NURIX THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10K. As discussed in the section titled "Special Note Regarding Forward Looking Statements," the following discussion and analysis contains forward looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K.
Overview
We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapies designed to modulate cellular protein levels as a novel treatment approach for cancer and other challenging diseases. Leveraging our extensive expertise in E3 ligases together with our proprietary DNA-encoded libraries, we have built DELigase, an integrated discovery platform to identify and advance novel drug candidates targeting E3 ligases, a broad class of enzymes that can modulate proteins within the cell. Our drug discovery approach is to either harness or inhibit the natural function of E3 ligases within the ubiquitin-proteasome system to selectively decrease or increase cellular protein levels. Our wholly owned pipeline comprises four clinical stage drug candidates including targeted protein degraders of Bruton's tyrosine kinase (BTK), a B-cell signaling protein, and inhibitors of Casitas B-lineage lymphoma proto-oncogene B (CBL-B), an E3 ligase that regulates T-cell activation. Our lead drug candidate from our protein degradation portfolio, NX-2127, is an orally bioavailable BTK degrader for the treatment of relapsed or refractory B-cell malignancies. We are currently enrolling patients in the Phase 1a portion of a Phase 1a/1b dose-escalation and cohort expansion study in patients with relapsed or refractory B-cell malignancies. Our second drug candidate from our protein degradation portfolio, NX-5948, is also an orally bioavailable BTK degrader for the treatment of relapsed or refractory B-cell malignancies and potentially autoimmune diseases. We anticipate enrolling our first patient in the first half of 2022 in the Phase 1a portion of a Phase 1a/1b dose-escalation and cohort expansion study in patients with relapsed or refractory B-cell malignancies. Our lead drug candidate from our E3 ligase inhibitor portfolio, NX-1607, is an orally bioavailable CBL-B inhibitor for immuno-oncology indications. We are currently enrolling patients in the Phase 1a portion of a Phase 1a/1b dose-escalation and cohort expansion study in patients with solid tumors and lymphomas. We are also advancing the development of a CBL-B inhibitor, NX-0255, for ex vivo use to enhance adoptive T-cell therapy. We are currently recruiting patients in a Phase 1 clinical trial for our first cell therapy candidate, DeTIL0255, in patients with gynecologic cancers including ovarian, endometrial, and cervical cancer. Beyond these clinical candidates, we are advancing additional wholly owned, preclinical programs that may expand our therapeutic areas beyond oncology and autoimmune disease to viral diseases, including COVID-19. Our therapeutic areas may be further expanded through our established strategic collaborations with Sanofi and Gilead.
Collaboration and License Agreements
Sanofi Collaboration and License Agreement
InDecember 2019 , we entered into a strategic collaboration withGenzyme Corporation , a subsidiary of Sanofi, which became effective inJanuary 2020 (as subsequently expanded and amended, the Sanofi Agreement), to discover, develop and commercialize a pipeline of targeted protein degradation drugs for patients with challenging diseases in multiple therapeutic areas using our DELigase platform to identify small molecules designed to induce degradation of three specified initial drug targets. InJanuary 2021 , as part of the existing collaboration, Sanofi paid us$22.0 million to exercise its option to expand the number of targets in the collaboration agreement from three to a total of five targets. Over time and subject to certain limitations, Sanofi may elect to replace the drug targets with other reserved targets. We also entered into the First Sanofi Amendment to the collaboration agreement with Sanofi inJanuary 2021 to modify the research term on all targets. 112 -------------------------------------------------------------------------------- Under the Sanofi Agreement, Sanofi has exclusive rights and is responsible for the clinical development, commercialization and manufacture of drug candidates resulting from the collaboration, while we retain the option to co-develop, co-promote and co-commercialize all drug candidates inthe United States directed to up to two targets under certain conditions. The collaboration excludes our current internal protein degradation programs for which we retain all rights, and also excludes our future internal programs, provided that we have distinguished future programs as excluded from the scope of the collaboration. For drug targets that are subject to the collaboration, we have primary responsibility for conducting preclinical research activities (including target validation, drug discovery, identification or synthesis) in accordance with the applicable research plan agreed to by the parties and established on a target-by-target basis. We are obligated to use commercially reasonable efforts to identify relevant target binders and chimeric targeting molecules (CTMs) in order to identify development candidates. Subject to certain exceptions, each party will bear its own costs in the conduct of such research. Sanofi will be responsible for any development and commercialization activities unless we exercise our co-development and co-promotion option. For those programs that we exercise our option to co-develop, co-promote and co-commercialize, we will be responsible for a portion of theU.S. development costs, and the parties will splitU.S. profits and losses evenly, and we will be eligible to receive royalties on ex-U.S. net sales and reduced milestone payments on such optioned products. Upon signing the Sanofi Agreement, Sanofi paid us an upfront payment of$55.0 million . Subsequently inJanuary 2021 , Sanofi paid us an additional$22.0 million to exercise its option to expand the number of targets beyond the initial targets included in the collaboration. From the signing of the Sanofi Agreement toNovember 30, 2021 , we received a payment of$1.0 million for research milestones. As ofNovember 30, 2021 , we are eligible to receive up to approximately$2.5 billion in total payments based on certain additional fees, payments and the successful completion of certain research development, regulatory and sales milestones, as well as tiered royalties ranging from mid-single digit to low teen percentages on annual net sales of any commercial products that may result from the collaboration, subject to certain reductions and excluding sales inthe United States of any products for which we exercise our option to co-develop and co-promote, for which we share profits and losses evenly. We recognized collaboration revenue from the Sanofi Agreement of$13.2 million and$5.7 million during the year endedNovember 30, 2021 and 2020. We recognized no collaboration revenue from the Sanofi Agreement during the year endedNovember 30, 2019 . As ofNovember 30, 2021 , there was$59.2 million of deferred revenue related to payments received by us under the Sanofi Agreement.
