# Celcuity Inc. (CELC) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Celcuity Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1603454/000149315223008724/form10-k.htm
Accession: 0001493152-23-008724
Filing date: 2023-03-23
Report date: 2022-12-31
Extracted from Item 7 to the first post-MD&A boundary after HTML sanitization.
Confidence: high

Company profile: /company/CELC/
All MD&A years: /company/CELC/mda/
Previous year: /company/CELC/mda/fy2021/ (FY 2021)
Next year: /company/CELC/mda/fy2023/ (FY 2023)

ITEM
7. 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 in conjunction with our
financial statements and the related notes included elsewhere in this Annual Report. Some of the information contained in this discussion
and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business
and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk
Factors” discussed in Item 1A of Part I of this Annual Report.

OVERVIEW

Celcuity
is a clinical-stage biotechnology company focused on development of targeted therapies for treatment of multiple solid tumor indications.
The Company’s lead therapeutic candidate is gedatolisib, a pan-PI3K/mTOR inhibitor. Its mechanism of action and pharmacokinetic
properties are highly differentiated from other currently approved and investigational therapies that target PI3K or mTOR alone or together.
The Company initiated VIKTORIA-1, a Phase 3 study evaluating gedatolisib in patients with HR+/HER2- advanced breast cancer in 2022 and
is currently enrolling patients. Its CELsignia companion diagnostic platform is uniquely able to analyze live patient tumor cells to
identify new groups of cancer patients likely to benefit from already approved targeted therapies.

Gedatolisib,
is a potent, well-tolerated, small molecule reversible dual inhibitor, administered intravenously, that selectively targets all Class I isoforms of PI3K and mammalian target of rapamycin (mTOR). In April 2021, we obtained exclusive global
development and commercialization rights to gedatolisib under a license agreement with Pfizer, Inc. We believe gedatolisib’s
unique mechanism of action, differentiated chemical structure, favorable pharmacokinetic properties, and intravenous formulation
offer distinct advantages over currently approved and investigational therapies that target PI3K or mTOR alone or
together.

[[GREPCENT_TABLE]]
[["","\u25cf","Overcomes limitations of therapies that only inhibit a single Class I PI3K isoform or only one mTOR kinase complex."]]
[[/GREPCENT_TABLE]]

Gedatolisib
is a pan-class I isoform PI3K inhibitor with low nanomolar potency for the p110α, p110β, p110γ, and p110δ isoforms
and mTORC1 and mTORC2 complexes. Each PI3K isoform and mTOR complex is known to preferentially affect different signal transduction events
that involve tumor cell survival, depending upon the aberrations associated with the linked pathway. When a therapy only inhibits a single
Class I isoforms (e.g., alpelisib, a PI3K-α inhibitor ) or only one mTOR kinase complex (e.g., everolimus, an mTORC1 inhibitor),
numerous feedforward and feedback loops between the PI3K isoforms and mTOR complexes cross-activates the uninhibited sub-units. This,
in turn, induces compensatory resistance that reduces the efficacy of isoform specific PI3K or single mTOR kinase complex inhibitors.
Inhibiting all four PI3K isoforms and both mTOR complexes, as gedatolisib does, thus prevents the confounding effect of isoform interaction
that may occur with isoform-specific PI3K inhibitors and the confounding interaction between PI3K isoforms and mTOR.

[[GREPCENT_TABLE]]
[["","\u25cf","Better tolerated by patients than oral PI3K and mTOR drugs."]]
[[/GREPCENT_TABLE]]

Gedatolisib
is administered intravenously (IV) on a four-week cycle of three weeks-on, one week-off, in contrast to the orally administered pan-PI3K
or dual PI3K/mTOR inhibitors that are no longer being clinically developed. Oral pan-PI3K or PI3K/mTOR inhibitors have repeatably been
found to induce significant side effects that were not well tolerated by patients. This typically leads to a high proportion of patients
requiring dose reductions or treatment discontinuation. The challenging toxicity profile of these drug candidates ultimately played a
significant role in the decisions to halt their development, despite showing promising efficacy. By contrast, gedatolisib stabilizes
at lower concentration levels in plasma compared to orally administered PI3K inhibitors, resulting in less toxicity, while maintaining
concentrations sufficient to inhibit PI3K/mTOR signaling.

