Protara Therapeutics, Inc. (TARA)

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 with our financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors
set forth in the “Risk Factors” section of this document, our actual results could differ materially from the results described
in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We are a New York City based
clinical-stage biopharmaceutical company committed to advancing transformative therapies for the treatment of cancer and rare diseases.
We were founded on the principle of applying modern scientific, regulatory or manufacturing advancements to established mechanisms in
order to create new development opportunities. We prioritize creativity, diverse perspectives, integrity and tenacity to expedite our
goal of bringing life-changing therapies to people with limited treatment options.

Our portfolio includes two
development programs utilizing TARA-002, an investigational cell therapy based on the broad immunopotentiator, OK-432, which was originally
granted marketing approval by the Japanese Ministry of Health and Welfare as an immunopotentiating cancer therapeutic agent. This cell
therapy is currently approved in Japan and Taiwan for lymphatic malformations, or LMs, and multiple oncologic indications. We have secured
worldwide rights to the asset excluding Japan and Taiwan and are exploring its use in oncology and rare disease indications. TARA-002
was developed from the same master cell bank of genetically distinct group A Streptococcus pyogenes as OK-432 (marketed as Picibanil®
in Japan by Chugai Pharmaceutical Co., Ltd., or Chugai Pharmaceutical). We are currently developing TARA-002 in non-muscle invasive bladder
cancer, or NMIBC, and in LMs.

We are also pursuing intravenous,
or IV, Choline Chloride, an investigational phospholipid substrate replacement therapy, for patients receiving parenteral support, or
PS, which includes both nutrition and fluids. Choline is a known important substrate for phospholipids that are critical for healthy liver
function and also plays an important role in modulating gene expression, cell membrane signaling, brain development and neurotransmission,
muscle function and bone health. PS patients are unable to synthesize choline from enteral nutrition sources, and there are currently
no available PS formulations containing choline.

For additional information regarding our various clinical trials
and programs, see “Item 1. Business.” We have devoted substantial efforts to the development of these programs and do not
have any approved products and have not generated any revenue from product sales. Neither TARA-002 nor IV Choline Chloride have been approved
for use for any indications. We do not expect to generate revenues in the near-term, and it is possible we may never generate revenues
in the future. To finance our current strategic plans, including the conduct of ongoing and future clinical trials and further research
and development costs, we will need to raise additional capital. See “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital Resources” for additional information about our liquidity and capital
resource needs.

Since inception, we have
incurred significant operating losses. As of December 31, 2024, we had an accumulated deficit of approximately $245.0 million. We expect
to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue our development
of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved products, and
add infrastructure and personnel to support our product development efforts and operations as a public company in the United States.

As a clinical-stage company,
our expenses and results of operations are likely to fluctuate significantly from quarter-to-quarter and year-to-year. We believe that
our period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.

As of December 31, 2024,
we had approximately $170.3 million in cash and cash equivalents, and marketable debt securities.

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Financial Overview

Research and Development

Research and development expenses consist primarily of costs incurred
for the development of TARA-002 and IV Choline Chloride, which include personnel-related expenses, including salaries, benefits, travel
and stock-based compensation expense, external expenses incurred under agreements with contract research organizations, or CROs, contract
development and manufacturing organizations, or CDMOs, the cost of acquiring, developing and manufacturing clinical trial materials, clinical
and non-clinical related costs, costs associated with regulatory operations and facilities, depreciation and other expenses, which include
expenses for rent and maintenance of facilities and other supplies.

General and Administrative

General and administrative expenses consist primarily of personnel-related
expenses, including salaries, benefits, travel and stock-based compensation expense, in executive and other administrative functions.
Other general and administrative expenses also include professional fees for business and market development, legal, intellectual property
matters, consulting and accounting services, facility related costs, as well as expenses related to audit, legal, regulatory and tax-related
services associated with maintaining compliance with our Nasdaq listing and Securities and Exchange Commission, or SEC, requirements,
director and officer liability insurance premiums and investor relations costs associated with being a public company.

Other Income (Expense), net

Other Income (Expense), net consists of interest and investment income
and other income. Interest and investment income consists of interest and dividend income on our cash and cash equivalents and marketable
debt securities and amortization of premiums and/or accretion of discounts.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion
and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of consolidated
financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. We base our estimates on historical experience and other market-specific or other relevant assumptions
that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

While our significant accounting policies are described in more detail
in the notes to our consolidated financial statements and related notes appearing elsewhere in this Annual Report on this Form 10-K, we
believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial
statements.

Our critical accounting policy is the accounting for prepaid and accrued
research and development expenses.

Research and Development Prepaid and Accrued
Expenses

We record accruals for estimated costs of research, preclinical,
non-clinical, clinical and manufacturing development within accrued expenses which are significant components of research and development
expenses. A substantial portion of our ongoing research and development activities are conducted by third-party service providers. We
accrue costs incurred under these third-party arrangements based on estimates of actual work completed in accordance with the respective
agreements. We determine the estimated costs to accrue through discussions with internal personnel and our external service providers
as to the percentage of completion of the services and the agreed-upon fees to be paid for such services. Payments made to third parties
under these arrangements in advance of performance of the related services are recorded as prepaid expenses until the services are rendered.

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Results of Operations

Comparison of the Years Ended December 31,
2024 and 2023

The following table summarizes our results of operations (in thousands):

Research and development
expenses

The following table summarizes our research and development expenses
(in thousands):

Research and development expenses were $31.7 million for the year ended
December 31, 2024, which represented an increase of approximately $6.7 million as compared to the year ended December 31, 2023. This increase
was primarily due to a $6.1 million increase in direct expenses for our product candidates and a $0.6 million increase in indirect expenses.
The increase in indirect expenses was primarily due to a $1.0 million increase in personnel-related expenses offset by a decrease of $0.3
million in indirect clinical manufacturing expenses.

General and administrative
expenses

General and administrative expenses were $17.5 million for the year
ended December 31, 2024, which represented a decrease of approximately $1.2 million as compared to the year ended December 31, 2023. This
decrease was primarily due to a net decrease of $1.2 million in personnel-related expenses.

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Other income (expense),
net

Other income (expense), net was $4.6 million for the year ended December
31, 2024, which represented an increase of approximately $1.4 million as compared to the year ended December 31, 2023, due primarily to
higher investment returns on a higher invested balance as well as a $0.4 million increase in other income.

Liquidity and Capital Resources

Overview

As of December 31, 2024 and 2023, our cash and cash equivalents, and
marketable debt securities were $170.3 million and $65.6 million, respectively. We have not generated revenues since our inception and
have incurred net losses of approximately $44.6 million and $40.4 million for the years ended December 31, 2024 and 2023, respectively.
As of December 31, 2024, we had working capital of approximately $161.2 million and stockholder’s equity of approximately $167.1
million. During the year ended December 31, 2024, cash flows used in operating activities were approximately $35.8 million, consisting
primarily of a net loss of approximately $44.6 million, which includes non-cash activities of approximately $4.8 million, inclusive of
$4.1 million in stock-based compensation expense, as well as working capital adjustments of $4.0 million. Since inception, we have met
our liquidity requirements principally through the sale of our common stock, preferred stock and pre-funded warrants in private placements
and public offerings. In addition, we may receive proceeds upon the exercise of the common warrants issued in the April 2024 private placement
described below.

Liquidity

On November 3, 2023, we filed a shelf registration statement on Form
S-3, or the Shelf Registration Statement, which became effective in November 2023. The Shelf Registration Statement permits the offering,
issuance and sale by us of up to a maximum aggregate offering price of $300.0 million of common stock, preferred stock, debt securities
and warrants in one or more offerings and in any combination. In December 2024, we sold and issued approximately $100.1 million in gross
proceeds of common stock and pre-funded warrants in a public offering, or the December 2024 Public Offering, under the Shelf Registration
Statement. The net proceeds were approximately $93.4 million. In January 2025, the underwriters partially exercised their option, or the
Underwriters’ Option, to purchase a portion of the additional shares of common stock pursuant to the underwriting agreement,
or the Underwriting Agreement, which resulted in gross proceeds of approximately $2.7 million and net proceeds of approximately $2.5 million.

In April 2024, the Company entered into a private placement transaction,
or the April 2024 Private Placement, whereby the Company sold and issued common stock, warrants and in, in some circumstances, pre-funded
warrants to certain purchasers. At the close of the April 2024 Private Placement, the Company received net proceeds of approximately $42.0
million after deducting placement agent fees and offering expenses.

We are in the business of
developing biopharmaceuticals and have no current or near-term revenues. We have incurred substantial clinical and other costs in our
drug development efforts. We will need to raise additional capital in order to fully realize management’s plans.

We believe that our current
financial resources, as of the date of the issuance of our consolidated financial statements included elsewhere in this Annual Report
on this Form 10-K, are sufficient to satisfy our estimated liquidity needs for at least 12 months.

As a result of volatility
in the capital markets, economic conditions, general global economic uncertainty, political change, global pandemics, and other factors,
we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital
on reasonable terms. If we are unable to raise additional capital due to volatile global financial markets, general economic uncertainty
or other factors, we may need to curtail planned development activities. Despite recent moderation, the sustained elevated interest rates
in recent years have had, and may continue to have, a negative effect on market prices for common stock of public companies, especially
those in the biotech industry and those that have no current or near-term revenue. Further, a recession or market correction, supply chain
disruptions and/or continued inflation could materially affect our business and the value of our common stock.

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Cash Flows

The following table summarizes our sources and uses of cash (in thousands):

Comparison of the Years Ended December 31, 2024 and 2023

Net cash provided by (used in) operating activities was approximately
$(35.8) million for the year ended December 31, 2024 compared to approximately $(37.6) million for the year ended December 31, 2023. The
decrease of approximately $1.7 million in cash used in operating activities was primarily driven by a decrease in working capital adjustments,
primarily related to changes in prepaid expenses and other current assets, accounts payable, and accrued expenses resulting from the timing
of payments to our service providers of $8.1 million, offset in part by an increase in net loss of $4.2 million and by a $2.2 million
decrease in non-cash items, consisting principally of stock-based compensation expense.