Gilead Collaboration, Option and License Agreement
InJune 2019 , we entered into a global strategic collaboration agreement with Gilead, which was amended inAugust 2019 (the Gilead Agreement), to discover, develop and commercialize a pipeline of targeted protein degradation drugs for patients with cancer and other challenging diseases using our DELigase platform to identify novel agents that utilize E3 ligases to induce degradation of five specified drug targets. Under the Gilead Agreement, Gilead has the option to license drug candidates directed to up to five targets resulting from the collaboration and is responsible for the clinical development and commercialization of drug candidates resulting from the collaboration. We retain the option to co-develop and co-promote, under a profit share structure, up to two drug candidates inthe United States under certain conditions. The collaboration excludes our current internal protein degradation programs for which we retain all rights, and also excludes our future internal programs, provided that we have distinguished future programs as excluded from the scope of the collaboration. Over time, Gilead may elect to replace the initial drug targets with other drug targets. For drug targets that are subject to the collaboration, we are obligated to use commercially reasonable efforts to undertake a research program in accordance with a research plan agreed to by the parties and established on a target-by-target basis. We have primary responsibility under the agreement for performing preclinical research activities (including target validation, drug discovery, identification or synthesis) pursuant to a research plan. Each party will bear its own costs in the conduct of research activities. Gilead will be responsible for any development, commercialization and manufacturing activities, unless we exercise our co-development and co-promotion option. For those programs that we exercise our option to co-develop and co-promote, we and Gilead will splitU.S. development costs as well asU.S. profits and losses evenly, and we will be eligible to receive royalties on ex-U.S. net sales and reduced milestone payments. 113 -------------------------------------------------------------------------------- Upon signing the Gilead Agreement, Gilead paid us an upfront payment of$45.0 million , plus$3.0 million in additional fees. From the signing of the Gilead Agreement toNovember 30, 2021 , we received payments of$18.5 million for research milestones and additional payments, including$5.0 million , which was received in the fourth quarter of 2021. Additionally, inNovember 2021 , we recognized a research milestone and received a payment of$6.0 million in the first quarter of 2022. As ofNovember 30, 2021 , we are eligible to receive up to approximately$2.3 billion in total additional payments based on certain additional fees, payments and the successful completion of certain preclinical, clinical, development and sales milestones. In addition, we are eligible to receive tiered royalties from mid-single digit to low tens percentages on annual net sales from any commercial products directed to the optioned collaboration targets, subject to certain reductions and excluding sales inthe United States of any products for which we exercise our option to co-develop and co-promote, for which we share profits and losses evenly. We recognized collaboration revenue from the Gilead Agreement of$16.6 million ,$12.1 million and$2.7 million during the years endedNovember 30, 2021 , 2020 and 2019, respectively. As ofNovember 30, 2021 , there was$41.1 million of deferred revenue related to payments received by us under the Gilead Agreement.
InSeptember 2015 , we entered into a strategic collaboration with Celgene Corporation (the Celgene Agreement and Celgene, respectively), with an initial research term of four years pursuant to which we received an upfront payment of$150.0 million . In addition, inSeptember 2015 , Celgene purchased 1,622,222 shares of our Series C redeemable convertible preferred stock at a price of$10.50 per share, resulting in net proceeds of$17.0 million . InJanuary 2019 ,Celgene and Bristol-Myers Squibb Company (BMS) entered into a definitive merger agreement pursuant to which Celgene agreed to be acquired by BMS. Based on our request for notification of the future disposition of our agreement, inJune 2019 , Celgene notified us that it was terminating the Celgene Agreement. Upon termination of the Celgene Agreement inJune 2019 , any rights that Celgene had under the agreement reverted to us and no termination payments were due or payable. We recognized no collaboration revenue from the Celgene Agreement during the years endedNovember 30, 2021 and 2020. During the year endedNovember 30, 2019 , we recognized$28.4 million in collaboration revenue under the Celgene Agreement. As ofNovember 30, 2021 , there was no deferred revenue related to payments received by us under the Celgene Agreement.
