What changed in this filing

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Item 1. Financial Statements

2020-11-16 compared with 2020-08-14 · 626 added, 240 removed, 186 unchanged (82% of the section changed)

Financial Statements

Condensed Consolidated

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

Condensed Consolidated Balance Sheets

as of September 30, 2020 and December 31, 2019

ANCHIANO THERAPEUTICS LTD.

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

September 30,

Current assets:

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Shareholders' equity:

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

Ordinary shares, no par value - authorized 500,000,000 shares as of September 30, 2020 and 100,000,000 shares as of December 31,2019;

issued and outstanding 37,099,352 shares at September 30, 2020 and December 31,2019

Paid-in capital

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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

Condensed Consolidated Statements

of Operations and Comprehensive Loss for the Nine Months Ended September 30, 2020 and 2019

ANCHIANO THERAPEUTICS LTD.

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

Three months ended June 30,

Six months ended June 30,

months ended September 30,

Nine months ended September 30,

Operating expenses:

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Weighted average number of shares outstanding - basic and diluted

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

The accompanying notes are an integral

part of these unaudited consolidated financial statements.

Condensed Consolidated Statements

of Changes in Shareholders’

Equity for the Nine Months Ended September 30, 2020 and 2019

ANCHIANO THERAPEUTICS LTD.

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Balance at January 1, 2020

Balance at March 31, 2020

Share-based compensation

Balance at June 30, 2020

Share-based compensation

Balance at September 30, 2020

Balance at January 1, 2019

Issuance of shares,

Reclassification

of warrants due to reassessment

Reclassification

of warrants due to modification

Balance at March 31, 2019

Issuance of shares, net

Reclassification of warrants due to reassessment

Reclassification of warrants due to modification

Share-based compensation

Balance at June 30, 2019

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

Share-based compensation

Balance at September 30, 2019

(*) No par value

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

Condensed Consolidated Statements

of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

ANCHIANO THERAPEUTICS LTD.

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(Unaudited, in thousands)

Six months ended June 30,

months ended September 30,

Operating activities:

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

Notes to Condensed Consolidated

Financial Statements

Notes to Condensed Consolidated Financial

The Company and Basis of Presentation

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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,

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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

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.

Following the closure of the Israeli facilities at the end of May 2020, the Company’s sole remaining

office is located in Cambridge, Massachusetts (for details, see Note 4 below).

The Company currently maintains the lease on this

facility in good standing and is also assessing the ability of the staff to continue working remotely under the restrictions of

In March 2020

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

As of October 14, 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.

On July 2, 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.

the Company’s Chief Executive Officer Dr.

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

Haluska’s

belief that events had occurred that were sufficient to trigger his ability to resign for “Good Reason”

under his employment

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, 2020.

On July 12, 2020, Dr.

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.

It is the Company’s position, based on its legal counsel, that the

CEO resigned without Good Reason, is not entitled to severance, and the Company will contest any and all claims for severance.

Prior to the appointment of Mr.

Neil Cohen as CEO in October 2020 (see below) the Board handled all matters related to

On October 20,

2020, the Company appointed Mr.

Neil Cohen as Chief Executive Officer of the Company, effective immediately.

will continue to serve as a member of the Company’s board of directors.

The Company also appointed Andrew Fine to serve as

the Chief Financial Officer of the Company, effective immediately.

Fine previously served as the Company’s Interim

Chief Financial Officer pursuant to a subcontracting agreement.

In light of business

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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.

These include

plans to temporarily reduce 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.

The Company continues to undertake actions

for the promotion of the program and its assets and towards strengthening the protection of all related intellectual property.

As a result of the

above the Company took charges associated with severance and, discontinuation of external clinical development activities,.

charges amounted to $1.03 million for discontinuation of external clinical development activities and $0.5 million for severance

(see Notes 6 and 7 below).

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.

The Company wholly owns a subsidiary,

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

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’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.

The Company wholly owns a subsidiary, 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 condensed consolidated financial statements, the

Company has incurred losses and cash flow deficits from operations since inception, resulting in an accumulated deficit at September

30, 2020 of $114.9 million.

The Company has financed operations to date primarily through public and private placements of equity

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 Company believes

that its existing cash and cash equivalents will only be sufficient to fund its projected cash needs into the first quarter of

Accordingly, these factors, among others, raise substantial doubt about the Company’s ability to continue as a going

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

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

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 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 September 30,

2020, and its results of operations for the three and nine months ended September 30, 2020 and 2019, changes in shareholders’

equity for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine months ended September 30,

2020 and 2019.