Isoform-specific
PI3K inhibitors administered orally were developed to reduce toxicities in patients. While the range of toxicities associated with isoform-specific
inhibitors is narrower than oral pan-PI3K or PI3K/mTOR inhibitors, administering them orally on a continuous basis still leads to challenging
toxicities. The experience with an FDA approved oral p110-α specific inhibitor, Piqray, illustrates the challenge. In its Phase
3 pivotal trial Piqray was found to induce a Grade 3 or 4 adverse event (AE) related to hyperglycemia in 39% of patients evaluated. In
addition, 26% of patients discontinued alpelisib due to treatment related adverse events. By contrast, in the 103-patient dose expansion
portion of the Phase 1b clinical trial with gedatolisib, only 7% of patients experienced Grade 3 or 4 hyperglycemia and less than 10%
discontinued treatment.

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As
of December 31, 2022, 492 patients with solid tumors have received gedatolisib in eight clinical trials sponsored by Pfizer. Of the 492
patients, 129 were treated with gedatolisib as a single agent in three clinical trials. The remaining 363 patients received gedatolisib
in combination with other anti-cancer agents in five clinical trials. Additional patients received gedatolisib in combination with other
anti-cancer agents in nine investigator sponsored clinical trials.

A
Phase 1b trial (B2151009) evaluating patients with ER+/HER2- metastatic breast cancer was initiated in 2016 and subsequently enrolled
138 patients. Seven patients from this study continue to receive study treatment, as of December 31, 2022, each of which have received
study treatment for more than four years. The B2151009 clinical trial was an open label, multiple arm Phase 1b study that evaluated
gedatolisib in combination with palbociclib (CDK4/6 inhibitor) and fulvestrant or letrozole in patients with HR+/HER2- advanced breast
cancer. Thirty-five patients were enrolled in two dose escalation arms to evaluate the safety and tolerability and to determine the maximum
tolerated dose (MTD) of gedatolisib when used in combination with the standard doses of palbociclib and endocrine therapy (letrozole
or fulvestrant). The MTD was determined to be 180 mg administered intravenously once weekly. A total of 103 patients were subsequently
enrolled in one of four expansion arms (A, B, C, D).

High
objective overall response rates were observed in all four expansion arms and were comparable in each arm for PIK3CA WT and PIK3CA MT
patients. In treatment-naïve patients (Arm A), ORR was 85%. In patients who received prior hormonal therapy alone or in combination
with a CDK4/6 inhibitor (Arms B, C, and D), ORR ranged from 36% to 77%. Each arm achieved its primary endpoint target, which was reporting
higher ORR in the study arm than ORR from either the PALOMA-2 (ORR=55%) study that evaluated palbociclib plus letrozole for Arm A or
the PALOMA-3 study (ORR=25%) that evaluated palbociclib plus fulvestrant for Arms B, C, and D. For all enrolled patients, a clinical
benefit rate (CBR) of ≥79% was observed. Median progression-free survival (PFS) was 12.9 months for patients who received a prior CDK4/6 inhibitor and were treated with the Phase 3 dosing
schedule (Arm D). For the Arm A patients that were treatment naive in the advanced setting, median PFS had not yet been reached.

Gedatolisib
combined with palbociclib and endocrine therapy demonstrated a favorable safety profile with manageable toxicity. The majority of treatment
emergent adverse events were Grade 1 and 2. The most frequently observed adverse events included stomatitis/mucosal inflammation, the
majority of which were Grade 1 and 2. The most common Grade 4 AEs were neutropenia and neutrophil count decrease, which were assessed
as related to treatment with palbociclib. No grade 5 events were reported in this study.

We
activated VIKTORIA-1, a Phase 3, open-label, randomized clinical trial to evaluate the efficacy and safety of two regimens in adults
with HR+/HER2- advanced breast cancer whose disease has progressed after prior CDK4/6 therapy in combination with an aromatase inhibitor:
1) gedatolisib in combination with palbociclib and fulvestrant: and 2) gedatolisib in combination with fulvestrant. Two hundred clinical
sites in North America, Europe, South America, Asia, and Australia have been selected to participate in the study. The first clinical
site was activated in the third quarter. The first dosage of a patient in the trial occurred in December 2022.