Financial Overview
Since the commencement of our operations, we have devoted substantially all of our resources to conducting research and development activities, establishing and maintaining our intellectual property portfolio, establishing our corporate infrastructure, raising capital and providing general and administrative support for these operations. We have funded our operations to date primarily from proceeds received under collaboration and license agreements with Sanofi, Gilead, and Celgene and the issuance and sale of common and redeemable convertible preferred stock. We do not expect to generate product revenue unless and until we successfully develop and obtain approval for the commercialization of a drug candidate, and we cannot assure you that we will ever generate significant revenue or profits. Since inception, we have generally incurred significant losses and negative cash flows from operations. We incurred net losses of$117.2 million ,$43.2 million and$21.7 million during the years endedNovember 30, 2021 , 2020 and 2019, respectively. As ofNovember 30, 2021 , we had an accumulated deficit of$220.9 million . These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. 114 -------------------------------------------------------------------------------- We do not expect to generate any revenue from commercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our drug candidates, which we expect will take a number of years. We expect our expenses will increase substantially as we advance our drug candidates through preclinical and into clinical development; enter advanced clinical development and scale up external manufacturing capabilities to supply clinical trials; apply our DELigase platform to advance additional drug candidates and expand the capabilities of our platform; seek marketing approvals for any drug candidates that successfully complete clinical trials; ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain marketing approval; expand, maintain and protect our intellectual property portfolio; and hire additional clinical, regulatory, manufacturing, quality assurance and scientific personnel. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other administrative and professional services expenses. Our net losses and cash flows may fluctuate significantly from period to period, depending on, among other things, variations in the level of expense related to the ongoing development of our drug candidates, our DELigase platform or future development programs; the delay, addition or termination of clinical trials; and the execution of any additional collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under such arrangements. As ofNovember 30, 2021 , we had$432.9 million in cash, cash equivalents and investments. InJuly 2020 , we closed our initial public offering (IPO), and issued 12,550,000 shares of our common stock (including the exercise by the underwriters of their option to purchase an additional 1,550,000 shares of common stock inAugust 2020 ) at a price to the public of$19.00 per share for net proceeds of approximately$218.1 million , after deducting underwriting discounts and commissions of$16.7 million and expenses of$3.6 million . InMarch 2021 , we completed a follow-on offering and issued 5,175,000 shares of our common stock (including the exercise by the underwriters of their option to purchase an additional 675,000 shares of common stock) at a price to the public of$31.00 per share for net proceeds of approximately$150.2 million , after deducting underwriting discounts and commissions of$9.6 million and expenses of$0.6 million . We expect that our existing cash, cash equivalents and investments are sufficient to fund our operations for at least the next 12 months. See the section titled "-Liquidity and Capital Resources" for more information. To finance our operations beyond that point, we will need to raise substantial additional capital to complete the development and commercialization of our drug candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic, including the resurgence of cases relating to the spread of the Delta and Omicron variants, is impacting worldwide economic activity and poses the risk that we or our employees, contractors, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. While the impact of the COVID-19 pandemic to our current operations has been minimal as we have only recently commenced clinical development of our four lead drug candidates, the extent to which the COVID-19 pandemic will impact our business, financial condition, liquidity and results of operations in the future will depend on future developments that are highly uncertain and cannot be predicted at this time.
Components of Operating Results
Collaboration revenue
We have no products approved for commercial sale and to date have not generated
any revenue and do not expect to generate any revenue from the sale of products
in the near future.
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-------------------------------------------------------------------------------- Our revenue to date has been generated from payments received pursuant to collaboration and license arrangements with strategic partners. Collaboration revenue consists of revenue received from upfront, milestone and contingent payments received from our collaborators. Prior toDecember 1, 2019 , we recognized revenue from upfront payments over the term of our estimated period of performance using either a straight-line or input/proportional performance approach, depending on the agreement, in accordance with Accounting Standards Codification (ASC) 605, Revenue Recognition. Revenue related to the upfront payment received pursuant to the Celgene Agreement was recognized using a straight-line basis. EffectiveDecember 1, 2019 , we began recognizing revenue from upfront payments over the contract term using a cost-based input method under Topic 606, Revenue from Contracts with Customers. Revenue related to the upfront payments received pursuant to the Gilead Agreement was recognized using the input/proportional performance approach prior toDecember 1, 2019 and the cost-based input method beginningDecember 1, 2019 . There would have been no difference between the revenue recognized under Topic 606 and the revenue recognized under ASC 605 for the Gilead Agreement. Revenue related to the upfront payment received pursuant to the Sanofi Agreement was recognized using the cost-based input method. The material right to the two additional targets under the Sanofi Agreement was accounted for using the practical alternative and the expected consideration to be received on the options was included for revenue allocation. We expect to continue recognizing revenue from upfront payments related to our collaboration agreements using the cost-based input method in the foreseeable future. In addition to receiving upfront payments, we may also be entitled to milestones and other contingent payments upon achieving predefined objectives. If a milestone is considered probable of being reached, and if it is probable that a significant revenue reversal would not occur, the associated milestone amount would also be included in the transaction price.