Net cash provided by (used
in) investing activities was approximately $19.2 million for the year ended December 31, 2024 compared to approximately $53.1 million
for the year ended December 31, 2023. The decrease of $34.0 million resulted primarily from an increase of $17.2 million of marketable
debt securities purchased as well as a decrease of $16.7 million of proceeds from marketable debt securities matured.

Net cash provided by (used in) financing activities was $139.9 million
for the year ended December 31, 2024 compared to $(0.1) million for the year ended December 31, 2023. The increase of approximately $140.0
million resulted primarily from the net proceeds of the December 2024 Public Offering of $94.0 million and the April 2024 Private Placement
of $42.0 million, as well as proceeds from the exercise of common warrants of $3.8 million.

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Contractual and Other Obligations

Operating lease obligations

Our operating lease obligations
primarily consist of lease payments on our corporate headquarters in New York, New York, as well as lease payments for our development
laboratory, a manufacturing facility and an additional manufacturing space, all located in North America which are described in further
detail in Note 9 of our consolidated financial statements included in this Annual Report on Form 10-K. Future contractual payments on
operating lease obligations due within one year of December 31, 2024 are $1.4 million, and future contractual payments on operating lease
obligations due greater than one year from December 31, 2024 are $3.7 million.

Other obligations

From time to time, we enter
into certain types of contracts that contingently require us to indemnify parties against third-party claims, supply agreements, and agreements
with directors and officers. The terms of such obligations vary by contract and in most instances a maximum dollar amount is not explicitly
stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted, thus no liabilities
have been recorded for these obligations on our consolidated balance sheet for the periods presented.

We enter into contracts in
the normal course of business with CROs and clinical sites for the conduct of clinical trials, non-clinical research studies, professional
consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts generally provide
for termination on notice, and therefore are cancelable contracts.

Certain of these agreements
require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial milestones as further
described in Note 10 of our consolidated financial statements included in this Annual Report on Form 10-K. Amounts related to contingent
milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development,
regulatory approval and commercial milestones, which may not be achieved.

We also have obligations
to make future payments to third parties that become due and payable on the achievement of certain milestones, including future payments
to third parties with whom we have entered into research, development and commercialization agreements. We have not included these commitments
on our consolidated balance sheet for the periods presented because the achievement and timing of these milestones is not fixed and determinable.

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 with our financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis
or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business
and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including
those factors set forth in the “Risk Factors” section of this document, our actual results could differ materially from the
results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We
are a New York City based clinical-stage biopharmaceutical company committed to advancing transformative therapies for the treatment
of cancer and rare diseases. We were founded on the principle of applying modern scientific, regulatory or manufacturing advancements
to established mechanisms in order to create new development opportunities. We prioritize creativity, diverse perspectives, integrity
and tenacity to expedite our goal of bringing life-changing therapies to people with limited treatment options.

62

Our
portfolio includes two development programs utilizing TARA-002, an investigational cell therapy based on the broad immunopotentiator,
OK-432, which was originally granted marketing approval by the Japanese Ministry of Health and Welfare as an immunopotentiating cancer
therapeutic agent. This cell therapy is currently approved in Japan and Taiwan for LMs and multiple oncologic indications. We have secured
worldwide rights to the asset excluding Japan and Taiwan and are exploring its use in oncology and rare disease indications. TARA-002
was developed from the same master cell bank of genetically distinct group A Streptococcus pyogenes as OK-432 (marketed as Picibanil®
in Japan and Taiwan by Chugai Pharmaceutical Co., Ltd., or Chugai Pharmaceutical). We are currently developing TARA-002 in non-muscle
invasive bladder cancer, or NMIBC, and in LMs.

Our
lead oncology program is TARA-002 in NMIBC, which is cancer found in the tissue that lines the inner surface of the bladder that has
not spread into the bladder muscle. Bladder cancer is the sixth most common cancer in the United States, with NMIBC representing approximately
80% of bladder cancer diagnoses. Approximately 65,000 patients are diagnosed with NMIBC in the United States each year. Very few new
therapeutics have been approved for NMIBC since the 1990s and the current standard of care for NMIBC includes intravesical Bacillus Calmette–Guérin,
or BCG. The mechanism of action of TARA-002 is similar in some ways to that of BCG. TARA-002 and BCG are both intravesically administered,
elicit a Th1 type immune response and produce a locally-activated generally similar array of cytokines and immune cells.

We are conducting a Phase
1 open-label clinical trial to evaluate TARA-002 in treatment-naïve and treatment-experienced NMIBC patients with carcinoma in situ,
or CIS, and high-grade papillary tumors, or Ta, known as the ADVANCED-1 trial. In the initial dose escalation phase of the trial, patients
received six weekly intravesical doses of TARA-002, evaluating the 10KE, 20KE and 40KE doses (Klinische Einheit, or KE, is a German term
indicating a specified weight of dried cells in vial). The primary objective of the trial is to evaluate the safety, tolerability and
preliminary signs of anti-tumor activity of TARA-002, with the goal of establishing a recommended Phase 2 dose. In April 2023, we announced
positive preliminary data from the Phase 1a dose escalation component of the ongoing ADVANCED-1 trial through the 40KE dose, in which
TARA-002 indicated favorable tolerability and anti-tumor activity in NMIBC patients. A maximum tolerated dose was not determined,
and dose escalation remains ongoing in exploratory cohorts.

Preliminary data from the
ADVANCED-1 trial suggested that intravesical TARA-002 was generally well tolerated at the three dose levels evaluated in the initial phase
of the trial, and no dose limiting toxicities were observed. The Company has selected the 40KE dose for use in subsequent clinical trials.
The majority of reported adverse events were Grades 1 and 2 across all dose levels, and treatment-related adverse events, as assessed
by study investigators, were in line with typical responses to bacterial immunopotentiation and included fatigue, headache, fever and
chills. The most common urinary symptoms were urinary urgency, urinary frequency, urinary tract pain/burning, incomplete emptying, and
bladder spasm. Most bladder irritations resolved soon after administration, or in a few hours to a few days. A total of nine patients
were enrolled in the dose escalation portion of the study through the 40KE dose. Of those, three patients with CIS,
one of whom was a heavily pre-treated BCG-unresponsive patient, achieved a complete response at the 20KE dose, and tumor regression
was observed in the other two patients. Results from six patients with high-grade, non-invasive papillary, or HGTa, tumors showed five
of six patients with high-grade recurrence free survival, or HGRFS, at week 12. The patient who did not achieve HGRFS was dosed at 10KE,
the lowest dose of TARA-002 offered in the trial.

The ongoing open-label expansion
trial, or ADVANCED-1EXP, is evaluating intravesical TARA-002 at the 40KE dose in up to 12 CIS patients, including BCG-naïve, BCG-unresponsive,
and BCG-inadequately treated patients. Dosing is progressing in the trial, and we anticipate having preliminary data from this trial in
the first half of 2024.

Based on the preliminary
results of ADVANCED-1, we are proceeding with the clinical development of TARA-002 for the treatment of NMIBC. In September 2023, we initiated
ADVANCED-2, a Phase 2 open-label trial evaluating intravesical TARA-002 in at least 102 patients with high-grade CIS. Cohort A of the
Phase 2 trial is expected to enroll 27 patients with CIS (± Ta/T1), BCG-Naïve or BCG-experienced, who have not received intravesical
BCG for at least 24 months prior to CIS diagnosis. Cohort B of the Phase 2 trial is expected to enroll 75-100 patients with BCG-unresponsive
CIS (± Ta/T1). The Company expects to share preliminary results from a pre-planned risk-benefit analysis of the ongoing Phase 2
open-label ADVANCED-2 trial in the second half of 2024. The analysis is expected to include approximately 10 patients who are six-month
evaluable.

In
addition, we continue to conduct pre-clinical studies on TARA-002 to better characterize the mechanism of action to help us understand
how TARA-002 may perform in potential combinations with other agents used to treat NMIBC. We use pre-clinical data to help us define
other cancer targets for TARA-002, both within urothelial cancer and other types of cancer affecting different parts of the body.

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We are also pursuing TARA-002
in LMs, which are rare, non-malignant cysts of the lymphatic vascular system that primarily form in the head and neck region of children
before the age of two. In July 2020, the FDA granted Rare Pediatric Disease designation for TARA-002 for the treatment of LMs and in May
2022 the European Medicines Agency granted orphan drug designation to TARA-002 for the treatment of LMs. In addition to the clinical experience
in Japan, we have secured the rights to a dataset from one of the largest ever conducted Phase 2 trials in LMs, in which OK-432 was administered
via a compassionate use program led by the University of Iowa to over 500 pediatric and adult patients. We have an investigational new
drug application for LMs with the Vaccines and Related Products Division of the FDA, or Vaccines Division.

In October 2023, we
initiated STARBORN-1 is a Phase 2 single-arm, open-label,
prospective clinical trial to evaluate the safety and efficacy of intracystic injection of TARA-002 for the treatment of macrocystic
and mixed-cystic LMs (≥ 50% macrocystic disease) in participants six months to less than 18 years of age. Including an age
de-escalation safety lead-in, the trial will enroll approximately 30 patients who will receive up to four injections of TARA-002
spaced approximately six weeks apart.

The
primary endpoint of the trial is the proportion of participants with macrocystic LMs and mixed-cystic LMs who demonstrated clinical success,
defined as having either a complete response (90% to 100% reduction from baseline in total LM volume) or substantial response (60% to
less than 90% reduction in total LM volume) as measured by axial imaging.