The
clinical trial will enable separate evaluation of subjects according to their PIK3CA status. Subjects who meet eligibility criteria and
are PIK3CA WT will be randomly assigned (1:1:1) to receive a regimen of either gedatolisib, palbociclib, and fulvestrant (Arm A), gedatolisib
and fulvestrant (Arm B), or fulvestrant (Arm C). Subjects who meet eligibility criteria and are PIK3CA MT will be randomly assigned (3:3:1)
to receive a regimen of either gedatolisib, palbociclib, and fulvestrant (Arm D), alpelisib and fulvestrant (Arm E), or gedatolisib and
fulvestrant (Arm F).

Our
proprietary CELsignia diagnostic platform is the only commercially ready technology we are aware of that uses a patient’s living
tumor cells to identify the specific abnormal cellular process driving a patient’s cancer and the targeted therapy that best treats
it. This enables us to identify patients whose tumors may respond to a targeted therapy, even though they lack a previously associated
molecular mutation. By identifying cancer patients whose tumors lack an associated genetic mutation but have abnormal cellular activity
a matching targeted therapeutic is designed to inhibit, CELsignia CDx can expand the markets for a number of already approved targeted
therapies. Our current CDx identifies breast and ovarian cancer patients whose tumors have cancer drivers potentially responsive to treatment
with human epidermal growth factor receptor 2-negative (HER2), mesenchymal-epithelial transition factor (c-MET), or phosphatidylinositol
3-kinases (PI3K) targeted therapeutics. While U.S. Food and Drug Administration (“FDA”) approval or clearance is not currently
required for CELsignia tests offered as a stand-alone laboratory developed test, if we are partnered with a drug company to launch a
CELsignia test as a companion diagnostic for a new drug indication, we would be required to obtain premarket approval, or PMA, in conjunction
with the pharmaceutical company seeking a new drug approval for the matching therapy.

We
are supporting the advancement of new potential indications for four different targeted therapies, controlled by other pharmaceutical
companies, that would rely on a CELsignia CDx to select patients. Four Phase 2 trials are underway to evaluate the efficacy and safety
of these therapies in CELsignia selected patients. These patients are not currently eligible to receive these drugs and are not identifiable
with a molecular test.

60

Supporting
the development of a potential first-in-class targeted therapy for breast cancer, like gedatolisib, with our CELsignia platform is a
natural extension of our strategy to use our CELsignia CDx to enable new indications for other companies’ targeted therapies. By
combining companion diagnostics designed to enable proprietary new drug indications with targeted therapies that treat signaling dysregulation
our CDx identifies, we believe we are uniquely positioned to improve the standard-of-care for many early and late-stage breast cancer
patients. Our goal is to play a key role in the multiple treatment approaches required to treat breast cancer patients at various stages
of their disease. With each program, we are:

[[GREPCENT_TABLE]]
[["","\u25cf","Leveraging the proprietary insights CELsignia provides into live patient tumor cell function"],["","\u25cf","Using a CELsignia CDx to identify new patients likely to respond to the paired targeted therapy"],["","\u25cf","Developing a new targeted therapeutic option for breast cancer patients"],["","\u25cf","Maximizing the probability of getting regulatory approval to market the targeted therapy indication"]]
[[/GREPCENT_TABLE]]