The results of operations for the three and nine months ended September 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.

December 31, 2019 balance sheet was derived from audited financial statements, but does not include all disclosures required

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

The preparation of

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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

consistent application.

The standard will become effective for us beginning on January 1, 2021.

The Company is currently evaluating

the new standard to determine the potential impact on its financial condition, results of operations, cash flows, and financial

statement disclosures.

total liabilities, total shareholders’

equity, net loss, or loss per share.

Accrued expenses and other

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

September 30,

Accrued expenses

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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 31,

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 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.

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

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.

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.

The Company currently

maintains the lease in good standing and is assessing the ability of the staff to continue working remotely under the restrictions

License Agreement

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

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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

development expenses and continues to make ongoing payments to ADT in support of its maintenance of the Company’s assets.

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 and as related to a licensing and development

agreement between the parties (“License Agreement”).

In August 2020 the Company agreed with Yissum on termination

of the License Agreement, the Company destroyed or returned all IP documentation to Yissum and Yissum and the Company mutually

waived, released and discharged the other from all claims of any type.

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):

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 connection with this restructuring, the employment of the remaining five Israeli employees was 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 vacated the facilities on May 31, 2020 but will 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):

Manufacturing

and other related

January 1, 2020

June 30, 2020

Shareholders’

2018 Private Placement

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.

Balance, January 1, 2020

Paid or consumed

Balance, September 30, 2020

Research and development

As noted above, and

in conjunction with the Company’s decision to reassess its strategy around research and development efforts of its scientific

and assets, in the third quarter the Company took charges associated with severance and, discontinuation of clinical development

These charges amounted to $1.03 million for discontinuation of clinical development activities and $0.5 million for

severance of research and development personnel.

Shareholders’

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).

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.

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 shares

according to ASC 815-40.

Accordingly, the Company recorded the fair value of the warrants as a liability at January 1,

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:

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 shares 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.

The 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

Adjustments-finance expenses

Fair value on February 14, 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:

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

Expected term

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Public Offering

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.”

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

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

Share-based compensation

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;

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 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.

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

The volatility is based on the Company’s

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.

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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:

The fair value of

each option granted in the nine months ended September 30, 2019 was estimated on the grant date using the Black-Scholes option

pricing model with the following assumptions:

Nine months ended

September 30, 2019

Value of ordinary share

$1.03 - $1.54

Dividend yield

Expected volatility

51.5% - 68.6%

Risk-free interest rate

Expected term (years)

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:

The fair value of

each option granted in the nine months ended September 30, 2020 was estimated on the grant date using the Black-Scholes option

pricing model with the following assumptions:

Nine months ended

September 30, 2020

Value of ordinary share

$0.15 - $0.17

Dividend yield

Expected volatility

64.9% - 67.4%

Risk-free interest rate

0.30% to 0.39%

Expected term (years)

The following table

summarizes the number of options outstanding and exercisable as of September 30, 2020:

Exercise Price

Average Remaining Contractual Life in Years

Weighted Average

Contractual Life in

Options outstanding - January 1, 2020

Forfeited/expired/cancelled

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:

Options outstanding - September 30, 2020

Options exercisable - September 30, 2020

The aggregate intrinsic

value of both outstanding and exercisable options at September 30, 2020 is $0.

The following table

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

Three months ended

Nine months ended

September 30,

Research and development

General and administrative

The negative amounts for both Research

and development and General and administrative reflect the forfeiture of vested stock options and the reversal of accrued compensation

on account of future vesting on stock options that were granted to employees who were terminated as part of the Company’s

restructuring activities as mentioned above.

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

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 three and nine month periods presented:

Stock Options

Subsequent events

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.

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.

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 β-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.

efforts, however, have not resulted in opportunities that are sufficiently mature to date.

As a result, we decided to undertake

certain cost-saving measures, including a workforce reduction and temporary reduction 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.

We continue to maintain and support the development of our rights in the program

including the License Agreement with ADT (see below) and intellectual property protection activities.

The workforce reduction included

3 employees, which represented approximately 60% of our workforce as of June 30, 2020, and was completed in the 3 rd

quarter of 2020.

We incurred severance related charges of $0.5 million in the third quarter as well as $0.9 million in other costs

due to events associated with or resulting from our research and development workforce reduction and refocus in relation to external

development activities.