We expect that any collaboration revenue we generate from our current collaboration and license agreements, and from any future collaboration partners, will fluctuate in the future as a result of the timing and amount of upfront, milestones and other collaboration agreement payments and other factors.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the discovery and development of our drug candidates. We expense both internal and external research and development expenses to operations in the periods in which they are incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and as services are performed. We track the external research and development costs incurred for each of our drug candidates.
Internal research and development costs include:
• payroll and personnel expenses, including benefits, stock-based
compensation and travel expenses, for our research and development
functions; and
• depreciation of research and development equipment, allocated overhead
and facilities-related expenses.
External research and development expenses consist primarily of costs incurred for the development of our drug candidates and may include:
• fees paid to third parties such as consultants, contractors and contract
research organizations to conduct our discovery programs, preclinical
studies and clinical trials;
• costs to acquire, develop and manufacture supplies for preclinical
studies and clinical trials, including fees paid to third parties such
as CMOs; and
• expenses related to laboratory supplies and services.
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-------------------------------------------------------------------------------- We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities to advance our drug candidates into and through our preclinical studies and clinical trials, pursue regulatory approval of our drug candidates and expand our drug candidate pipeline. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. To the extent that our drug candidates advance and continue to advance into clinical trials, our expenses will increase substantially and may become more variable. The actual probability of success for our drug candidates may be affected by a variety of factors, including the safety and efficacy of our drug candidates, investment in our clinical programs, the ability of collaborators to successfully develop our licensed drug candidates, manufacturing capability, competition with other products and commercial viability. As a result of these variables, we are unable to determine when and to what extent we will generate revenue from the commercialization and sale of our drug candidates. We may never succeed in achieving regulatory approval for any of our drug candidates.
General and administrative expenses
General and administrative expenses consist primarily of payroll and personnel expenses, including benefits and stock-based compensation, facilities-related expenses and professional fees for legal, consulting, and audit and tax services. We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to build our infrastructure, increase our headcount and operate as a public company. This may include expenses related to compliance with the rules and regulations of theSEC and listing standards applicable to companies listed on a national securities exchange, additional insurance, investor relations activities and other administrative and professional services. We also expect our intellectual property expenses to increase as we expand our intellectual property portfolio.
Interest and other income, net
Interest and other income, net primarily consists of interest earned on our cash, cash equivalents and investments. We expect interest income to vary each reporting period depending on our average bank deposit, money market fund, and investment balances during the period and market interest rates.
Provision for (benefit from) income taxes
The provision for income taxes primarily consists of reserves for unrecognized tax benefits and state taxes. The benefit for income taxes consists of a discrete tax benefit from an adjustment to the net operating loss (NOL) deferred tax asset and valuation allowance. We have generated NOLs since inception and have established a full valuation allowance against our deferred tax assets due to the uncertainty surrounding the realization of such assets.
Critical Accounting Policies and Estimates
Our accounting policies are more fully described in Note 2 of the consolidated financial statements to this Annual Report on Form 10-K. As disclosed in Note 2, the preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments.
Revenue Recognition
Prior toDecember 1, 2019 , we recognized revenue in accordance with theFinancial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC) 605, Revenue Recognition. Accordingly, revenue is recognized for each unit of accounting when all of the following criteria are met: • Persuasive evidence of an arrangement exists; • Delivery has occurred or services have been rendered; • The seller's price to the buyer is fixed or determinable; and • Collectability is reasonably assured. 117
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We evaluate multiple element arrangements to determine if each deliverable represents a separate unit of accounting based on the following criteria:
• Delivered item or items have value to the customer on a standalone basis, and
• If the arrangement includes a general right of return relative to thedelivered item or items, delivery or performance of the undelivered item
or items is considered probable and substantially in our control.
The arrangement's consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling price methodology in accordance with the selling price hierarchy, which includes vendor-specific objective evidence (VSOE) of selling price, if available, or third-party evidence of selling price if VSOE is not available, or the best estimate of selling price, if neither VSOE nor third-party evidence is available. The provisions of ASC 605 are then applied to each unit of accounting to determine the appropriate revenue recognition. In the event that a deliverable of a multiple element arrangement does not represent a separate unit of accounting, primarily because a deliverable does not provide value on a standalone basis, we recognize revenue from the combined unit of accounting using the input/proportional performance approach as research is delivered or on a straight-line basis over the estimated period of performance when there is no discernable pattern of performance. We evaluate potential milestone payments associated with research and development arrangements in accordance with ASC 605-28, Milestone Method. Under the milestone method, we may recognize revenue contingent upon the achievement of a milestone in its entirety in the period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to be considered a substantive milestone. We evaluate each contingent payment on an individual basis to determine whether they are considered substantive milestones, specifically reviewing factors such as the degree of certainty in achieving the milestone, the research and development risk and other risks that must be overcome to achieve the milestone, as well as the level of effort and investment required and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity's performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity's performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. Revenues from milestones, if they are nonrefundable and deemed substantive, are recognized upon achievement of the milestones. To the extent that non-substantive milestones are achieved, and we have remaining deliverables, milestone payments are deferred and recognized as revenue over the estimated remaining performance period using the appropriate measure of progress as determined for each agreement. We recognize revenue associated with the non-substantive milestones upon achievement of the milestone if we have no remaining deliverables. During the year endedNovember 30, 2019 , no milestone payments were received, no milestone revenues were recognized and no milestones were considered substantive. EffectiveDecember 1, 2019 , we adopted Topic 606, Revenue from Contracts with Customers using the modified retrospective method, which was only applied to contracts that were not completed as of the adoption date. As of the adoption date, we had only one contract, a collaboration agreement with Gilead, not completed. Under Topic 606, we recognize revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the
contract; and
(v) recognize revenue when (or as) we satisfy a performance obligation.