Recent
Developments

On
December 22, 2022, Celcuity closed on a $20.0 million term loan (the “Term B Loan”) with an affiliate of Innovatus Capital
Partners, LLC (“Innovatus”), pursuant to a Loan and Security Agreement, dated April 8, 2021 (the “Loan Agreement”),
as amended by that First Amendment to Loan and Security Agreement, dated August 9, 2022 (the “Amendment and collectively with the
Loan Agreement, the “Amended Loan Agreement”). The Company became eligible to draw down the Term B Loan upon the closing
of the Company’s previously disclosed $100 million private placement on December 9, 2022. As previously disclosed, the Amended
Loan Agreement may provide the Company with up to $75.0 million through funding of up to five term loans. Funding of the first $15.0
million term loan occurred on April 8, 2021 in connection with entering into the original Loan Agreement. As of December 31, 2022, term
loans totaling $35 million are outstanding under the Amended Loan Agreement. Celcuity will be able to draw on two additional tranches
of $10 million each and one additional tranche of $20 million upon achievement of certain clinical trial milestones and satisfaction
of certain financial covenants determined on a pro forma as-funded basis. Funding of these additional tranches is also subject to other
customary conditions and limits on when the Company can request funding for such tranches. Celcuity is entitled to make interest only
payments for the 48-month period from the original agreement date or for the 60-month period from the original agreement date if certain
conditions are met. The loans will mature on April 8, 2027, the sixth anniversary of the initial funding date. Innovatus has the right
to convert outstanding principal into shares of Celcuity common stock until the third anniversary of the loan amendment date, with such
amount limited to an aggregate of up to $6.6 million assuming all tranches are funded. The loan is secured by all of Celcuity’s
assets.

On
December 9, 2022, Celcuity closed on a private placement of common stock and preferred stock, resulting in gross proceeds of approximately
$100 million, before deducting placement agent fees and other expenses. Celcuity issued 6,182,574 shares of common stock, 1,120,873 shares
of Series A Preferred Stock and warrants exercisable for 6,956,450 shares of common stock to certain institutional and other accredited
investors pursuant to a securities purchase agreement entered into on May 15, 2022. Pursuant to the securities purchase agreement, the
closing (funding) of the private placement followed dosage of the first patient in Celcuity’s Phase 3 clinical trial, VIKTORIA-1,
evaluating gedatolisib, Celcuity’s lead therapeutic candidate. Investors purchased shares of common stock and Series A Preferred
Stock at a price of $5.75 per share (on an as converted to common stock basis), with forty percent (40%) warrant coverage (on an as converted
to common stock basis) and customary resale registration rights. The warrants have an exercise price of $8.05 per share.

On
December 7, 2022, Celcuity announced that the first patient was dosed in it Phase 3 VIKTORIA-1 clinical trial. Operational activities
continue to focus on facilitating activation of sites and enrolling patients. The clinical trial protocol was updated to include an additional
study arm (Arm F) to evaluate gedatolisib plus fulvestrant in 50 patients who have PIK3CA mutations. This update was made in response
to a recommendation from the European Medicines Agency (EMA) that the study arms for PIK3CA mutated patients mirror the same study arms
for PIK3CA non-mutated patients. No changes were made to the primary endpoints. VIKTORIA-1 will evaluate the safety and efficacy of gedatolisib
in combination with fulvestrant with or without palbociclib in adults with HR+/HER2- advanced breast cancer whose disease progressed
while receiving prior CDK4/6 therapy. Further details about the study are available at ClinicalTrials.gov.

61

We
have not generated any revenue from sales to date, and we continue to incur significant research and development and other expenses related
to our ongoing operations. As a result, we are not and have never been profitable and have incurred losses in each period since we began
operations in 2012. For the years ended December 31, 2022 and 2021, we reported a net loss of approximately $40.4 million and
$29.6 million, respectively. As of December 31, 2022, our cash and cash equivalents and short-term investments were approximately $168.6
million, and we had an accumulated deficit of approximately $96.3 million.

Impact
of COVID-19 on our Business

Although
we have largely returned to normal operations in our facility, the COVID-19 pandemic continues and its effect on our operations and financial
condition will depend in large part on future developments which cannot be reasonably estimated at this time. Future developments include
the duration, scope and severity of the pandemic, the emergence of new virus variants that are more contagious or harmful than prior
variants, actions taken by governmental authorities, suppliers, clinical trial sites, and other business partners to contain or mitigate
the pandemic’s impact, and the potential adverse effects on the suppliers, labor market and general economic activity.

