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Item 2. Management’s Discussion and Analysis

2023-10-12 compared with 2023-07-13 · 88 added, 80 removed, 190 unchanged (47% of the section changed)

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Our wholly owned, clinical stage pipeline includes 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 activation of multiple immune cell types including T cells and NK cells.

Our partnered drug discovery pipeline consists of ten programs under collaboration agreements with Sanofi S.A.

(Sanofi) and Gilead Sciences, Inc.

(Gilead), within which we retain options for co-development and co-commercialization rights in the United States for up to four drug candidates, two for each collaboration.

Our partnered drug discovery pipeline consists of multiple programs under collaboration agreements with Gilead Sciences, Inc.

(Gilead), Sanofi S.A.

(Sanofi) and Seagen Inc.

(Seagen), within which we retain certain options for co-development, co-commercialization and profit sharing in the United States for multiple drug candidates.

Targeted Protein Degradation

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Our portfolio of inhibitors of CBL-B, an E3 ligase that regulates the activation of multiple immune cell types including T cells and NK cells, comprises NX-1607, an orally bioavailable CBL-B inhibitor for immuno-oncology indications, and NX-0255, for ex vivo use to enhance adoptive T-cell therapy including our drug-enhanced tumor infiltrating lymphocyte (TIL) therapy, DeTIL-0255.

We are currently enrolling patients in the Phase 1a portion of a Phase 1a/1b dose-escalation and cohort expansion study of NX-1607 in patients in a range of oncology indications.

We are currently enrolling patients in the United Kingdom and the United States in the Phase 1a portion of a Phase 1a/1b dose-escalation and cohort expansion study of NX-1607 in patients in a range of oncology indications.

This study also includes a cohort within the Phase 1a dose escalation study testing NX-1607 in combination with paclitaxel, a taxane chemotherapy commonly used across a range of relapsed and refractory solid tumor indications.

NX-1607 was awarded an Innovative Passport from the UK Medicines and Healthcare products Regulatory Agency to accelerate time to market and facilitate patient access to novel drugs to treat serious and life-threatening diseases.

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Beyond our clinical candidates, we are advancing additional wholly owned and partnered preclinical programs within our core therapeutic focus in cancer and selectively in non-oncology therapeutic areas.

Our pipeline includes highly validated and classically undruggable targets across our proprietary efforts, academic collaborations and our established strategic collaborations with Sanofi and Gilead.

Our pipeline includes highly validated and classically undruggable targets across our proprietary efforts, academic collaborations and our established strategic collaborations with Gilead, Sanofi and Seagen.

In March 2023, we announced with Gilead that Gilead had exercised its option to exclusively license our investigational targeted protein degrader molecule NX-0479.

This bivalent degrader, designated GS-6791, is the first development candidate resulting from the Gilead Agreement.

Pursuant to the Gilead Agreement, we received a license option exercise payment of $20.0 million and potentially could receive up to an additional $425.0 million in clinical, regulatory, and commercial milestone payments, as well as up to low double-digit tiered royalties on product net sales.

Pursuant to the Gilead Agreement, we received a license option exercise payment of $20.0 million and potentially could receive up to an additional $425.0 million in clinical, regulatory, and commercial milestone payments, as well as mid-single digit to low tens percentage tiered royalties on annual net sales.

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 Corporation and the issuance and sale of common stock, redeemable convertible preferred stock and pre-funded warrants.

We have funded our operations to date primarily from proceeds received under collaboration and license agreements with Celgene Corporation, Gilead, Sanofi and Seagen and the issuance and sale of common stock, redeemable convertible preferred stock and pre-funded warrants.

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.

During the six months ended May 31, 2023 and 2022, we incurred net losses of $65.0 million and $87.9 million, respectively.

As of May 31, 2023, we had an accumulated deficit of $466.3 million.

During the nine months ended August 31, 2023 and 2022, we incurred net losses of $102.0 million and $133.6 million, respectively.

As of August 31, 2023, we had an accumulated deficit of $503.2 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.

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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 of May 31, 2023, we had $308.6 million in cash, cash equivalents and marketable securities.