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At contract inception, we assess the goods or services promised within each contract, whether each promised good or service is distinct, and determines those that are performance obligations. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.
We enter into collaboration agreements under which we may obtain upfront payments, milestone payments, royalty payments and other fees. Promises under these arrangements may include research licenses, research services, including selection campaign research services for certain replacement targets, the obligation to share information during the research and the participation of alliance managers and in joint research committees, joint patent committees and joint steering committees. We assess these promises within the context of the agreements to determine the performance obligations. Research and collaboration licenses: If a license is determined to be distinct from the other promises identified in the arrangement, we recognize revenue from upfront payments allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, upfront payments. We evaluate the measure of proportional performance each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. To measure the proportional performance, we are required to make our best estimates of forecasted expenditures and development timelines, which are subject to uncertainties associated with pharmaceutical product development. Forecasted total expenditures are driven primarily by the number of full-time employees, and the number may change based on the progress of our product development and requires significant management judgement. Milestone payments: At the inception of each arrangement that includes research, development, or regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. We use the most likely amount method for research, development and regulatory milestone payments. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. If it is probable that a significant revenue reversal would not occur, the associated milestone amount is included in the transaction price. Sales-based milestones and royalties: For arrangements that include sales-based milestone or royalty payments based on the level of sales, and in which the license is deemed to be the predominant item to which the sales-based milestone or royalties relate to, we recognize revenue in the period in which the sales-based milestone is achieved and in the period in which the sales associated with the royalty occur. To date, we have not recognized any sales-based milestone or royalty revenue resulting from our collaboration arrangements. Customer options: Customer options, such as options granted to allow a licensee to extend a license or research term, to select additional research targets or to choose to research, develop and commercialize licensed compounds are evaluated at contract inception to determine whether those options provide a material right (i.e., an optional good or service offered for free or at a discount) to the customer. If the customer options represent a material right, the material right is treated as a separate performance obligation at the outset of the arrangement. We allocate the transaction price to material rights based on the standalone selling price. As a practical alternative to estimating the standalone selling price of a material right when the underlying goods or services are both (i) similar to the original goods or services in the contract and (ii) provided in accordance with the terms of the original contract, we allocate the total amount of consideration expected to be received from the customer to the total goods or services expected to be provided to the customer. Amounts allocated to any material right are recognized as revenue when or as the related future goods or services are transferred or when the option expires. Deferred revenue, which is a contract liability, represents amounts received by us for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount to be recognized within one year from the consolidated balance sheet date based on the estimated performance period of the underlying performance obligation. The noncurrent portion of deferred revenue represents amounts to be recognized after one year through the end of the performance period of the performance obligation.
All revenue was derived from customers located in
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--------------------------------------------------------------------------------Results of Operations
Comparison of the years ended
Year ended November 30, 2021 vs 2020 2020 vs 2019
(in thousands) 2021 2020 2019 $ % $ %
Collaboration revenue(1) $ 29,750 $ 17,820 $ 31,115 $ 11,930 66.9 % $ (13,295 ) (42.7 )%
Operating expenses:
Research and development 116,434 66,494 45,025 49,940 75.1 % 21,469 47.7 %
General and administrative 31,202 16,309 8,326 14,893 91.3 % 7,983 95.9 %
Total operating expenses 147,636 82,803 53,351 64,833 78.3 % 29,452 55.2 %
Loss from operations (117,886 ) (64,983 ) (22,236 ) (52,903 ) 81.4 % (42,747 ) 192.2 %
Interest income and other
income 823 1,206 776 (383 ) (31.8 )% 430 55.4 %
Loss before income taxes (117,063 ) (63,777 ) (21,460 ) (53,286 ) 83.6 % (42,317 ) 197.2 %
Provision for (benefit from)
income taxes 131 (20,535 ) 239 20,666 (100.6 )% (20,774 ) (8,692.1 )%
Net loss $ (117,194 ) $ (43,242 ) $ (21,699 ) $ (73,952 ) 171.0 % $ (21,543 ) 99.3 %
(1) Collaboration revenue for the years ended
includes related party revenue of
Collaboration revenue Our collaboration revenue for the years endedNovember 30, 2021 , 2020 and 2019 is summarized as follows: Year ended November 30, 2021 vs 2020 2020 vs 2019 (in thousands) 2021 2020 2019 $ % $ % Celgene $ - $ -$ 28,420 $ - 0.0 %$ (28,420 ) (100.0 )% Gilead 16,578 12,149 2,695 4,429 36.5 % 9,454 350.8 % Sanofi 13,172 5,671 -
7,501 132.3 % 5,671 100.0 %
Total collaboration revenue
Our collaboration revenue increased by$11.9 million for the year endedNovember 30, 2021 compared with the year endedNovember 30, 2020 . The increase was primarily due to the continued scale up of internal resources and external spending for our collaborations with Sanofi and Gilead as compared to the prior year, resulting in a higher percentage of completion in the current year. The increase was also due to partial revenue recognized during the year endedNovember 30, 2021 for the achievement of certain preclinical milestones under our collaborations with Gilead and Sanofi.