The third development program
in our portfolio is intravenous, or IV, Choline Chloride, an investigational phospholipid substrate replacement therapy, for patients
receiving parenteral nutrition, or PN. The FDA has granted IV Choline Chloride Orphan Drug Designation for the prevention of choline deficiency
in PN patients. We have conducted a two-part prevalence study to enhance our understanding of the PN patient population. The first, or
retrospective, part of the prevalence study was completed in September 2021, when we reported results that supported that there was a
significant unmet medical need in patients dependent on PN. We have concluded the second, or prospective part, of the prevalence study,
which is a multi-center, cross-sectional observational study that assessed the prevalence of choline deficiency in patients dependent
on PN. We shared these results with the FDA to inform our discussion on next steps for the IV Choline Chloride program. There are currently
no IV formulations of choline available or in development for PN patients.

We have devoted
substantial efforts to the development of these programs and do not have any approved products and have not generated any revenue
from product sales. Neither TARA-002 nor IV Choline Chloride have been approved for use for any indications. We do not expect to generate revenues in the near-term,
and it is possible we may never generate revenues in the future. To finance our current strategic plans, including the conduct of
ongoing and future clinical trials and further research and development costs, we will need to raise additional capital. See
“—Liquidity and Capital Resources” for additional information about our liquidity and capital resource needs.

Since
inception, we have incurred significant operating losses. As of December 31, 2023, we had an accumulated deficit of approximately $200.4
million. We expect to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue
our development of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved
products, and add infrastructure and personnel to support our product development efforts and operations as a public company in the United
States.

As
a clinical-stage company, our expenses and results of operations are likely to fluctuate significantly from quarter-to-quarter and year-to-year.
We believe that our period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.

As
of December 31, 2023, we had approximately $65.6 million in cash, cash equivalents, and marketable debt securities.

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Financial
Overview

Research
and Development

Research
and development expenses consist primarily of costs incurred for the development of TARA-002 and IV Choline Chloride, which include personnel-related
expenses, including salaries, benefits, travel and stock-based compensation expense, expenses incurred under agreements with clinical
research organizations, or CROs, contract development and manufacturing organizations, or CDMOs, the cost of acquiring, developing and
manufacturing clinical trial materials, clinical and non-clinical related costs, costs associated with regulatory operations and facilities,
depreciation and other expenses, which include expenses for rent and maintenance of facilities and other supplies.

General
and Administrative

General
and administrative expenses consist principally of personnel-related expenses, including salaries, benefits, travel and stock-based compensation
expense, in executive and other administrative functions. Other general and administrative expenses also include professional fees for
legal, intellectual property matters, consulting and accounting services, facility related costs, as well as expenses related to audit,
legal, regulatory and tax-related services associated with maintaining compliance with our Nasdaq listing and SEC requirements, director
and officer liability insurance premiums and investor relations costs associated with being a public company.

Other
Income (Expense), net

Interest
and investment income consists of interest and dividend income on our cash, cash equivalents and marketable debt securities and amortization
of premiums and/or accretion of discounts.

Critical
Accounting Policies and Significant Judgments and Estimates

Our
management’s discussion and analysis of our financial position 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 of America, or GAAP. The preparation
of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. We base our estimates on historical experience and other market-specific or other relevant
assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

While
our significant accounting policies are described in more detail in the notes to our consolidated financial statements and related notes
appearing elsewhere in this Annual Report on 10-K, we believe the following accounting policies to be most critical to the judgments
and estimates used in the preparation of our financial statements.

Our critical accounting policy is the accounting for accrued research
and development expenses. During the year ended December 31, 2022, goodwill was also considered a critical accounting estimate.

Research
and Development Accruals

We
record accruals for estimated costs of research, preclinical, clinical and manufacturing development within accrued expenses which are
significant components of research and development expenses. A substantial portion of our ongoing research and development activities
are conducted by third-party service providers. We accrue costs incurred under these third-party arrangements based on estimates of actual
work completed in accordance with the respective agreements. We determine the estimated costs to accrue through discussions with internal
personnel and our external service providers as to the percentage of completion of the services and the agreed-upon fees to be paid for
such services. Payments made to third parties under these arrangements in advance of performance of the related services are recorded
as prepaid expenses until the services are rendered.

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Goodwill

Goodwill
represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill has
an indefinite useful life. Goodwill is assessed annually for impairment as of December 31, or more frequently if an event occurs or circumstances
change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value of an indefinite-lived
intangible asset has declined below its carrying value. In performing its annual goodwill impairment assessment, we have the option under
GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value;
if the conclusion of the qualitative assessment is that there are no indicators of impairment, then we would not perform a quantitative
assessment. Otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined.

Goodwill
was evaluated for impairment at the reporting unit level, which is defined as an operating segment, or one level below an operating segment.
We have determined that we operate as one reporting unit and had selected December 31 as the date to perform our annual impairment test.
As of December 31, 2022, we elected to forego the qualitative screen and performed a quantitative annual goodwill impairment test for
our single reporting unit.

As
of December 31, 2022, our stock price and market capitalization declined approximately 60% from December 31, 2021. Although we believed
this decline reflects the overall performance of similar life science companies with less than $250 million in market capitalizations,
or microcap companies, we do not believe it reflects the progress made in advancing our product candidate pipeline. The life sciences
sector, which includes pre-commercialization and therefore net operating loss generating companies, relies heavily on the capital markets
to finance their operations and fund pre-clinical and clinical trials for their existing development programs. As a result of a shift
in risk appetite in the overall financial markets, the availability of capital for life science companies decreased significantly in
2022. Industry reports highlighted a decline of more than 50 percent in both the number of healthcare follow-on financings as well as
the amount of capital raised in 2022 compared to 2021. These challenging financing conditions had a significantly negative impact on
stock prices and respective market capitalizations, particularly for microcap companies. We considered the heightened financing risk
that impacted the life sciences sector during 2022 to be one of the key macroeconomic factors that led to a sustained decrease in our
stock price and market capitalization leading up to our annual goodwill impairment assessment date in late 2022.

The
fair value of our reporting unit was determined using an income approach based on discounted cash flows, or DCF, as we elected to forgo
the qualitative screen. Determining fair value using a DCF analysis required the exercise of significant judgment with respect to several
assumptions and estimates, including the amount and timing of expected future cash flows and appropriate discount rate to be applied.
The expected cash flows used in the DCF analyses are based on our most recent internal long-range forecast and budget and, for years
beyond the budget, our estimates, which are based, in part, on industry benchmarks and forecasted growth rates.

The
discount rate used in the DCF analysis was intended to reflect the risks inherent in the expected future cash flows of the respective
programs within our portfolio. Assumptions used in the DCF analysis, including the discount rate, were assessed based on our current
results and forecasted future performance, as well as macroeconomic and industry specific factors, including the aforementioned market
factors influenced by financing risk discussed above.

We
determined the estimated fair value of our single reporting unit by utilizing a discount rate of 36%, which reflects these market factors.
Based upon this discount rate, the fair value of our single reporting unit was below its carrying value by an amount greater than the
carrying value of goodwill, and we recorded an impairment charge of $29.5 million in the fourth quarter of 2022 to fully write off the
goodwill.

66

Results
of Operations

Comparison
of the Years Ended December 31, 2023 and 2022

The
following table summarizes our results of operations for the years ended December 31, 2023 and 2022 (in thousands):

Research and development
expenses. During the year ended December 31, 2023, our research and development expenses were approximately $25.0 million, which represented
an increase of approximately $8.2 million as compared to the year ended December 31, 2022. This was primarily due to an increase in expenses
related to clinical trial and non-clinical activities for TARA-002 of $7.3 million as well as an increase of $0.8 million in personnel-related
expenses.

General and administrative
expenses. During the year ended December 31, 2023, our general and administrative expenses were approximately $18.6 million, which
represented a decrease of approximately $2.1 million as compared to the year ended December 31, 2022. This decrease was primarily due
to a reduction of $1.6 million in personnel-related expenses (inclusive of $0.7 million of stock-based compensation) and lower premiums
of $1.2 million for directors and officers liability insurance. These cost reductions were partially offset by an increase of $0.8 related
to legal and market development activities.

Loss
on impairment of goodwill. During the year ended December 31, 2022, we recorded a non-cash impairment charge of $29.5 million to
fully impair goodwill. There was no impairment charge during the year ended December 31, 2023.

Other income (expense),
net. During the year ended December 31, 2023, our other income (expense), net was approximately $3.2 million, which represented an
increase of approximately $2.1 million as compared to the year ended December 31, 2022, due primarily to higher market interest rates
obtained from money market funds and corporate debt securities held as marketable securities.

Liquidity
and Capital Resources

Overview

As
of December 31, 2023 and 2022, our cash, cash equivalents, and marketable debt securities were $65.6 million and $102.3 million, respectively.
We have not generated revenues since our inception and have incurred net losses of approximately $40.4 million and $66.0 million for
the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had working capital of approximately $62.6 million
and stockholder’s equity of approximately $68.3 million. During the year ended December 31, 2023, cash flows used in operating
activities were approximately $37.6 million, consisting primarily of a net loss of approximately $40.4 million, which includes non-cash
activities of approximately $7.0 million, inclusive of $6.1 million in stock-based compensation charges, as well as working capital adjustments
of $4.1 million. Since inception, we have met our liquidity requirements principally through the sale of our common stock and preferred
stock in private placements and underwritten offerings.

67

Liquidity

On November 3, 2023, we filed
a shelf registration statement on Form S-3, or the Shelf Registration Statement, which became effective in November 2023. The Shelf Registration
Statement permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $300 million of common stock,
preferred stock, debt securities and warrants in one or more offerings and in any combination. No securities have been sold to date under
the Shelf Registration Statement. For so long as the public float of our common stock held by non-affiliates is below $75 million, our
ability to use the Shelf Registration Statement will be limited by “baby shelf” rules, which limit us to sales in an amount
not to exceed one-third of such public float. Such amounts may not be adequate for meeting our capital needs.