As of August 31, 2023, we had $268.7 million in cash, cash equivalents and marketable securities.

We expect that our existing cash, cash equivalents and marketable securities are sufficient to fund our operations for at least the next 12 months.

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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 macroeconomic events and conditions, including inflation, increasing interest rates, increasing financial market volatility and uncertainty, the federal debt ceiling and budget, instability in the global banking system, the impact of war or military conflict, including the war in Ukraine, and public health pandemics.

For example, the coronavirus (COVID-19) pandemic impacted worldwide economic activity and posed the risk that we or our employees, contractors, suppliers and other partners would be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that were requested or mandated by governmental authorities.

While the impact of the COVID‑19 pandemic on our operations was minimal, the extent to which a future public health pandemic and other macroeconomic factors, including increasing financial market volatility and uncertainty, will impact our business, financial condition, liquidity, access to capital and results of operations in the future will depend on future developments that are highly uncertain and cannot be predicted at this time.

In addition, we are exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC).

We are exposed to credit risk on deposits in the event of default by the financial institutions to the extent account balances exceed the amount insured by the Federal Deposit Insurance Corporation (FDIC).

We are closely monitoring ongoing events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions or other companies in the financial services industry or the financial services industry generally, including Silicon Valley Bank (SVB).

On March 10, 2023, SVB, where we maintained an operating account with a cash balance of less than 1% of our total cash, cash equivalents and marketable securities, was closed by the California Department of Financial Protection and Innovation and the FDIC was appointed as receiver.

On March 12, 2023, the U.S.

Department of the Treasury, Federal Reserve Board, and FDIC released a joint statement announcing that the FDIC would complete its resolution of SVB in a manner that fully protected all depositors at SVB and that depositors would have access to all of their money starting March 13, 2023.

On March 26, 2023, it was announced that First-Citizens Bank & Trust Company would assume all of SVB's deposits and loans as of March 27, 2023.

As of March 27, 2023, in connection with the closure of SVB by the California Department of Financial Protection and Innovation and the FDIC, First-Citizens Bank & Trust Company assumed all of SVB’s deposits and loans.

Prior to SVB’s closure, the Company maintained with SVB an operating account with a cash balance of less than 1% of the Company’s total cash, cash equivalents and marketable securities.

In light of the foregoing, we do not believe we have exposure to loss as a result of SVB’s receivership.

Collaborations and License Agreements

In June 2019, we entered into a global strategic collaboration agreement with Gilead (as subsequently amended, 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 in the 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.

In August 2019 and September 2022, we entered into the First and Second Amendment, respectively, to the Gilead Agreement to clarify certain language of the Gilead Agreement.

These amendments had no impact on revenue recognition.

In March 2023, Gilead exercised the option to exclusively license one target (Gilead License Option Exercise), the first development candidate resulting from the Gilead Agreement.

Pursuant to the Gilead Agreement, we received a license option exercise payment of $20.0 million in April 2023 for the Gilead License Option Exercise.

Upon signing the Gilead Agreement, Gilead paid us an upfront payment of $45.0 million, plus $3.0 million in additional fees.

In addition, from the signing of the Gilead Agreement to August 31, 2023, we received payments of $41.0 million for research milestones and additional payments.

Additionally, the Company achieved a research milestone in August 2023 and received a payment of $6.0 million in the fourth fiscal quarter of 2023.

As of August 31, 2023, 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 mid-single digit to low tens percentage tiered royalties on annual net sales from any commercial products directed to the optioned collaboration targets, subject to certain reductions and excluding sales in the 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 $11.6 million and $24.7 million during the three and nine months ended August 31, 2023, and $7.2 million and $19.5 million during the three and nine months ended August 31, 2022, respectively.

We also recognized $20.0 million in license revenue received pursuant to the Gilead License Option Exercise during the nine months ended August 31, 2023.

As of August 31, 2023 and November 30, 2022, there was $9.2 million and $27.4 million, respectively, of deferred revenue related to payments received by us under the Gilead Agreement.

In December 2019, we entered into a strategic collaboration with Genzyme Corporation, a subsidiary of Sanofi, which became effective in January 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.