As
we continue to advance our clinical trial collaborations, we remain in close contact with our current clinical sponsors, and principal
investigators, as well as prospective pharmaceutical company and clinical collaborators, to monitor the impact of COVID-19 on our trial
enrollment timelines and collaboration discussions. We experienced delays in the enrollment of patients in our ongoing CELsignia Phase
2 clinical trials and now expect interim results from FACT-1 and FACT-2 to be delayed until the second half of 2023. We could experience
further delays in clinical trials and collaborations with pharmaceutical companies and sponsors if new variants emerge or if the spread
of COVID-19 once again accelerates. Due to the inherent uncertainty associated with the COVID-19 pandemic, we are unable to predict the
impact the pandemic may have on our clinical trial work and overall financial condition.

RESULTS
OF OPERATIONS

Components
of Operating Results

Revenue

To
date, we have not generated any revenue. With the execution of the Pfizer license agreement in April 2021, whereby we acquired exclusive
world-wide licensing rights to develop and commercialize gedatolisib, we initiated a Phase 3 clinical trial, VIKTORIA-1, in 2022 to support
potential regulatory approval to market gedatolisib. If we obtain regulatory approvals to market gedatolisib, we expect to generate revenue
from sales of the drug for the treatment of breast cancer patients. Additionally, we will seek to generate revenue from partnership agreements
with pharmaceutical companies to provide companion diagnostics for such pharmaceutical partners’ existing or investigational targeted
therapies. If a new drug indication is received that requires use of our companion diagnostic to identify eligible patients, we expect
to generate revenues from sales of tests to treating physicians.

Research
and Development

Since
our inception, we have primarily focused on research and development of gedatolisib, a PI3K/mTOR targeted therapy and our CELsignia platform
and corresponding tests. Research and development expenses primarily include:

[[GREPCENT_TABLE]]
[["","\u25cf","employee-related expenses related to our research and development activities, including salaries, benefits, recruiting, travel and stock-based compensation expenses;"],["","\u25cf","laboratory supplies;"],["","\u25cf","consulting fees paid to third parties;"],["","\u25cf","clinical trial costs;"],["","\u25cf","validation costs for gedatolisib;"],["","\u25cf","facilities expenses; and"],["","\u25cf","legal costs associated with patent applications."]]
[[/GREPCENT_TABLE]]

62

Internal
and external research and development costs are expensed as they are incurred. As we continue development of gedatolisib, manage the
VIKTORIA-1 Phase 3 trial and other clinical trials to evaluate the efficacy of targeted therapies in cancer patients selected with one
of our CELsignia tests, the proportion of research and development expenses allocated to external spending will grow at a faster rate
than expenses allocated to internal expenses.

General
and Administrative

General
and administrative expenses consist primarily of salaries, benefits and stock-based compensation related to our executive, finance and
support functions. Other general and administrative expenses include professional fees for auditing, tax, and legal services associated
with being a public company, director and officer insurance, investor relations and travel expenses for our general and administrative
personnel.

Sales
and Marketing

Sales
and marketing expenses consist primarily of professional and consulting fees related to these functions. To date, we have incurred
immaterial sales and marketing expenses as we continue to focus primarily on the development of our first drug, gedatolisib,
managing the VIKTORIA-1 Phase 3 trial, and development of our CELsignia platform and corresponding CELsignia tests. We would expect
to begin to incur increased sales and marketing expenses in anticipation of the commercialization of our first drug, gedatolisib,
and CELsignia tests. These increased expenses are expected to include payroll-related costs as we add employees in the commercial
departments, costs related to the initiation and operation of our sales and distribution network and marketing related
costs.

Interest
Expense

Interest
expense is primarily due to a Loan Agreement and finance lease obligations.

Interest
Income

Interest
income consists of interest income earned on our cash, cash equivalents and investment balances.

63

Results
of Operations

Comparison
of the Years Ended December 31, 2022 and 2021

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[[/GREPCENT_TABLE]]

Research
and Development

For
the year ended December 31, 2022, our research and development expenses were approximately $35.3 million, representing an increase of
approximately $9.5 million, or 37%, compared to the same period in 2021. Included in the $9.5 million increase is a $10 million reduction
in gedatolisib licensing related expenses offset by increases of $19.5 million in other research and development expenses. In the 2021
period, research and development expenses included a $10.0 million upfront license fee related to the execution of the Pfizer license
agreement while there were no licensing agreement expenses for gedatolisib in 2022. Of the $19.5 million increase in research and development
expense, $4.9 million was related to increased employee and consulting expenses, of which $0.9 million was in the form of non-cash stock-based
compensation. The remaining $14.6 million increase of research and development costs is related to costs for existing clinical trials
and for activities supporting the initiation of the VIKTORIA-1 pivotal trial.