We have also engaged

Oppenheimer & Co.

to act as our financial advisor to review strategic alternatives focused on maximizing shareholder 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 shareholder 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.

License Agreement

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/β-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

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 under the licensing and development agreement between the parties (“License Agreement”).

August 2020 we agreed with Yissum on termination of the License Agreement, we destroyed or returned all IP documentation to

Yissum and we and Yissum mutually waived, released and discharged each other from all claims of any type..

Components of Operating Results

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;

costs associated with regulatory compliance.

We recognize research

and development expenses as we incur them.

In the third quarter

of 2020, we saw a shift away from research and development costs to general and administrative expenses as we executed our review

of strategic alternatives focused on maximizing shareholder value.

This has been undertaken while ensuring that we maintain the

viability of our research and development assets and continue to maintain full and extensive protection our intellectual property.

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 also include initial costs related to the engagement of advisors in connection

with our review of strategic alternatives to maximize shareholder value.

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

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

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 reduction development of the pan-RAS-inhibitor program and to preserve liquid resources, we decided to

undertake certain cost-saving measures.

These measures included severing employees and contract terminations..

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”

It is the our 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:

September 30,

Increase/(decrease)

September 30,

Increase/(decrease)

(in thousands)

Operating expenses:

Research and development

General and administrative

Restructuring expense

Operating loss

Financing (income) expense, net

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.

Three and Nine Months Ended September 30, 2020 Compared

to the Three and Nine Months Ended September 30, 2019

Research and development expenses

Research and development

expense decreased by approximately $4.3 million, or 78%, and $8.7 million, or 71%, in the three and nine months ended September 30,

2020, respectively, from the comparable periods of 2019.

The decrease is primarily due to the restructuring decisions made in July 2020and

the related decision to temporarily reduction our research activities on the RAS programs and sever our research and development

employees while continuing to undertake all necessary actions for the maintenance of the program, its assets and all related intellectual

property and licenses.

Research and development expenses include charges that amounted to $1.03 million for discontinuation of

clinical development activities and $0.5 million for severance.

General and administrative expenses

General and administrative

costs decreased by approximately $0.6 million, or 34%, and increased by approximately$0.2 million, or 3%, in the three and nine

months ended September 30, 2020, respectively, from the comparable period of 2019.

The decrease is primarily due the restructuring

decisions made in July 2020 as we rationalized our general and administrative employees and other corporate activities.

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.

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

Restructuring expenses

incurred during the second and third quarters of 2020 were comprised principally of contract termination costs, employee severance

and associated termination costs related to the reduction of our workforce.

In July 2020,

we made the strategic decision to temporarily reduction development of our RAS program and to institute various cost savings measures

to preserve liquid resources.

At the same time we continued to actively pursue the maintenance of our Licensing Agreement with

ADT and protection of our intellectual property assets.

The cost saving activities included severing employees and contract termination

with outsourced contractors working on clinical activities.

Financing (income) expense, net

Financing (income)

expense, net decreased by approximately $0.1 million, or 93%, and $4.3 million, or 100%, in the three and nine months ended September 30,

2020, respectively, from the comparable periods of 2019.

In the three and nine

months ended September 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.

For the three and

nine months ended September 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.

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.

The table below shows

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

Nine months ended

September 30,

Increase/(decrease)

(in thousands)

Net cash used in operating activities

Net cash provided by (used in) investing activities

Net cash provided by financing activities

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

Operating activities

Net cash used in operating

activities increased by $0.5 million, or 5%, for the nine months ended September 30, 2020 compared to the same period of 2019.

Net loss adjusted for non-cash activities was $9.4 million for the nine months ended September 30, 2020 compared to $15.7

million for the nine months ending September 30, 2019, resulting in favorable cash flow of $6.4 million.

This was more than

offset by unfavorable changes in working capital of approximately $6.6 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

in the nine months ended September 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 nine months ended

September 30, 2019 were purchases of fixed assets.

Financing activities

in the nine months ended September 30, 2019 reflect the net proceeds from our IPO on February 14, 2019.

There were no

financing activities in the nine months ended September 30, 2020.

Contractual Commitments

The Company’s

contractual commitments are as follows at September 30, 2020 (in thousands):

Operating Lease

Remainder of 2020

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.

fluctuations have not had a material effect on our results of operations during the nine months ended September 30, 2020 or

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

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.

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

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 September 30,

2020 of $114.9 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

Quantitative and Qualitative Disclosures About Market Risk.

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.

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