Our collaboration revenue decreased by
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--------------------------------------------------------------------------------Research and development expenses
Our research and development expenses for the years ended
Year ended November 30, 2021 vs 2020 2020 vs 2019
(in thousands) 2021 2020 2019 $ % $ %Compensation and related
personnel costs$ 39,540 $ 22,218 $ 16,372 $ 17,322 78.0 %$ 5,846 35.7 % Supplies and contract research 36,809 24,941 17,096 11,868 47.6 % 7,845 45.9 % Preclinical activities and contract manufacturing 13,838 7,934 3,533 5,904 74.4 % 4,401 124.6 % Stock-based compensation 8,079 1,726 307 6,353 368.1 % 1,419 462.2 % Clinical costs 6,236 839 - 5,397 643.3 % 839 100.0 % Facility and other costs 11,932 8,836 7,717 3,096 35.0 % 1,119 14.5 % Total research and development expenses$ 116,434 $ 66,494 $ 45,025 $ 49,940 75.1 %$ 21,469 47.7 % Our research and development expense increased by$49.9 million , or 75.1%, during the year endedNovember 30, 2021 compared with the year endedNovember 30, 2020 . The increase was primarily related to an increase of$17.3 million in compensation and related personnel costs attributable to an increase in headcount. There was an increase of$11.9 million in supplies and contract research and$5.9 million in preclinical activities and contract manufacturing attributable to an increase in our preclinical development activities and drug discovery research and preparation for upcoming clinical programs for our lead drug candidates. There was an increase of$5.4 million in clinical costs due to ongoing clinical trial startup and patient enrollment. There was also an increase of$6.4 million in non-cash stock-based compensation expense and an increase of$3.1 million in facility and other costs primarily due to expansion of leased premises and investments in information technology. Our research and development expenses increased by$21.5 million , or 47.7%, during the year endedNovember 30, 2020 , compared to the year endedNovember 30, 2019 . The increase was primarily related to an increase of$7.8 million in supplies and contract research attributable to increases in our preclinical development activities and drug discovery research. There was also an increase of$5.8 million in compensation and related personnel costs attributable to an increase in headcount and an increase of$1.4 million in non-cash stock-based compensation expense. Preclinical activities and contract manufacturing costs increased by$4.4 million primarily due to preparation for upcoming clinical programs for our lead drug candidates.
General and administrative expenses
Our general and administrative expenses increased by$14.9 million , or 91.3%, during the year endedNovember 30, 2021 , compared to the year endedNovember 30, 2020 . The increase was primarily related to an increase of$5.1 million in non-cash stock-based compensation expense and an increase of$4.6 million in compensation related expenses attributable to higher headcount. There was also an increase of$3.7 million in consultant and other professional services primarily related to becoming a public company. Our general and administrative expenses increased by$8.0 million , or 95.9%, during the year endedNovember 30, 2020 , compared to the year endedNovember 30, 2019 . The increase was primarily related to an increase of$2.4 million in non-cash stock-based compensation expense and an increase of$1.7 million in compensation related expenses attributable to a higher headcount. We also had an increase of$1.8 million in legal and accounting expenses mainly related to external audit and legal fees and an increase of$1.9 million in consultant, insurance and other professional service expenses primarily related to becoming a public company. 121
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Interest and other income, net
Interest and other income, net was$0.8 million ,$1.2 million and$0.8 million for the years endedNovember 30, 2021 , 2020 and 2019, respectively. The decrease during the year endedNovember 30, 2021 , compared to the year endedNovember 30, 2020 , and the increase during the year endedNovember 30, 2020 , compared to the year endedNovember 30, 2019 , was primarily related to interest received in fiscal 2020 related to the tax refund for a carryback claim that we filed inApril 2020 in connection with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Other than the interest earned on tax refund, interest and other income, net in all periods is mainly related to interest earned on our deposits, money market funds and investments.
Provision for (benefit from) income taxes
The provision for income taxes was an expense of$0.1 million , a benefit of$20.5 million and an expense of$0.2 million during the years endedNovember 30, 2021 , 2020 and 2019, respectively. The increase during the year endedNovember 30, 2021 , compared to the year endedNovember 30, 2020 , and the decrease during the year endedNovember 30, 2020 , compared to the year endedNovember 30, 2019 , was primarily related to a discrete tax benefit in fiscal 2020, which consists of carryback claims and the reversal of the uncertain tax liability related to research and development tax credits as a result of the CARES Act that was enacted onMarch 27, 2020 in response to the COVID-19 pandemic.
Liquidity and Capital Resources
Source of liquidity
OnJuly 23, 2020 , our registration statement on Form S-1 (File No. 333-239651) relating to our IPO of common stock became effective. The IPO closed onJuly 28, 2020 at which time we issued 11,000,000 shares of our common stock at a price to the public of$19.00 per share. In addition, the underwriters exercised their option to purchase an additional 1,550,000 shares of our common stock onJuly 31, 2020 , and this transaction closed onAugust 4, 2020 . Net proceeds from the IPO and the transaction with the underwriters were approximately$218.1 million , after deducting underwriting discounts and commissions of$16.7 million and expenses of$3.6 million . InMarch 2021 , we completed a follow-on offering and issued 5,175,000 shares of our common stock (including the exercise by the underwriters of their option to purchase an additional 675,000 shares of common stock) at a price to the public of$31.00 per share for net proceeds of approximately$150.2 million , after deducting underwriting discounts and commissions of$9.6 million and expenses of$0.6 million . To date, our operations have primarily been funded through the net proceeds from equity offerings of$536.4 million and proceeds from collaborations of$300.5 million . We do not have any products approved for sale, and we have not generated any revenue from product sales. As ofNovember 30, 2021 , we had$432.9 million in cash, cash equivalents and investments.
Funding requirements
We expect that our existing cash, cash equivalents and investments are
sufficient to meet our cash requirements and continue operating activities,
including the clinical trials of our drug candidates NX2127, NX1607, NX5948
and DeTIL0255 and the expansion of our intellectual property portfolio and
infrastructure for at least the next 12 months. We will need substantial
additional funding to support our continuing operations and pursue our long-term
business plan. We may seek to raise any necessary additional capital through a
combination of public or private equity offerings, debt financings,
collaborations, strategic alliances, licensing arrangements and other marketing
and distribution arrangements. Because of the numerous risks and uncertainties
associated with the development and commercialization of our drug candidates and
the extent to which we may enter into additional collaborations with third
parties to participate in their development and commercialization, we are unable
to estimate the amounts of increased capital outlays and operating expenditures
associated with our current and anticipated pre-clinical studies and clinical
trials.
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-------------------------------------------------------------------------------- We have a shelf registration statement on Form S-3 on file with theSEC . This shelf registration statement, which includes a base prospectus, allows us at any time to offer and sell registered common stock, preferred stock, debt securities, warrants, subscriptions rights and or units or any combination of securities described in the prospectus in one or more offerings. In addition, inAugust 2021 , we entered into an Equity Distribution Agreement withPiper Sandler & Co. (Piper Sandler) pursuant to which, from time to time, we may offer and sell through Piper Sandler up to$150.0 million of the common stock registered under the shelf registration statement pursuant to one or more "at the market" offerings. We are not required to sell any shares at any time during the term of the Equity Distribution Agreement. We agreed to pay Piper Sandler a commission of 3% of the gross sales price of any shares sold pursuant to the Equity Distribution Agreement. As ofNovember 30, 2021 , we have not sold any shares of common stock pursuant to the Equity Distribution Agreement and$150.0 million in shares remained available under the Equity Distribution Agreement. Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we intend to use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, which may include funding research, clinical and process development, increasing our working capital, reducing indebtedness, acquisitions or investments in businesses, products or technologies that are complementary to our own and capital expenditures. Pending such uses, we may invest the net proceeds in marketable securities that may include investment-grade interest-bearing securities, money market accounts, certificates of deposit, commercial paper and guaranteed obligations of theU.S. government.
Our future funding requirements will depend on many factors, including the following:
• the progress, costs and results of our planned and ongoing Phase 1
clinical trials for our lead drug candidates NX-2127, NX-1607, NX-5948
and DeTIL-0255, and any future clinical development of such drug
candidates;
• the scope, progress, costs and results of preclinical and clinical
development for our other drug candidates and development programs;
• the number and development requirements of other drug candidates that we
pursue;
• the scope of, and costs associated with, future advancements to our
DELigase platform;
• the success of our collaborations with Sanofi, Gilead and any other
collaborations we may establish;
• the costs, timing and outcome of regulatory review of our drug candidates;
• the costs and timing of future commercialization activities, including
product manufacturing, marketing, sales and distribution, for any of our
drug candidates for which we receive marketing approval;
• the revenue, if any, received from commercial sales of our drug
candidates for which we receive marketing approval;
• the costs and timing of preparing, filing and prosecuting patent
applications, maintaining and enforcing our intellectual property rights
and defending any intellectual property-related claims; and
• our ability to establish additional collaboration arrangements with
other biotechnology or pharmaceutical companies on favorable terms, if
at all, for the development or commercialization of our drug candidates.