Conducting
a significant amount of research and development is central to our business model. We plan to increase our research and development expenses
for the foreseeable future as we seek to develop gedatolisib, manage the VIKTORIA-1 Phase 3 trial, discover new cancer sub-types, and
develop and validate additional CELsignia tests to diagnose such sub-types. We also expect to incur increased expenses to support companion
diagnostic business development activities with pharmaceutical companies as we develop additional CELsignia tests and manage a clinical
trial for gedatolisib.

64

General
and Administrative

For
the year ended December 31, 2022, our total general and administrative expenses were $4.1 million, representing an increase of approximately
$1.5 million, or 58%, compared to the same period in 2021. The increase primarily resulted from a $1.3 million increase in compensation
related expenses, including approximately $1.1 million of non-cash stock-based compensation. In addition, other general and administrative
expenses increased $0.2 million primarily due to professional fees associated with being a public company and director and officer insurance.

We
anticipate that our general and administrative expenses will increase in future periods, reflecting both increased costs in connection
with the potential future commercialization of gedatolisib and CELsignia tests, an expanding infrastructure, and increased professional
fees associated with being a public company.

Interest
Expense

For
the year ended December 31, 2022, interest expense was $2.1 million and represents an increase of $0.8 million compared to the same
period in 2021. The Loan Agreement that was executed in April 2021 amended in August 2022, and includes $0.9 million of non-cash
interest expense. The increase primarily reflects the loan being in place for the full year in 2022, while only a portion of the year in
2021.

Interest
Income

For
the year ended December 31, 2022, interest income increased approximately $1.1 million compared to the same period in 2021. The
increase was primarily the result of higher market interest rates and the closing of additional financing activities, leading to
higher cash, cash equivalents and short-term investment balances.

LIQUIDITY
AND CAPITAL RESOURCES

Since
our inception, we have incurred losses and cumulative negative cash flows from operations. Through December 31, 2022, we have funded
our operations primarily through private placements and registered offerings of our equity securities and unsecured convertible notes,
and borrowings under loan agreements. From inception through December 31, 2022, we raised an aggregate of approximately $223.7 million
of net proceeds through sales of our securities, and as of December 31, 2022 had $35.0 million of borrowings under loan agreements. As
of December 31, 2022, our cash and cash equivalents and short-term investments were approximately $24.6 million and $144.0 million, respectively,
and we had an accumulated deficit of approximately $96.3 million.

Private
Placement. On December 9, 2022, we issued 6,182,574 shares of common stock, 1,120,873 shares of Series A Preferred Stock and warrants
exercisable for 6,956,450 shares of common stock to certain institutional and other accredited investors pursuant to a securities purchase
agreement entered into on May 15, 2022. Pursuant to the securities purchase agreement, the closing (funding) of the private placement
occurred following dosage of the first patient in the Company’s Phase 3 study, VIKTORIA-1. Investors purchased shares of common
stock and Series A Preferred Stock at a price of $5.75 per share (on an as converted to common stock basis), with forty percent (40%)
warrant coverage (on an as converted to common stock basis) and customary resale registration rights. The warrants have an exercise price
of $8.05 per share. The private placement generated gross proceeds of approximately $100 million before deducting placement agent fees
and other offering expenses of $4.3 million.

Open
Market Sale AgreementSM. On February 4, 2022, we entered into an Open Market Sale AgreementSM with Jefferies
LLC, as agent, pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock having an aggregate
offering price of up to $50,000,000. On October 12, 2022, pursuant to this agreement, the Company sold 500,000 shares of common stock
in a single transaction at a price of $10.35 per share, generating gross proceeds of $5.2 million ($4.8 million net of commissions and
offering expenses). At December 31, 2022, $44.8 million of common stock remains available for sale under the Jefferies agreement.

Innovatus
Loan Agreement. On April 8, 2021, we entered into a Loan Agreement with Innovatus Life Sciences Lending Fund I, LP (“Innovatus”),
under which Innovatus agreed to loan up to $25 million in three tranches consisting of (i) a $15.0 million non-contingent Term A loan
that was funded on April 8, 2021, (ii) a $5 million Term B loan with a deadline of March 31, 2022, and (iii) a $5 million Term C loan
to be funded upon our request, subject to our ability to achieve certain milestones, no later than March 31, 2023. On August 9, 2022,
the Company amended the Loan Agreement with Innovatus to provide for up to $75 million in term loans. As of December 31, 2022, term loans
totaling $35 million are outstanding under the Loan Agreement, including the initial Term A loan of $15 million which was funded on April
8, 2021, and a $20 million Term B loan which was funded on December 22, 2022 following the closing of the $100 million private placement
described above. Additionally, the Company will be able to draw on two additional tranches of $10 million and one additional tranche
of $20 million upon achievement of certain clinical trial milestones and satisfaction of certain financial covenants determined on a
pro forma as-funded basis. Funding of these additional tranches is also subject to other customary conditions and limits on when the
Company can request funding for such tranches.

65

We
expect that our research and development and general and administrative expenses will increase as we continue to develop gedatolisib,
manage the VIKTORIA-1 Phase 3 trial, conduct research related to the discovery of new cancer sub-types, conduct clinical trials, and
pursue other business development activities. We would also expect to incur sales and marketing expenses as we commercialize gedatolisib
and our CELsignia tests. We expect to use cash on hand to fund our research and development expenses, clinical trial costs, capital expenditures,
working capital, sales and marketing expenses, and general corporate expenses.

Based
on our current business plan, we believe that our current cash, cash equivalents and short-term investments together with available borrowings
under the Innovatus Loan Agreement will provide sufficient cash to finance our operations and pay obligations when due through at least
2025.

Our
expectations as to how long our current capital resources will be sufficient to fund our operations are based on assumptions that may
not be accurate, and we could use our current capital resources sooner than we currently expect. In addition, we may seek to raise additional
capital to finance capital expenditures and operating expenses over the next several years as we launch our integrated therapeutic and
companion diagnostic strategy and expand our infrastructure, commercial operations and research and development activities, and to take
advantage of financing or other opportunities that we believe to be in the best interests of the Company and our stockholders. Additional
capital may be raised through the sale of common or preferred equity or convertible debt securities, entry into debt facilities or other
third-party funding arrangements. The sale of equity and convertible debt securities may result in dilution to our stockholders and those
securities may have rights senior to those of our common shares. Agreements entered into in connection with such capital raising activities
could contain covenants that would restrict our operations or require us to relinquish certain rights. Additional capital may not be
available on reasonable terms, or not at all.

Cash
Flows

The
following table sets forth the primary sources and uses of cash for the years ended December 31:

[[GREPCENT_TABLE]]
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[[/GREPCENT_TABLE]]

Operating
Activities

Net
cash used in operating activities was approximately $36.0 million for the year ended December 31, 2022 and consisted primarily of a net
loss of approximately $40.4 million and working capital changes of $1.2 million, offset by non-cash expense items of approximately
$5.6 million. Non-cash expense items of approximately $5.6 million primarily consisted of $4.6 million of stock-based compensation expense,
non-cash interest expense of $0.9 million and depreciation expense of $0.2 million. The approximately $1.2 million of working capital
changes was primarily due to an increase in prepaid assets, somewhat offset by increases in accounts payable and accrued expenses.

Net
cash used in operating activities was approximately $20.3 million for the year ended December 31, 2021 and consisted primarily of a net
loss of approximately $29.6 million, adjusted for non-cash items of approximately $8.5 million and working capital changes of
approximately $0.8 million. Non-cash expense items of approximately $8.5 million consisted of $5.0 million for issuance of common stock
related to a license agreement, stock-based compensation expense of approximately $2.6 million, non-cash interest expense of $0.6 million
and depreciation of approximately $0.3 million. The working capital change of approximately $0.8 million was primarily due to
an increase in accounts payable, slightly offset by an increase in prepaid assets.