We
are in the business of developing biopharmaceuticals and have no current or near-term revenues. We have incurred substantial clinical
and other costs in our drug development efforts. We will need to raise additional capital in order to fully realize management’s
plans.

We
believe that our current financial resources, as of the date of the issuance of our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K, are sufficient to satisfy our estimated liquidity needs for at least 12 months.

As a result of volatility
in the capital markets, economic conditions, general global economic uncertainty, political change, global pandemics, and other factors,
we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital
on reasonable terms. If we are unable to raise additional capital due to volatile global financial markets, general economic uncertainty
or other factors, we may need to curtail planned development activities. The sustained elevated interest rates in recent years have had,
and may continue to have, a negative effect on market prices for common stock of public companies, especially those in the pharmaceutical
industry and those that have no current or near-term revenue. Further, a recession or market correction, supply chain disruptions and/or
continued inflation could materially affect our business and the value of our common stock.

Cash
Flows

The
following table summarizes our sources and uses of cash for the years ended December 31, 2023 and 2022 (in thousands):

Comparison
of the Years Ended December 31, 2023 and 2022

Net cash used in operating
activities was approximately $37.6 million for the year ended December 31, 2023 compared to approximately $26.5 million for the year ended
December 31, 2022. The increase of approximately $11.1 million in cash used in operating activities was primarily driven by a decrease
in net loss of $25.5 million which includes a $32.0 million decrease in non-cash items including goodwill, stock-based compensation, operating
lease right-of-use asset, depreciation, and amortization of premium on marketable debt securities and a $4.7 million increase in working
capital adjustments, primarily related to changes in prepaid expenses and other current assets, accounts payable, and accrued expenses
resulting from the timing of payments to our service providers.

68

Net
cash provided by investing activities was approximately $53.1 million for the year ended December 31, 2023 compared to net cash provided
by investing activities of approximately $15.0 million for the year ended December 31, 2022. The increase of $38.2 million resulted primarily
from maturities and redemptions of marketable debt securities of $65.3 million for the year ended December 31, 2023 as compared to $58.6
million for the year ended December 31, 2022 and the purchase of marketable debt securities of $12.2 million for the year ended December
31, 2023 as compared to $43.6 million for the year ended December 31, 2022.

Net
cash used in financing activities was approximately $0.1 million for the years ended December 31, 2023 and 2022.

Contractual
and Other Obligations

Operating
lease obligations

Our
operating lease obligations primarily consist of lease payments on our corporate headquarters in New York, New York, as well as lease
payments for our development laboratory, a manufacturing facility and an additional manufacturing space, all located in North America
which are described in further detail in Note 9 of our consolidated financial statements included in this Annual Report on Form 10-K.
Future contractual payments on operating lease obligations due within one year of December 31, 2023 are $1.3 million, and future contractual
payments on operating lease obligations due greater than one year from December 31, 2023 are $5.1 million.

Other
obligations

From
time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims,
supply agreements, and agreements with directors and officers. The terms of such obligations vary by contract and in most instances a
maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until
a specific claim is asserted, thus no liabilities have been recorded for these obligations on our consolidated balance sheet for the
periods presented.

We
enter into contracts in the normal course of business with CROs and clinical sites for the conduct of clinical trials, non-clinical research
studies, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts
generally provide for termination on notice, and therefore are cancelable contracts.

Certain
of these agreements require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial
milestones as further described in Note 10 of our consolidated financial statements included in this Annual Report on Form 10-K. Amounts
related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement
of certain development, regulatory approval and commercial milestones, which may not be achieved.

We
also have obligations to make future payments to third parties that become due and payable on the achievement of certain milestones,
including future payments to third parties with whom we have entered into research, development and commercialization agreements. We
have not included these commitments on our consolidated balance sheet for the periods presented because the achievement and timing of
these milestones is not fixed and determinable.

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 with our financial statements and related notes
appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related
financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors
set forth in the “Risk Factors” section of this document, our actual results could differ materially from the results described
in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We are a New York City based
clinical-stage biopharmaceutical company committed to advancing transformative therapies for the treatment of cancer and rare diseases.
We were founded on the principle of applying modern scientific, regulatory or manufacturing advancements to established mechanisms in
order to create new development opportunities. We prioritize creativity, diverse perspectives, integrity and tenacity to expedite our
goal of bringing life-changing therapies to people with limited treatment options.

Our portfolio includes two
development programs utilizing TARA-002, an investigational cell therapy based on the broad immunopotentiator, OK-432, which was originally
granted marketing approval by the Japanese Ministry of Health and Welfare as an immunopotentiating cancer therapeutic agent. This cell
therapy is currently approved in Japan and Taiwan for LMs and multiple oncologic indications. We have secured worldwide rights to the
asset excluding Japan and Taiwan and are exploring its use in oncology and rare disease indications. TARA-002 was developed from the
same master cell bank of genetically distinct group A Streptococcus pyogenes as OK-432 (marketed as Picibanil® in Japan and
Taiwan by Chugai Pharmaceutical). We are currently developing TARA-002 in non-muscle invasive bladder cancer, or NMIBC, and in LMs.

Our lead oncology program
is TARA-002 in NMIBC, which is cancer found in the tissue that lines the inner surface of the bladder that has not spread into the bladder
muscle. Bladder cancer is the sixth most common cancer in the United States, with NMIBC representing approximately 80% of bladder cancer
diagnoses. Approximately 65,000 patients are diagnosed with NMIBC in the United States each year. Very few new therapeutics have been
approved for NMIBC since the 1990s and the current standard of care for NMIBC includes intravesical Bacillus Calmette–Guérin,
or BCG. The mechanism of action of TARA-002 is similar to that of BCG. TARA-002 and BCG are both intravesically administered, elicit
a Th1 type immune response and produce a locally-activated generally similar array of cytokines and immune cells.

We are conducting a Phase
1 dose-finding, open-label clinical trial to evaluate TARA-002 in treatment-naïve and treatment-experienced NMIBC patients with carcinoma
in situ, or CIS and high-grade papillary tumors (Ta), known as the ADVANCED-1 trial. In the initial dose escalation phase, or Phase 1a
portion of the trial, patients receive six weekly intravesical doses of TARA-002. The primary objective of the trial is to evaluate the
safety, tolerability and preliminary signs of anti-tumor activity of TARA-002, with the goal of establishing a recommended dose for a
future Phase 2 clinical trial. The trial is ongoing and we expect data from the Phase 1a portion of the trial in the second quarter of
2023. In addition, we continue to conduct pre-clinical studies on TARA-002 to better characterize the mechanism of action to help us understand
how TARA-002 may perform in potential combinations with other agents used to treat NMIBC. We use pre-clinical data to help us define other
cancer targets for TARA-002 both within the urothelial cancer space and other types of cancer affecting different parts of the body.

We are also pursuing TARA-002
in LMs, which are rare, non-malignant cysts of the lymphatic vascular system that primarily form in the head and neck region of children
before the age of two. In July 2020, the FDA granted Rare Pediatric Disease designation for TARA-002 for the treatment of LMs and in May
2022 the European Medicines Agency granted orphan drug designation to TARA-002 for the treatment of LMs. In addition to the clinical experience
in Japan, we have secured the rights to a dataset from one of the largest ever conducted Phase 2 trials in LMs, in which OK-432 was administered
via a compassionate use program led by the University of Iowa to over 500 pediatric and adult patients. We have an IND for LMs with the
Vaccines and Related Products Division of the FDA, or Vaccines Division. The FDA continues to provide us with guidance regarding a development
path for TARA-002 in LMs. We received feedback from the Vaccines Division on the protocol for our proposed Phase 2 clinical trial evaluating
TARA-002 in LMs. In the second half of 2023 we expect to initiate this Phase 2 single arm, open-label clinical trial to evaluate the safety
and efficacy of TARA-002 in pediatric patients with macrocystic and mixed-cystic LMs. The trial design includes a safety lead-in phase
followed by an expansion phase. We are conducting trial preparation activities and have identified multiple trial sites.

62

The third development program
in our portfolio is intravenous, or IV, Choline Chloride, an investigational phospholipid substrate replacement therapy initially in development
for patients receiving parenteral nutrition, or PN, who have intestinal failure associated liver disease, or IFALD. IV Choline Chloride
has been granted Orphan Drug Designation by the FDA for this indication and has also been granted Fast Track Designation for the treatment
of IFALD. Following a positive end of Phase 2 meeting with the FDA, we received feedback on the design of the studies necessary to complete
a registration package for IV Choline Chloride for the treatment of IFALD, including a Phase 1 pharmacokinetic, or PK, trial and a Phase
3 clinical trial. Prior to initiating these clinical trials, we are conducting a prevalence study to enhance understanding of the PN patient
population and we plan to use this information to determine the next steps for the development program. In September 2021, we reported
results of the retrospective part of the prevalence study, which supported the significant unmet medical need in patients dependent on
PN who have IFALD. We are currently conducting the prospective part of the prevalence study, which is a multi-center, cross-sectional
observational study to assess the prevalence of choline deficiency, as well as cholestasis and steatosis, in patients dependent on PN.
We expect to have results of the study in the third quarter of 2023. In April 2022, the USPTO issued to us Patent No. US 11,311,503 claiming
a sterile aqueous choline salt composition with a term expiring in 2041.

We have devoted substantial
efforts to the development of these programs and do not have any approved products and have not generated any revenue from product sales.
TARA-002 has not yet been approved for use for treatment of NMIBC, LMs or any other indications. We do not expect to generate revenues
in the near-term, if ever. To finance our current strategic plans, including the conduct of ongoing and future clinical trials and further
research and development costs, we will need to raise additional capital.

Since inception, we have
incurred significant operating losses. As of December 31, 2022, we had an accumulated deficit of approximately $130.5 million. We expect
to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue our development
of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved products, and
add infrastructure and personnel to support our product development efforts and operations as a public company in the United States.

As a clinical-stage company,
our expenses and results of operations are likely to fluctuate significantly from quarter-to-quarter and year-to-year. We believe that
our period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.

As of December 31, 2022,
we had approximately $102.3 million in cash, cash equivalents, and marketable debt securities.

COVID-19 and Related Macroeconomic Conditions

The COVID-19 pandemic and
related macroeconomic conditions, such as supply chain shortages, inflation and economic volatility have, and may continue to have, an
impact on our results of operations. We will continue to monitor whether such conditions would have a material impact on our operations,
liquidity and capital resources. Further, rising inflation has, in part, caused a disruption in the capital markets, which may lead to
a recession or market correction that could impact our access to capital, and could in the future negatively affect our liquidity. A
recession or market correction, continued supply chain disruptions and/or inflation could materially affect our business and the value
of our common stock.

Financial Overview

Research and Development

Research and development
expenses consist primarily of costs incurred for the development of TARA-002 and IV Choline Chloride, which include employee-related
expenses, including salaries, benefits, travel and stock-based compensation expense, expenses incurred under agreements with clinical
research organizations, or CROs, contract development and manufacturing organizations, or CDMOs, the cost of acquiring, developing and
manufacturing clinical trial materials, clinical and non-clinical related costs, costs associated with regulatory operations and facilities,
depreciation and other expenses, which include expenses for rent and maintenance of facilities and other supplies.

63

General and Administrative

General and administrative
expenses consist principally of employee-related expenses, including salaries, benefits, travel and stock-based compensation expense,
in executive and other administrative functions. Other general and administrative expenses also include professional fees for legal,
intellectual property matters, consulting and accounting services, facility related costs, as well as expenses related to audit, legal,
regulatory and tax-related services associated with maintaining compliance with our Nasdaq listing and SEC requirements, director and
officer liability insurance premiums and investor relations costs associated with being a public company.

Other Income (Expense), net

Interest and investment
income consists of interest income on our cash, cash equivalents and marketable debt securities and amortization of investment premiums.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion
and analysis of our financial position 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 of America, or GAAP. The preparation of financial statements in conformity
with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable
under the circumstances. Actual results may differ materially from those estimates or assumptions.

While our significant accounting
policies are described in more detail in the notes to our consolidated financial statements and related notes appearing elsewhere in
this Annual Report on 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the
preparation of our financial statements.

Goodwill

On January 9, 2020, in connection
with the Merger, we separately valued the assets and liabilities acquired, and then determined goodwill as the residual of the purchase
price less identified net assets. The carrying value of goodwill was $0.0 million and $29.5 million at December 31, 2022 and 2021,
respectively.

Goodwill represents the
excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill has an indefinite
useful life. Goodwill is assessed annually for impairment as of December 31, or more frequently if an event occurs or circumstances
change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value of an indefinite-lived
intangible asset has declined below its carrying value. In performing its annual goodwill impairment assessment, we have the option under
GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value;
if the conclusion of the qualitative assessment is that there are no indicators of impairment, then we would not perform a quantitative
assessment. Otherwise, a quantitative assessment is performed and the fair value of the reporting unit is determined.

Goodwill is evaluated for
impairment at the reporting unit level, which is defined as an operating segment, or one level below an operating segment. We have determined
that we operate as one reporting unit and have selected December 31 as the date to perform our annual impairment test. As of December
31, 2022, we elected to forego the qualitative screen and performed a quantitative annual goodwill impairment test for our single reporting
unit.

As of December 31,
2022, our stock price and market capitalization declined approximately 60% from December 31, 2021. Although we believe this decline reflects
the overall performance of similar life science companies with less than $250 million in market capitalizations, or microcap companies,
we do not believe it reflects the progress made in advancing our product candidate pipeline. The life sciences sector, which includes
pre-commercialization and therefore net operating loss generating companies, relies heavily on the capital markets to finance their operations
and fund pre-clinical and clinical trials for their existing development programs. As a result of a shift in risk appetite in the overall
financial markets, the availability of capital for life science companies decreased significantly in 2022. Industry reports highlight
a decline of more than 50 percent in both the number of healthcare follow-on financings as well as the amount of capital raised in 2022
compared to 2021. These challenging financing conditions had a significantly negative impact on stock prices and respective market capitalizations,
particularly for microcap companies. We consider the heightened financing risk that impacted the life sciences sector during 2022 to be
one of the key macroeconomic factors that led to a sustained decrease in our stock price and market capitalization leading up to our annual
goodwill impairment assessment date in late 2022.

The fair value of our reporting
unit was determined using an income approach based on discounted cash flows, or DCF, as we elected to forgo the qualitative screen. Determining
fair value using a DCF analysis requires the exercise of significant judgment with respect to several assumptions and estimates, including
the amount and timing of expected future cash flows and appropriate discount rate to be applied. The expected cash flows used in the DCF
analyses are based on our most recent internal long-range forecast and budget and, for years beyond the budget, our estimates, which are
based, in part, on industry benchmarks and forecasted growth rates.

The discount rate used in
the DCF analysis is intended to reflect the risks inherent in the expected future cash flows of the respective programs within our portfolio.
Assumptions used in the DCF analysis, including the discount rate, are assessed based on our current results and forecasted future performance,
as well as macroeconomic and industry specific factors, including the aforementioned market factors influenced by financing risk discussed
above.

We determined the estimated
fair value of our single reporting unit by utilizing a discount rate of 36%, which reflects these market factors. Based upon this discount
rate, the fair value of our single reporting unit was below its carrying value by an amount greater than the carrying value of goodwill,
and we recorded an impairment charge of $29.5 million in the fourth quarter of 2022 to fully write off the goodwill.

64

Income Taxes

Deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis, operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected
to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that, based on available
evidence, is not expected to be realized, and a corresponding valuation allowance is established.

Tax benefits are recognized
only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured
as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized
tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet these recognition and measurement standards.
As of December 31, 2022 and 2021, no liability for unrecognized tax benefits was required to be recorded. Our policy is to record interest
and penalties on uncertain tax positions as a component of income tax expense. No interest or penalties were recorded during the years
ended December 31, 2022 and 2021.

Results of Operations

Comparison of the Years Ended December
31, 2022 and 2021

The following table summarizes
our results of operations for the years ended December 31, 2022 and 2021(in thousands):

Research and Development
Expenses. During the year ended December 31, 2022, our research and development expenses were approximately $16.8 million which represented
a decrease of approximately $4.3 million as compared to the year ended December 31, 2021. This decrease was primarily due to a decrease
of $2.3 million for clinical manufacturing activities associated with TARA-002 due to higher production costs in 2021 as we were preparing
for clinical trials, a decrease of $1.5 million of non-clinical and regulatory expenses associated with TARA-002, and a decrease of $1.4
million in clinical manufacturing expenses associated with the prospective IV Choline Chloride study. This was partially offset by an
increase of $1.2 million of clinical expenses associated with TARA-002.

General and Administrative
Expenses. During the year ended December 31, 2022, our general and administrative expenses were approximately $20.7 million which
represented a decrease of approximately $5.6 million as compared to the year ended December 31, 2021. The decrease was primarily due to
a decrease of $3.8 million in stock-based compensation and a decrease of $1.8 million in expenses related to a reduction in market development
activities.

Loss on impairment of
goodwill. During the year ended December 31, 2022, we recorded a non-cash impairment charge of $29.5 million. There was no impairment
charge during the year ended December 31, 2021.

Other Income (Expense),
Net. During the year ended December 31, 2022, interest and investment income was approximately $1.1 million which represented an
increase of approximately $0.9 million as compared to the year ended December 31, 2021. The increase was due to an increase of $0.9 in
interest earned on investments in marketable debt securities.

Liquidity and Capital Resources

Overview

As of December 31, 2022 and
2021, our cash, cash equivalents, and marketable debt securities were $102.3 million and $130.7 million, respectively. We have not generated
revenues since our inception and have incurred net losses of approximately $66.0 million and $47.3 million for the years ended December
31, 2022 and 2021, respectively. As of December 31, 2022, we had working capital of approximately $80.4 million and stockholder’s
equity of approximately $102.1 million. During the year ended December 31, 2022, cash flows used in operating activities were approximately
$26.5 million, consisting primarily of a net loss of approximately $66.0 million, which includes non-cash activities such as approximately
$29.5 million in impairment loss on goodwill and $6.7 million in stock-based compensation charges. Since inception, we have met our liquidity
requirements principally through the sale of our common stock and preferred stock in private placements and underwritten offerings.

65

Liquidity

In December 2020, we filed
a shelf registration statement on Form S-3, or the Shelf Registration Statement, which became effective in December 2020. The Shelf Registration
Statement permits: (i) the offering, issuance and sale by us of up to a maximum aggregate offering price of $300.0 million of common
stock, preferred stock, debt securities and warrants in one or more offerings and in any combination. No securities have been sold to
date under the Shelf Registration Statement.

We are in the business of
developing biopharmaceuticals and have no current or near-term revenues. We have incurred substantial clinical and other costs in our
drug development efforts. We will need to raise additional capital in order to fully realize management’s plans.

We believe that our current
financial resources, as of the date of the issuance of our consolidated financial statements included elsewhere in this Annual Report
on Form 10-K, are sufficient to satisfy our estimated liquidity needs for at least twelve months.

As a result of volatility
in the capital markets, economic conditions, general global economic uncertainty, political change, global pandemics, and other factors,
we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional
capital on reasonable terms. If we are unable to raise additional capital due to the volatile global financial markets, general economic
uncertainty or other factors, we may need to curtail planned development activities. Specifically, rising inflation, which is in part,
tied to the impacts of the COVID-19 pandemic and resulting supply chain disruptions, has, in part, caused a disruption in the capital
markets, which may lead to a recession or market correction that could impact our access to capital, and could in the future negatively
affect our liquidity. A recession or market correction, continued supply chain disruptions and/or inflation could materially affect our
business and the value of our common stock. Further, recent rises in interest rates have had and may continue to have a negative effect
on market prices for common stock of pharmaceutical companies that have no current or near-term revenue. Further increases in interest
rates, which have been implemented and may be further implemented to counteract inflationary pressures, may continue to exacerbate this
issue.

Cash Flows

The following table summarizes
our sources and uses of cash for the years ended December 31, 2022 and 2021 (in thousands):

66

Comparison of the Years Ended December
31, 2022 and 2021

Net cash used in operating
activities was approximately $26.5 million for the year ended December 31, 2022 compared to approximately $34.5 million for the year ended
December 31, 2021. The decrease in cash used in operating activities of approximately $8.0 million was primarily driven by a decrease
in net loss of approximately $18.7 million, which was partially offset by a $3.8 million decrease in non-cash items including stock-based
compensation, right-of-use asset, and amortization of premium on marketable debt securities. There was an increase in working capital
of $1.1 million, primarily related to changes in prepaid expenses and other current assets, accounts payable, and accrued expenses resulting
from the timing of payments to our service providers.

Net cash provided by investing
activities was approximately $15.0 million for the year ended December 31, 2022 compared to net cash used in investing activities of
approximately $98.2 million for the year ended December 31, 2021. The change of $113.1 million resulted primarily from purchase of marketable
debt securities of $43.6 million for the year ended December 31, 2022 as compared to $124.7 million for the year ended December 31, 2021
and from proceeds from maturity and redemption of marketable debt securities of $58.6 million for the year ended December 31, 2022 as
compared to $27.2 million for the year ended December 31, 2021.

Net cash used in financing
activities was approximately $0.1 million for the year ended December 31, 2022 compared to net cash provided by financing activities
of $0.2 million for the year ended December 31, 2021. The decrease of approximately $0.1 million was driven by the reduction in stock
price of the shares repurchased in connection with the settlement of restricted stock units for the year ended December 31, 2022.

Contractual and Other Obligations

Operating lease obligations

Our operating lease obligations
primarily consist of lease payments on our corporate headquarters in New York, New York, as well as lease payments for our development
laboratory, a manufacturing facility and an additional manufacturing space, all located in North America which are described in further
detail in Note 8 of our consolidated financial statements included in this Annual Report on Form 10-K. Future contractual payments on
operating lease obligations due within one year of December 31, 2022 are $1.3 million, and future contractual payments on operating lease
obligations due greater than one year from December 31, 2022 are $6.4 million.

Other obligations

From time to time, we enter
into certain types of contracts that contingently require us to indemnify parties against third-party claims, supply agreements, and
agreements with directors and officers. The terms of such obligations vary by contract and in most instances a maximum dollar amount
is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until a specific claim is asserted,
thus no liabilities have been recorded for these obligations on our consolidated balance sheet for the periods presented.

We enter into contracts
in the normal course of business with CROs and clinical sites for the conduct of clinical trials, non-clinical research studies, professional
consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts generally provide
for termination on notice, and therefore are cancelable contracts.

Certain of these agreements
require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial milestones as further
described in Note 8 of our consolidated financial statements included in this Annual Report on Form 10-K. Amounts related to contingent
milestone payments are not considered contractual obligations as they are contingent on the successful achievement of certain development,
regulatory approval and commercial milestones, which may not be achieved.

We also have obligations
to make future payments to third parties that become due and payable on the achievement of certain milestones, including future payments
to third parties with whom we have entered into research, development and commercialization agreements. We have not included these commitments
on our consolidated balance sheet for the periods presented because the achievement and timing of these milestones is not fixed and determinable.

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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 with our financial statements
and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis
or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business
and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including
those factors set forth in the “Risk Factors” section of this document, our actual results could differ materially from the
results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

We
are a New York City based clinical-stage biopharmaceutical company committed to identifying and advancing transformative therapies for
the treatment of cancer and rare diseases. We were founded on the principle of applying modern scientific, regulatory or manufacturing
advancements to established mechanisms in order to create new development opportunities. We prioritize creativity, diverse perspectives,
integrity and tenacity to expedite our goal of bringing life-changing therapies to people with limited treatment options.

Our
portfolio includes two development programs utilizing TARA-002, an investigational cell therapy based on the broad immunopotentiator,
OK-432, which was originally granted marketing approval by the Japanese Ministry of Health and Welfare as an immunopotentiating cancer
therapeutic agent. This cell therapy is currently approved in Japan and Taiwan for LMs, and multiple oncologic indications. We have secured
worldwide rights to the asset excluding Japan and Taiwan and have begun to explore its use in oncology and rare disease indications.
TARA-002 was developed from the same master cell bank of genetically distinct group A Streptococcus pyogenes as OK-432 (marketed
as Picibanil® in Japan and Taiwan by Chugai Pharmaceutical Co., Ltd., or Chugai Pharmaceutical). We are currently developing TARA-002
in non-muscle invasive bladder cancer, or NMIBC, and in LMs.

Our lead oncology program is TARA-002 in NMIBC, which is cancer found
in the tissue that lines the inner surface of the bladder that has not spread into the bladder muscle. Bladder cancer is the sixth most
common cancer in the United States, with NMIBC representing approximately 80% of bladder cancer diagnoses. Approximately 65,000 patients
are diagnosed with NMIBC in the United States each year. Very few new therapeutics have been approved for NMIBC since the 1990s and the
current standard of care for NMIBC includes intravesical Bacillus Calmette–Guérin, or BCG. The mechanism of TARA-002 is similar
to BCG. TARA-002 and BCG are intravesically administered and elicit both a Th1 type immune response and locally activated generally similar
array of cytokines and immune cells.

In
October 2021, we announced that the Office of Tissues and Advanced Therapies Division, or the OTAT Division, of the FDA’s Center
for Biologics Evaluation and Research, or CBER, cleared our Investigational New Drug, or IND, application for TARA-002 in NMIBC. We have
commenced a Phase 1 dose-finding, open-label clinical trial to evaluate TARA-002 in treatment-naïve and treatment-experienced NMIBC
patients with high-grade carcinoma in situ and high-grade papillary tumors (Ta). In the initial dose escalation phase of the trial, patients
will receive six weekly intravesical doses of TARA-002. The primary objective of the trial is to evaluate the safety, tolerability and
preliminary signs of anti-tumor activity of TARA-002, with the goal of establishing a recommended dose for a future Phase 2 clinical
trial.

We
are also pursuing TARA-002 in LMs, which are rare, non-malignant cysts of the lymphatic vascular system that primarily form in the head
and neck region of children before the age of two. In July 2020, the FDA granted Rare Pediatric Disease designation for TARA-002 for
the treatment of LMs. OK-432, the originator therapy to TARA-002, has been the standard of care in LMs in Japan for over 20 years. In
addition to the clinical experience in Japan, we have secured the rights to a dataset from one of the largest ever conducted Phase 2
trials in LMs, in which OK-432 was administered via a compassionate use program led by the University of Iowa to over 500 pediatric and
adult patients. We have an IND for TARA-002 for LMs with the Vaccines and Related Products Division of the FDA, or Vaccines Division,
and in October 2021 we submitted the completed confirmatory, current Good Manufacturing Practices (cGMP) comparability data for TARA-002
in relation to OK-432 as part of the IND. We are engaged with the FDA to align on a development plan for TARA-002 in LMs.

The
third development program in our portfolio is intravenous, or IV, Choline Chloride, an investigational phospholipid substrate replacement
therapy initially in development for patients receiving parenteral nutrition, or PN, who have intestinal failure associated liver disease,
or IFALD. IV Choline Chloride has been granted Orphan Drug Designation by the FDA for this indication and has also been granted Fast
Track Designation for the treatment of IFALD. Following a positive end of Phase 2 meeting with the FDA, we received feedback on the design
of the studies necessary to complete a registration package for IV Choline Chloride for the treatment of IFALD, including a Phase 1 pharmacokinetic,
or PK, trial and a Phase 3 clinical trial. Prior to initiating these clinical trials, we are conducting a prevalence study to enhance
understanding of the PN patient population and we plan to use this information to determine the next steps for the development program.
In September 2021, we reported results of the retrospective part of the prevalence study, which supported the significant unmet medical
need in patients dependent on PN who have IFALD. We are currently conducting the prospective part of the study, which is a multi-center,
cross-sectional observational study that will assess the prevalence of choline deficiency, as well as cholestasis and steatosis, in patients
dependent on PN.

We had been pursuing an additional program, Vonapanitase, a recombinant
human elastase. Following a review of the research, preclinical, and clinical data of Vonapanitase, we have determined to cease further
development of this product candidate at this time.

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We
have devoted substantial efforts to the development of these programs and do not have any approved products and have not generated any
revenue from product sales. TARA-002 has not yet been approved for use for treatment of NMIBC, LMs or any other indications. We do not
expect to generate revenues in the near-term, if ever. To finance our current strategic plans, including the conduct of ongoing and future
clinical trials and further research and development costs, we will need to raise additional capital.

Since
inception, we have incurred significant operating losses. As of December 31, 2021, we had an accumulated deficit of approximately $94.0
million. We expect to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue
our development of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved
products, and add infrastructure and personnel to support our product development efforts and operations as a public company in the United
States.

As
a clinical-stage company, our expenses and results of operations are likely to fluctuate significantly from quarter-to-quarter and year-to-year.
We believe that our period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.

As
of December 31, 2021, we had approximately $130.7 million in cash, cash equivalents, and marketable debt securities.

Merger

On
January 9, 2020, Protara Therapeutics, Inc. (formerly ArTara Therapeutics, Inc., formerly Proteon Therapeutics, Inc., the “Company”),
completed its previously announced merger transaction with ArTara Subsidiary, Inc. (formerly ArTara Therapeutics, Inc., “Private
ArTara”) in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of September 23, 2019, by
and among the Company, REM 1 Acquisition, Inc. (“Merger Sub”), and Private ArTara (as amended on November, 19, 2019, the
“Merger Agreement”), pursuant to which Merger Sub merged with and into Private ArTara, with Private ArTara surviving as a
wholly owned subsidiary of the Company (the “Merger”).The Merger was structured as a reverse merger and Private ArTara was
determined to be the accounting acquirer based on the terms of the Merger and other factors. Following the completion of the Merger,
the Company is focused on advancing Private ArTara’s drug development programs.

On
January 9, 2020, in connection with, and prior to the completion of, the Merger, the Company effected a 1-for-40 reverse stock split
of its common stock (the “Reverse Stock Split”), Private ArTara changed its name from “ArTara Therapeutics, Inc.”
to “ArTara Subsidiary, Inc.”, and the Company changed its name from “Proteon Therapeutics, Inc.” to “ArTara
Therapeutics, Inc.”. On May 11, 2020, the Company changed its name to Protara Therapeutics, Inc. In addition, immediately following
the closing of the Private Placement (defined below), all of the outstanding shares of the Company’s Series A Preferred Stock were
converted into shares of the Company’s common stock.

Under
the terms of the Merger Agreement, the Company issued shares of its common stock to Private ArTara’s stockholders, at an exchange
ratio of 0.190756 shares of its common stock, after taking into account the Reverse Stock Split, for each share of Private ArTara common
stock outstanding immediately prior to the Merger. The Company assumed all of the outstanding and unexercised stock options of Private
ArTara, with such stock options now representing the right to purchase a number of shares of the Company’s common stock equal to
0.190756 multiplied by the number of shares of Private ArTara common stock previously represented by such Private ArTara stock options.
The Company also assumed all of the unvested Private ArTara restricted stock awards, which were exchanged for a number of shares of the
Company’s common stock equal to 0.190756 multiplied by the number of shares of Private ArTara common stock previously represented
by such Private ArTara restricted stock awards and unvested to the same extent as such Private ArTara restricted stock awards and subject
to the same restrictions as such Private ArTara restricted stock awards.

The
shares of the Company’s common stock issued to the former stockholders of Private ArTara were registered with the U.S. Securities
and Exchange Commission (the “SEC”) on a Registration Statement on Form S-4 (Reg. No. 333-234549) (the “Registration
Statement”).

The
shares of the Company’s common stock listed on The Nasdaq Capital Market, previously trading through the close of business on Thursday,
January 9, 2020 under the ticker symbol “PRTO,” commenced trading on The Nasdaq Capital Market, on a post-Reverse Stock Split
adjusted basis, under the ticker symbol “TARA,” on Friday, January 10, 2020.

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COVID-19

The
ultimate impact of the current COVID-19 pandemic is highly uncertain and subject to change. We have experienced delays and may experience
additional future delays that impact our business, our research and development activities, the healthcare systems in which we operate
and the global economy as a whole. We will continue to monitor the COVID-19 public health crisis closely including whether the effects
would have a material impact on our operations, liquidity and capital resources.

In
response to the initial outbreak of COVID-19 and the prevalence of new variants and additional waves of infections throughout the pandemic,
we have from time to time implemented work-from-home policies for our employees and at times have temporarily modified our operations
to comply with applicable safety recommendations. Similar health and safety measures have affected or may affect third parties with whom
we do business, including the third parties that we have contracted with to conduct studies for TARA-002, our study sites or other clinical
partners, laboratories through which we conduct non-clinical studies. our third-party manufacturers and other parties with whom we conduct
business and regulatory agencies. The effects of these measures and our related adjustments to our business are likely to negatively
impact productivity, disrupt our business and delay our timelines, the magnitude of which will depend, in part, on the length and severity
of the pandemic and associated health and safety measures and other limitations on our ability to conduct our business in the ordinary
course.

Severe
and/or long-term disruptions in our operations as a result of COVID-19, including in response to the prevalence of new variants of the
virus, additional waves of infections and the associated health and safety measures, will negatively impact our business, operating results
and financial condition. Specifically, we anticipate that the stress of COVID-19 on healthcare systems around the globe will negatively
impact our ability to conduct clinical trials in the near-term primarily due to the lack of resources at clinical trial sites and the
resulting inability to timely enroll patients in the trials. We also anticipate that the global impact of COVID-19 will negatively impact
our ability to conduct non-clinical studies due primarily to laboratory closures and limited availability of personnel. In addition,
the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, and it may limit our ability
to access capital, which could in the future negatively affect our liquidity. A recession or market correction resulting from the COVID-19
pandemic and related effects on the economy such as supply chain disruptions and inflation risk could materially affect our business
and the value of our common stock.

Financial
Overview

Research
and Development

Research
and development expenses consist primarily of costs incurred for the development of TARA-002 and IV Choline Chloride, which include employee-related
expenses, including salaries, benefits, travel and stock-based compensation expense, expenses incurred under agreements with clinical
research organizations, or CROs, contract development and manufacturing organizations, or CDMOs, the cost of acquiring, developing and
manufacturing clinical trial materials, clinical and non-clinical related costs, costs associated with regulatory operations and facilities,
depreciation and other expenses, which include expenses for rent and maintenance of facilities and other supplies.

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General
and Administrative

General
and administrative expenses consist principally of employee-related expenses, including salaries, benefits, travel and stock-based compensation
expense, in executive and other administrative functions. Other general and administrative expenses also include professional fees for
legal, patent review, consulting and accounting services, facility related costs, as well as expenses related to audit, legal, regulatory
and tax-related services associated with maintaining compliance with our Nasdaq listing and SEC requirements, director and officer liability
insurance premiums and investor relations costs associated with being a public company.

Other
Income (Expense)

Interest
and investment income consists of interest income on our cash, cash equivalents and marketable debt securities and amortization of investment
premiums.

Critical
Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial position
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 of America, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our estimates on
historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances.
Actual results may differ materially from those estimates or assumptions.

While our significant accounting policies are described in more detail
in the notes to our consolidated financial statements and related notes appearing elsewhere in this Annual Report on 10-K, we believe
the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Goodwill

On
January 9, 2020, in connection with the Merger, we separately valued the assets and liabilities acquired, and then determined goodwill
as the residual of the purchase price less identified net assets. The carrying value of goodwill is $29.5 million at December 31,
2021 and 2020, respectively.

Goodwill
represents the excess of purchase price over the fair value of identifiable net assets acquired in a business combination. Goodwill has
an indefinite useful life. Goodwill is assessed annually for impairment as of December 31, or more frequently if an event occurs
or circumstances change that would indicate that it is more likely than not that the fair value of a reporting unit or the fair value
of an indefinite-lived intangible asset has declined below its carrying value. In performing its annual goodwill impairment assessment,
we have the option under GAAP to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less
than its carrying value; if the conclusion of the qualitative assessment is that there are no indicators of impairment, then we would
not perform a quantitative assessment. Otherwise, a quantitative assessment is performed and the fair value of the reporting unit is
determined.

Goodwill
is evaluated for impairment at the reporting unit level, which is defined as an operating segment, or one level below an operating segment.
We have determined that we operate as one reporting unit and have selected December 31 as the date to perform our annual impairment test.
As of December 31, 2021, we elected to forego the qualitative screen and performed a quantitative annual goodwill impairment test for
our single reporting unit. Based upon the results of our annual goodwill impairment test, no adjustments to the carrying value of goodwill
were necessary during the year ended December 31, 2021. For the year ended December 31, 2020, we elected to perform a qualitative impairment
assessment of goodwill and concluded that no impairment existed as of the test date.

In consideration of the results of our annual goodwill impairment test,
as well as the carrying amount of the goodwill held by our single reporting unit, further information and sensitivity analysis for our
reporting unit has been included below.

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The
fair value of our reporting unit was determined using an income approach based on discounted cash flows, or DCF, as we elected to forgo
the qualitative screen. Determining fair value using a DCF analysis requires the exercise of significant judgment with respect to
several assumptions and estimates, including the amount and timing of expected future cash flows and appropriate discount rate to be
applied. The expected cash flows used in the DCF analyses are based on our most recent internal long-range forecast and budget and, for
years beyond the budget, our estimates, which are based, in part, on industry benchmarks and forecasted growth rates. The discount rates
used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows of the respective programs within
our portfolio. Assumptions used in the DCF analyses, including the discount rate, are assessed based on our current results and forecasted
future performance, as well as macroeconomic and industry specific factors.

The estimated fair value of the reporting unit was determined by utilizing
a discount rate of 17.5%, resulting in an estimate excess of fair value over carrying value greater than 20%. Assuming all other factors
remain the consistent, a 150-basis point increase in the discount rate would decrease the excess estimated fair value over carrying value
to approximately 20%.

We
note that a deterioration in general market conditions, a sustained trend of weaker than anticipated financial performance, a decline
in share price for a sustained period of time, adverse clinical trial or regulatory related events, significant increase in market competition,
a deterioration in general market conditions due to the impact of COVID-19 pandemic or otherwise, or an increase in the market-based
weighted average cost of capital, among other factors, could significantly impact our impairment analysis and may result in future goodwill
impairment charges that, if incurred, could have a material adverse effect on our results of operations or financial position.

Income
Taxes

Deferred
tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax basis, operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The measurement of net deferred tax assets is reduced by the amount of any tax benefit that,
based on available evidence, is not expected to be realized, and a corresponding valuation allowance is established.

Tax
benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The
amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement.
A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in our tax returns that do not meet
these recognition and measurement standards. As of December 31, 2021 and 2020, no liability for unrecognized tax benefits was required
to be recorded. Our policy is to record interest and penalties on uncertain tax positions as a component of income tax expense. No interest
or penalties were recorded during the years ended December 31, 2021 and 2020.

Business
Combinations

For
a business combination, the assets acquired and the liabilities assumed are recognized at the acquisition date, measured at their fair
values as of that date. In a business combination achieved in stages, the identifiable assets and liabilities are recognized at their
fair values.

Deferred
tax liabilities and assets are recognized for the deferred tax consequences of differences between the tax bases and the recognized values
of assets acquired and liabilities assumed in a business combination in accordance with ASC Topic 740-10 “Income Taxes”.

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Results
of Operations

Comparison
of the Years Ended December 31, 2021 and 2020

The
following table summarizes our results of operations for the years ended December 31, 2021 and 2020 (in thousands):

Research
and Development Expenses. During the year ended December 31, 2021, our research and development expenses were approximately $21.1
million which represented an increase of approximately $9.1 million as compared to the year ended December 31, 2020. This increase was
primarily due to an increase of $4.1 million for manufacturing activities associated with TARA-002, an increase of $1.0 million of non-clinical,
clinical and regulatory expenses associated with TARA-002, an increase of $1.7 million in manufacturing and clinical expenses associated
with the prospective IV Choline Chloride study, an increase of $1.9 million in compensation, benefits and other employee-related expenses,
and an increase of $0.7 million in stock-based compensation.

General and Administrative
Expenses. During the year ended December 31, 2021, our general and administrative expenses were approximately $26.4 million which
represented an increase of approximately $3.9 million as compared to the year ended December 31, 2020. The increase was primarily due
to an increase of $1.9 million in compensation, benefits and other employee-related expenses, an increase of $2.1 million in expenses
for development of market development capabilities, and an increase of $0.7 million in expenses associated with the opening of our new
office in New York, New York. This was partially offset by a decrease of $0.6 million in legal fees, as we incurred significant one-time
expenses in the first quarter of 2020 upon the closing of the reverse merger.

Other Income (Expense),
Net. During the year ended December 31, 2021, interest and investment income was approximately $0.2 million which represented a decrease
of approximately $0.3 million as compared to the year ended December 31, 2020.

Liquidity
and Capital Resources

Overview

As
of December 31, 2021 and 2020, our cash, cash equivalents, and marketable debt securities were $130.7 million and $168.6 million, respectively.
We have not generated revenues since our inception and have incurred net losses of approximately $47.3 million and $34.0 million for
the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had working capital of approximately $88.8 million
and stockholder’s equity of approximately $161.9 million. During the year ended December 31, 2021, cash flows used in operating
activities were approximately $34.5 million, consisting primarily of a net loss of approximately $47.3 million, which includes non-cash
stock-based compensation charges of approximately $10.4 million. Since inception, we have met our liquidity requirements principally
through the sale of our common stock and preferred stock in private placements and underwritten offerings.

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Liquidity

In
connection with the Merger, we consummated the Private Placements, raising gross proceeds of approximately $42.5 million.

Concurrently
with the execution of the Merger Agreement, certain institutional investors (together, the “Investors”) entered into a subscription
agreement (as amended on November 19, 2019, the “Subscription Agreement”) with Protara Therapeutics, Inc. and Private ArTara,
pursuant to which (A) Protara Therapeutics, Inc. issued, in a private placement immediately after the Merger (the “Proteon Private
Placement”), (i) 3,879.356 of shares of Protara Therapeutics, Inc.’s Series 1 Convertible Non-Voting Preferred Stock (“Series
1 Preferred Stock”) at a purchase price of approximately $7,011.47 per share for gross proceeds of $27.2 million and proceeds,
net of issuance costs, of $25.3 million, (ii) 1,896,888 shares of Protara Therapeutics, Inc.’s common stock at a purchase price
of approximately $7.01 per share for gross proceeds of $13.3 million and proceeds, net of issuance costs, of $12.4 million and (B) Private
ArTara issued, in a private placement immediately prior to the Merger (the “ArTara Private Placement”), 284,875 shares of
Private ArTara common stock (post-Exchange Ratio (as defined in the Merger Agreement) basis) at a purchase price of approximately $7.01
per share (post-Exchange Ratio basis) (together with the Proteon Private Placement, the “Private Placements”) for gross proceeds
of $2.0 million and proceeds, net of issuance costs, of $1.9 million. The shares issued in the Proteon Private Placement were registered
for resale on a registration statement on Form S-3 filed and declared effective by the SEC on February 10, 2020.

On
September 24, 2020, pursuant to an underwriting agreement, dated September 22, 2020, we issued and sold in an underwritten public offering
(the “Common Offering”) an aggregate of 4,600,000 shares of our common stock at an offering price of $16.87 per share, for
gross and net proceeds of approximately $77.6 million and $73.6 million, respectively. The underwriters were granted an option to purchase
up to 690,000 additional shares of common stock at the public offering price, less the underwriting discount. On October 6, 2020, the
underwriters exercised their overallotment option in full, purchasing an additional 690,000 shares, resulting in the receipt of gross
and net proceeds of approximately $11.6 million and $11.1 million, respectively.

On
September 24, 2020, pursuant to an underwriting agreement, dated September 22, 2020, we issued and sold in an underwritten public offering
(the “Preferred Offering”) an aggregate of 4,148 shares of our Series 1 Preferred Stock at an offering price of $16,873.54
per share, for gross and net proceeds of approximately $70.0 million and $66.3 million, respectively.

In
December 2020, we filed a shelf registration statement on Form S-3, or the Shelf Registration Statement, which became effective in December
2020. The Shelf Registration Statement permits: (i) the offering, issuance and sale by us of up to a maximum aggregate offering price
of $300.0 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination. No
securities have been sold to date under the Shelf Registration Statement.

We
are in the business of developing biopharmaceuticals and have no current or near term revenues. We have incurred substantial clinical
and other costs in our drug development efforts. We will need to raise additional capital in order to fully realize management’s
plans.

We
believe that our current financial resources, as of the date of the issuance of these consolidated financial statements, are sufficient
to satisfy our estimated liquidity needs for at least twelve months from the issuance of these consolidated financial statements.

As a result of economic conditions, general global economic uncertainty,
political change, pandemics, and other factors, we do not know whether additional capital will be available when needed, or that, if available,
we will be able to obtain additional capital on reasonable terms. If we are unable to raise additional capital due to the volatile global
financial markets, general economic uncertainty or other factors, we may need to curtail planned development activities. In addition,
a recession or market correction resulting from the COVID-19 pandemic and related effects on the economy such as supply chain disruptions
and inflation risk could materially affect our business and the value of our common stock.

Cash
Flows

The
following table summarizes our sources and uses of cash for the years ended December 31, 2020 and 2021 (in thousands):

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Comparison
of the Years Ended December 31, 2021 and 2020

Net
cash used in operating activities was approximately $34.5 million for the year ended December 31, 2021 compared to approximately $23.4
million for the year ended December 31, 2020. The increase of approximately $11.1 million in cash used in operating activities was primarily
driven by an increase net loss of approximately $13.3 million, which was partially offset by a $3.3 million increase in non-cash items
including stock-based compensation, right-of-use asset, and amortization of premium on bonds. There was a decrease in working capital
of $1.1 million, primarily related to changes in prepaid expenses and other current assets, accounts payable, and accrued expenses resulting
from the timing of payments to our service providers.

Net cash used in investing activities was approximately $98.2 million
for the year ended December 31, 2021 compared to net cash provided by investing activities of approximately $2.8 million for the year
ended December 31, 2020. The change of $101.0 million resulted primarily from the proceeds from maturity and redemption of marketable
debt securities of $27.2 million. This was offset by the purchases of marketable debt securities of $124.7 million during the year ended
December 31, 2021.

Net
cash used in financing activities was approximately $0.2 million for the year ended December 31, 2021 compared to net cash provided by
financing activities of $189.4 million for the year ended December 31, 2020. The net cash used in financing of $0.2 million for the year
ended December 31, 2021 was for the repurchase of shares in connection with the settlement of restricted stock units. The net cash provided
by financing activities for the year ended December 31, 2020 consisted primarily of the proceeds, net of offering costs, from the Common
Offering of approximately $73.6 million, the Preferred Offering of approximately $66.3 million, the issuance of Series 1 Preferred Stock
of approximately $25.3 million, the Proteon Private Placement of approximately $12.4 million, the underwriters overallotment option of
approximately $11.1 million, and the ArTara Private Placement of approximately $1.9 million, offset by repayments of short-term debt
of approximately $1.7 million

Contractual
and Other Obligations

Operating
lease obligations

Our
operating lease obligations primarily consist of lease payments on our corporate headquarters in New York, New York, as well as lease
payments for our development laboratory, a manufacturing facility and an additional manufacturing space, all located in North America
which are described in further detail in Note 10 of our consolidated financial statements included in this Annual Report on Form 10-K.
Future contractual payments on operating lease obligations due within one year of December 31, 2021 are $1.3 million, and future contractual
payments on operating lease obligations due greater than one year from December 31, 2021 are $5.9 million.

Other
obligations

From
time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims,
supply agreements, and agreements with directors and officers. The terms of such obligations vary by contract and in most instances a
maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until
a specific claim is asserted, thus no liabilities have been recorded for these obligations on our consolidated balance sheet for the
periods presented.

We enter into contracts in the normal course of business with CROs
and clinical sites for the conduct of clinical trials, non-clinical research studies, professional consultants for expert advice and other
vendors for clinical supply manufacturing or other services. These contracts generally provide for termination on notice, and therefore
are cancelable contracts.

Certain
of these agreements require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial
milestones as further described in Note 11 of our consolidated financial statements included in this Annual Report on Form 10-K. Amounts
related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement
of certain development, regulatory approval and commercial milestones, which may not be achieved.

We
also have obligations to make future payments to third parties that become due and payable on the achievement of certain milestones,
including future payments to third parties with whom we have entered into research, development and commercialization agreements. We
have not included these commitments on our balance sheet because the achievement and timing of these milestones is not fixed and determinable.

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