalents include outstanding stock options which are included

under the treasury stock method when dilutive.

following ordinary shares underlying stock options and warrants were excluded from the calculation of diluted net loss per ordinary

share, because their effect would have been anti-dilutive for the three and six month periods presented:

Stock Options

Subsequent events

COVID-19 Outbreak

In March 2020 the World Health

Organization declared the global novel coronavirus (COVID-19) outbreak a pandemic.

As of May 7, 2020, the Company’s operations

have not been significantly impacted by the COVID-19 outbreak.

However, the Company cannot at this time predict the specific extent,

duration, or full impact that the COVID-19 outbreak will have on its financial condition and operations, including ongoing and

planned pre-clinical development activities.

Share Capital

On Aril 23, 2020, in connection with the Annual General

Meeting of Shareholders, the shareholders of the Company agreed to increase the authorized share capital from 100,000,000 ordinary

shares to 500,000,000 ordinary shares.

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

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.

the rights to two developmental programs targeting oncogenic pathways (small-molecule pan-mutant RAS inhibitors and inhibitors

of PDE10 and the β-catenin pathway) pursuant to the Collaboration and License Agreement (the “License Agreement”)

into which we entered with ADT Pharmaceuticals, LLV (“ADT”) on September 20, 2019.

Our operations are focused on the

successful development, regulatory approval and commercialization of products derived from the compounds conveyed and contemplated

under the License Agreement, which are in the research stage.

Under the agreement, we are primarily responsible for the research,

development, manufacturing, regulatory and commercial activities with respect to the Compounds.

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.

We currently maintain offices in Cambridge, MA and an office and laboratory in Jerusalem, Israel.

However, in January

2020 our Board of Directors approved management’s recommendation to close our Israeli office and laboratories in 2020, with

our operations to continue from our Cambridge office.

The closure is expected to be completed in the second quarter of 2020.

License Agreement

September 2019, we publicly announced that we had entered into an option to license agreement with ADT.

Pursuant to the

terms and conditions set forth in the agreement, we have mutually agreed to use commercially reasonable efforts to conduct

research and development activities of novel small-molecule inhibitors (RAS and PDE10/β-catenin).

As part of the

arrangement, we will be 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 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

agreement, we paid ADT a $3 million upfront fee, and agreed to pay (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 agreement at any time in its entirety or on a compound-by-compound basis after providing 90 days written notice

The upfront fee was paid in 2019.

Since there is no alternative future use for the upfront fee, we accounted for it

as a research and development expense.

Components of Operating

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

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;

relating to outsourced and contracted services, such as CROs, external laboratories and consulting, research and advisory services;

development and manufacturing costs relating to clinical trial materials;

study expenses and related developmental costs;

associated with regulatory compliance.

research and development expenses as we incur them.

General and Administrative

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.

Finance (Income) Expense,

(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

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.

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.

Results of Operations

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

Three months ended

Increase/(decrease)

(in thousands)

Operating expenses:

Research and development

General and administrative

Restructuring expense

Operating loss

Financing (income) expense, net

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.

Three Months Ended March

31, 2020 Compared to the Three Months Ended March 31, 2019

Research and development

and development expense decreased by approximately $3.0 million, or 73%, in the three months ended March 31, 2020 from the comparable

period of 2019.

The decrease is primarily due to reductions in third-party clinical trial and manufacturing costs of approximately

$2.8 million associated with the Phase 2 Codex clinical trial which was discontinued in November 2019, partially offset by third-party

development costs of $0.3 million incurred in 2020 associated with the RAS program acquired in September 2019.

General and administrative

and administrative costs increased by approximately $0.5 million, or 42%, in the three months ended March 31, 2020 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.

Restructuring expense

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

in January 2020 our board of directors approved management’s recommendation to close our office and laboratories located

The closure resulted in the termination of employment of the Company’s remaining five Israeli employees.

Restructuring

expenses incurred during the first 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.

Financing (income) expense,

(income) expense, net decreased by approximately $4.5 million.

three months ended March 31, 2020, finance expense was primarily interest income and foreign currency exchange rate gains.

three months ended March 31, 2019, finance expense of $4.5 million 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:

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.

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

Upon our Nasdaq initial public offering of February 14, 2019, the warrants’

exercise price currency was changed to

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.

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

Three months ended

Increase/(decrease)

(in thousands)

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Operating activities

used in operating activities increased by $0.4 million, or 14%, for the three months ended March 31, 2020 compared to the same

period of 2019.

Net loss adjusted for non-cash activities was $3.2 million for the three months ended March 31, 2020 compared to

$4.9 million resulting in favorable cash flow of $1.7 million.

This was more than offset by unfavorable changes in working capital

of approximately $2.2 million.

Investing activities

activities in the three months ended March 31, 2020 and 2019 are purchases of fixed assets.

Financing activities

activities in the three months ended March 31, 2019 reflect the net proceeds from the Company’s IPO on February 14, 2019.

There were no financing activities in the three months ended March 31, 2020.

Contractual Commitments

The Company’s contractual

commitments are as follows at March 31, 2020 (in thousands):

Remainder of 2020

Effects of Currency

fluctuations could affect us through increased or decreased costs, mainly for goods and services acquired outside of the United

Currency fluctuations have not had a material effect on our results of operations during the three months ended March 31,

2020 or 2019.

Off-Balance Sheet Arrangements

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

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.

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

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.

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

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 March 31, 2020 of $109.0 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.

The Company believes that its existing cash and cash equivalents

will only be sufficient to fund its projected cash needs until 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.

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.

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.

April, as previously disclosed, the Company received a deficiency letter from the Nasdaq Stock Market regarding noncompliance with

certain minimum bid price requirements.

The Company will work to formulate a plan to regain compliance within the required

time periods.

An inability to regain compliance during the applicable time periods, and any subsequent extension periods,

if any, would have a material adverse effect.

Quantitative and Qualitative Disclosures About Market

We are an emerging growth company as defined by Rule 12b-2 of

the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are not required to provide the information

under this item.

March 2020 the World Health Organization declared the global novel coronavirus (COVID-19) outbreak a pandemic.

As of August 5,

2020, the Company’s operations have not been significantly impacted by the COVID-19 outbreak.

However, the Company cannot

at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition

and operations, including ongoing and planned pre-clinical development activities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements