TARA US Equity☆

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):

Year Ended December 31, Period-to-Period

Operating expenses:

Other income (expense), net:

Interest expense - (34 ) 34

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):

Years Ended December 31, Period-to-Period

Net cash provided by/(used in) investing activities (98,194 ) 2,835 (101,029 )

Net cash provided by/(used in) financing activities (228 ) 189,401 (189,629 )

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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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Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

No

disclosure required.

Item 8. Financial Statements and Supplementary Data.

The

consolidated financial statements required pursuant to this item are included in Item 15 of this Annual Report on Form 10-K and are presented

beginning on page F-4.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure

Controls and Procedures

We

maintain disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) that are designed to

ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is (1) recorded, processed,

summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to

our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions

regarding required disclosure.

As

of December 31, 2021, our management, with the participation of our principal executive officer and principal financial officer, evaluated

the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Our

management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance

of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible

controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described

above that, as of December 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

We

continue to review and document our disclosure controls and procedures, including our internal controls and procedures for financial

reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our

business.

Management’s

Annual Report on Internal Control Over Financial Reporting

Our

management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over

financial reporting is a process designed under the supervision and with the participation of our management, including our Chief Executive

Officer and Chief Financial Officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation

of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

As of December 31, 2021, our management assessed the effectiveness

of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway

Commission, or COSO, in Internal Control-Integrated Framework (2017). Based on this assessment, management, under the supervision and

with the participation of our Chief Executive Officer and Chief Financial Officer, concluded that, as of December 31, 2021, our internal

control over financial reporting was effective based on those criteria.

Changes

in Internal Control Over Financial Reporting

An

evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and

Chief Financial Officer, of any changes in our internal control over financial reporting that occurred during our last fiscal quarter

that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. That evaluation

did not identify any change in our internal control over financial reporting, as such term is defined in Rules 13a-15 and 15(d)-15 promulgated

under the Exchange Act, that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to materially

affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

None.

71

PART

III

Item 10. Directors, Executive Officers and Corporate Governance.

The

information required by this Item and not set forth below will be set forth in the section headed “—Election of Directors”

and “Information Regarding the Board of Directors and Corporate Governance” in our definitive Proxy Statement for our 2022

Annual Meeting of Stockholders to be filed with the SEC on or before May 2, 2022 (our “Proxy Statement”) and

is incorporated in this report by reference.

We

have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal

accounting officer) and employees, known as the Code of Business Conduct and Ethics. The Code of Business Conduct and Ethics is available

on our website at http://www.protaratx.com under the Corporate Governance section of our Investors page. We will promptly disclose

on our website (i) the nature of any amendment to the policy that applies to our principal executive officer, principal financial officer,

principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit

waiver, from a provision of the policy that is granted to one of these specified individuals, the name of such person who is granted

the waiver and the date of the waiver. Stockholders may request a free copy of the Code of Business Conduct and Ethics by emailing info@protaratx.com.

Item 11. Executive Compensation.

The

information required by this Item will be set forth in the section headed “Executive Compensation” in our Proxy Statement

and is incorporated in this report by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The

information required by this Item will be set forth in the section headed “Security Ownership of Certain Beneficial Owners and

Management” in our Proxy Statement and is incorporated in this report by reference.

Information

regarding our equity compensation plans will be set forth in the section headed “Executive Compensation” in our Proxy

Statement and is incorporated in this report by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The

information required by this Item will be set forth in the section headed “Transactions with Related Persons” in our

Proxy Statement and is incorporated in this report by reference.

Item 14. Principal Accountant Fees and Services.

The

information required by this Item will be set forth in the section headed “—Ratification of Selection of Independent Registered

Public Accounting Firm” in our Proxy Statement and is incorporated in this report by reference.

72

PART

IV

Item 15. Exhibits and Financial Statement Schedules.

(a)

Documents filed as part of this report.

1.

The following financial statements of Protara Therapeutics, Inc. and Report of Marcum LLP, Independent Registered Public Accounting Firm,

and Report of Ernst & Young LLP, Independent Register Public Accounting Firm, are included in this report:

Page Number

Report of Independent Registered Public Accounting Firm (PCAOB ID:42) F-2

Report of Independent Registered Public Accounting Firm (PCAOB ID:688) F-3

Consolidated Balance Sheets F-4

Consolidated Statements of Operations and Comprehensive Loss F-5

Consolidated Statements of Changes in Stockholders’ Equity F-6

Consolidated Statements of Cash Flows F-7

Notes to Consolidated Financial Statements F-8

2.

List of financial statement schedules:

All

schedules have been omitted because they are not applicable or the required information is shown in the financial statements or notes

thereto.

3.

List of Exhibits required by Item 601 of Regulation S-K. See part (b) below.

(b)

Exhibits.

Exhibit No. Description

73

74

21.1 + List of Subsidiaries.

23.2 + Consent of Marcum LLP, independent registered public accounting firm.

24.1 + Power of Attorney (Included in signature pages)

101.INS * Inline XBRL Instance Document.

101.SCH * Inline XBRL Taxonomy Extension Schema Document.

101.CAL * Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF * Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB * Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE * Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

+ Filed herewith.

† Indicates management contract or compensatory plan or arrangement.

Item 16. Form 10-K Summary.

None.

75

SIGNATURES

Pursuant

to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to

be signed on its behalf by the undersigned, thereunto duly authorized.

Protara Therapeutics, Inc. .

Date: March 9, 2022 /s/ Jesse Shefferman

Date: March 9, 2022 /s/ Blaine Davis

KNOW

ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Jesse Shefferman and Blaine

Davis his or her true and lawful attorney-in-fact and agent with full power of substitution, for him or her and in his or her name, place

and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all

exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact

and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the

premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said

attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant

to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf

of the registrant and in the capacities and on the dates indicated.

Signature Title Date

Jesse Shefferman

Blaine Davis

/s/ LUKE BESHAR Chairman of the Board of Directors March 9, 2022

Luke Beshar

/s/ BARRY FLANNELLY, PHARM.D. Director March 9, 2022

Barry Flannelly, Pharm.D.

/s/ ROGER GARCEAU, M.D. Director March 9, 2022

Roger Garceau, M.D.

/s/ JANE HUANG, M.D. Director March 9, 2022

Jane Huang, M.D.

/s/ RICHARD LEVY, M.D. Director March 9, 2022

Richard Levy, M.D.

/s/ GREGORY P. SARGEN Director March 9, 2022

Gregory P. Sargen

/s/ CYNTHIA SMITH Director March 9, 2022

Cynthia Smith

/s/ MICHAEL SOLOMON, PH.D. Director March 9, 2022

Michael Solomon, Ph.D.

76

Protara Therapeutics, Inc.

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID:42) F-2

Report of Independent Registered Public Accounting Firm (PCAOB ID:688) F-3

Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4

Notes to Consolidated Financial Statements F-8

F-1

Report

of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

of Protara Therapeutics, Inc.

Opinion on the Financial Statements

We have audited the accompanying

consolidated balance sheet of Protara Therapeutics, Inc. (the “Company”) as of December 31, 2021, the related consolidated

statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the year ended December 31,

2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the

results of its operations and its cash flows for the period ended December 31, 2021, in conformity with U.S. generally accepted accounting

principles.

Basis for Opinion

These financial statements

are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial

statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)

(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit

in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to

have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required

to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness

of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for