66

Investing
Activities

Net
cash used in investing activities for the year ended December 31, 2022 was approximately $144.0 million and consisted of approximately
$143.9 million of short-term investments in government securities (U.S. Treasury Bills and U.S. government agency securities) and approximately
$0.1 million in purchases of property and equipment.

Net
cash used in investing activities for the year ended December 31, 2021 was approximately $0.1 million and consisted of purchases of property
and equipment.

Financing
Activities

Net
cash provided by financing activities for the year ended December 31, 2022 was approximately $120.3 million. The $120.3 million primarily
consisted of net proceeds from a private placement offering and ATM offering totaling $100.5 million and $19.5 million from net proceeds
related to the closing of a Loan Agreement. The remaining $0.3 million was the result of proceeds from the exercise of employee stock
options and proceeds from employee stock purchases.

Net
cash provided by financing activities for the year ended December 31, 2021 was approximately $93.0 million. The $93.0 million primarily
consisted of net proceeds from the sale of shares of our common stock through two follow-on offerings totaling $78.5 million and $14.4
million from net proceeds related to the closing of a Loan Agreement. The remaining $0.1 million was the result of proceeds from the
exercise of common stock warrants and employee stock options and proceeds from employee stock purchases.

RECENT
ACCOUNTING PRONOUNCEMENTS

From
time-to-time new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting
bodies and adopted by us as of the specified effective date. Unless otherwise discussed in Note 2 to our financial statements included
elsewhere in this Annual Report, we believe that the impact of recently issued standards that are not yet effective will not have a material
impact on our financial position or results of operations upon adoption.

CRITICAL
ACCOUNTING POLICIES AND USE OF ESTIMATES

Our
management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States, or Generally Accepted Accounted
Principles (“U.S. GAAP”). The preparation of these 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 expenses during the reporting periods. These items are monitored and analyzed by us for changes in
facts and circumstances, and material changes in these estimates could occur in the future. 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. Changes in estimates are reflected
in reported results for the period in which they become known. Actual results may differ materially from these estimates.

Our
significant accounting policies are more fully described in Note 2 to our financial statements included elsewhere in this Annual Report.
Of our significant accounting policies, we believe that the following are the most critical:

Stock-Based
Compensation

Our
stock-based compensation consists of common stock options and restricted stock issued to certain employees and nonemployees and our Employee
Stock Purchase Plan (“ESPP”). We recognize compensation expense based on an estimated grant date fair value using the Black-Scholes
option-pricing method. We have elected to account for forfeitures as they occur.

The
inputs for the Black-Scholes valuation model require management’s significant assumptions. Prior to our IPO, the price per share
of common stock was determined by our board based on recent prices of common stock sold in private offerings. Subsequent to the IPO,
the price per share of common stock is determined by using the closing market price on the Nasdaq Capital Market on the grant date. The
risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal
to the expected life at the grant date. The expected life was based on the simplified method in accordance with SEC Staff Accounting
Bulletin Nos. 107 and 110. The expected volatility was estimated based on historical volatility information of peer companies that are
publicly available in combination with our calculated volatility since being publicly traded.

All
assumptions used to calculate the grant date fair value of nonemployee options are generally consistent with the assumptions used for
options granted to employees. In the event we terminate any of our consulting agreements, the unvested options issued in connection with
such agreements would also be cancelled.

For
grants of restricted stock, we record compensation expense based on the quoted fair value of the shares on the grant date over the requisite
service period. Compensation expense for ESPP rights is recorded in line with each respective offering period.

Clinical
Trial Costs

The
Company records prepaid assets or accrued expenses for prepaid or estimated clinical trial costs conducted by third-party service providers,
which includes the conduct of preclinical studies and clinical trials. These costs can be a significant component of the Company’s
research and development expenses. The Company primarily relies on a compilation of progress reports from third-party service providers,
including the respective invoicing, to record actual expenses, along with determining changes to prepaid assets and accrued liabilities.
To date, the company believes utilization of third-party reports most accurately reflects expenses. As the current VIKTORIA-1 Phase 3
trial ramps up site activation and patient enrollment, the Company may need to estimate expenses in future periods and actual services
performed may vary from these estimates. Changes in these estimates that result in material changes to the Company’s prepaid assets
or accrued expenses could materially affect the Company’s results of operations.