If adequate funds are not available at favorable terms, we may be required to
reduce operating expenses, delay or reduce the scope of our product development
and commercial expansion programs, obtain funds through arrangements with others
that may require us to relinquish rights to certain of our technologies or
products that we would otherwise seek to develop or commercialize ourselves or
cease operations. If we do raise additional capital through public or private
equity or convertible debt offerings, the ownership interest of our existing
stockholders will be diluted, and the terms of these securities may include
liquidation or other preferences that adversely affect our stockholders' rights.
If we raise additional capital through debt financing, we may be subject to
covenants limiting or restricting our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends.
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--------------------------------------------------------------------------------Cash flows
The following table summarizes our cash flows during the periods indicated:
Year Ended November 30,
(in thousands) 2021 2020 2019
Cash (used in) provided by operating activities $ (84,365 ) $ (80 ) $ 601
Cash (used in) provided by investing activities (108,251 ) (254,404 ) 8,498
Cash provided by financing activities 153,882 339,024 126
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (38,734 ) $ 84,540 $ 9,225
Operating activities
Net cash used in operating activities was $84.4 million for the year ended
November 30, 2021 and consisted of a decrease in net assets of $9.1 million and
non-cash adjustments of $23.7 million , offset by our net loss of $117.2 million .
The decrease in net assets consisted primarily of a decrease in contract assets
of $7.5 million related to proceeds received for Gilead milestones, an increase
in deferred revenue of $6.8 million primarily related to proceeds received
pursuant to the Sanofi agreement, an increase in accrued expenses and other
liabilities of $6.2 million primarily related to an increase in accrued
compensation from higher incentive compensation and an increase in accrued
contract research and lab supplies due to the growth in clinical development for
our lead drug candidates and a decrease in income tax receivable of $3.6 million
related to the collection of the NOL carryback claims as a result of the CARES
Act. The decrease in net assets was offset by an increase in accounts receivable
of $6.0 million related to a Gilead research milestone, an increase in prepaid
expenses and other assets of $5.4 million primarily related to an increase in
prepaid clinical costs and a decrease in operating lease liabilities of $5.1
million due to payments made on operating leases. Non-cash adjustments primarily
consisted of stock-based compensation expenses of $15.8 million , amortization of
operating lease right-of-use assets of $3.3 million and depreciation and
amortization expenses of $2.8 million .
Net cash used in operating activities was $0.1 million for the year ended
November 30, 2020 and consisted of a decrease in net assets of $36.4 million and
non-cash adjustments of $6.8 million , offset by our net loss of $43.2 million .
The decrease in net assets consisted primarily of an increase in deferred
revenue of $48.2 million related to proceeds received pursuant to the Sanofi
Agreement and offset by revenue recognized pursuant to the Sanofi Agreement and
the Gilead Agreement. The decrease in net assets was offset by an increase in
contract assets of $7.5 million related to unbilled revenue for Gilead
milestones and an increase in income tax receivables of $3.9 million related to
NOL carryback claims as a result of the CARES Act. Non-cash adjustments
primarily consisted of stock-based compensation expenses of $4.3 million and
depreciation and amortization expenses of $2.2 million .
Net cash provided by operating activities was $0.6 million for the year ended
November 30, 2019 and consisted of a decrease in net assets of $19.5 million and
non-cash adjustments of $2.8 million , offset by our net loss of $21.7 million .
The decrease in net assets consisted primarily of an increase in deferred
revenue of $16.9 million related to $48.0 million in proceeds received pursuant
to the Gilead Agreement and offset by $31.1 million in revenue recognized
pursuant to the Celgene Agreement and the Gilead Agreement and an increase in
accrued expenses and other liabilities of $2.4 million primarily related to an
increase in accrued compensation from higher incentive compensation. Non-cash
adjustments primarily consisted of depreciation and amortization expenses of
$2.4 million .
Investing activities
Net cash used in investing activities was $108.3 million for the year ended
November 30, 2021 and consisted of the purchase of investments of $348.5 million
and purchases of property and equipment of $5.7 million , offset by the maturity
of investments of $238.9 million and the sale of investments of $7.0 million .
Net cash used in investing activities was $254.4 million for the year ended
November 30, 2020 and consisted of the purchase of investments of $275.2 million
and purchases of property and equipment of $4.6 million , offset by the maturity
of investments of $25.4 million .
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Net cash provided by investing activities was $8.5 million for the year ended
November 30, 2019 and consisted primarily of maturities of investments of $19.5
million , offset by the purchase of investments of $9.4 million .
Financing activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Net cash provided by financing activities was$0.1 million for the year endedNovember 30, 2019 and consisted primarily of proceeds from the exercise of stock options.
Contractual Obligations and Other Commitments
The following table summarizes our contractual obligations as ofNovember 30, 2021 : Payments due by period Less than More than (in thousands) 1 year 1 to 3 years 3 to 5 years 5 years Total Operating lease obligations$ 5,197 $ 10,623 $ 1,738 $ -$ 17,558 Total contractual obligations$ 5,197 $ 10,623 $ 1,738 $ -$ 17,558
In addition, we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice. These payments are not included in the table above.
Information About Segments
We currently operate in a single business segment. See additional information in our financial statements contained in Part II, Item 8 of this Annual Report.
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