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Subsequently, in January 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.

In addition, from the signing of the Sanofi Agreement to May 31, 2023, we received payments of $5.0 million for research milestones.

As of May 31, 2023, 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 in the 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 $5.0 million and $10.3 million during the three and six months ended May 31, 2023, and $5.3 million and $8.7 million during the three and six months ended May 31, 2022, respectively.

As of May 31, 2023 and November 30, 2022, there was $37.9 million and $46.2 million, respectively, of deferred revenue related to payments received by us under the Sanofi Agreement.

We retain the option to co-develop and co-promote, under a profit share structure, up to two drug candidates in the United States under certain conditions.

In August 2019 and September 2022, we entered into the First and Second Amendment, respectively, to the Gilead Agreement to clarify certain language of the Gilead Agreement.

These amendments had no impact on revenue recognition.

In March 2023, Gilead exercised the option to exclusively license one target (Gilead License Option Exercise), the first development candidate resulting from the Gilead Agreement.

Pursuant to the Gilead Agreement, we received a license option exercise payment of $20.0 million in April 2023 for the Gilead License Option Exercise.

Upon signing the Gilead Agreement, Gilead paid us an upfront payment of $45.0 million, plus $3.0 million in additional fees.

In addition, from the signing of the Gilead Agreement to May 31, 2023, we received payments of $41.0 million for research milestones and additional payments.

As of May 31, 2023, 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 in the 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 $5.7 million and $13.1 million during the three and six months ended May 31, 2023, and $6.1 million and $12.3 million during the three and six months ended May 31, 2022, respectively.

We also recognized $20.0 million in license revenue received pursuant to the Gilead License Option Exercise during the three and six months ended May 31, 2023.

As of May 31, 2023 and November 30, 2022, there was $20.8 million and $27.4 million, respectively, of deferred revenue related to payments received by us under the Gilead Agreement.

In addition, from the signing of the Sanofi Agreement to August 31, 2023, we received payments of $5.0 million for research milestones.

Additionally, the Company achieved a research milestone in August 2023 and received a payment of $2.0 million in the fourth fiscal quarter of 2023.

As of August 31, 2023, 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 mid-single digit to low teen percentage tiered royalties on annual net sales of any commercial products that may result from the collaboration, subject to certain reductions and excluding sales in the 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 $6.8 million and $17.1 million during the three and nine months ended August 31, 2023, and $3.6 million and $12.4 million during the three and nine months ended August 31, 2022, respectively.

As of August 31, 2023 and November 30, 2022, there was $33.1 million and $46.2 million, respectively, of deferred revenue related to payments received by us under the Sanofi Agreement.

In September 2023, we entered into a strategic collaboration with Seagen (the Seagen Agreement) to develop a suite of targeted protein degraders against multiple targets nominated by Seagen that are suitable for antibody conjugation.

Seagen will be responsible for conjugating these degraders to antibodies to make Degrader-Antibody Conjugates (DACs), a new class of medicines for use in cancer treatment, and advancing these DAC drug candidates through preclinical and clinical development and commercialization.

Subject to earlier expiration in certain circumstances, the Seagen Agreement expires on a licensed product-by-licensed product and country-by-country basis upon on the later of (i) the expiration of the last-to-expire patent with a valid claim covering the applicable licensed product in the applicable country, (ii) the expiration of any regulatory exclusivity for the applicable licensed product in the applicable country or (iii) ten years after the first commercial sale of the applicable licensed product in the applicable country covered by the Seagen Agreement.

If Seagen does not exercise an option to license a product, then the Seagen Agreement will terminate at the end of the last-to-expire option period.

Under the terms of the Seagen Agreement, we received an upfront payment of $60.0 million.

In addition, we are eligible to receive up to approximately $3.4 billion in contingent payments based on specified research, development, regulatory and commercial milestones across multiple programs, and are eligible for mid-single to low double digit tiered royalties on future sales.

We retain an option for U.S.

profit sharing and co-promotion on two products arising from the collaboration.

Components of Results of Operations

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Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies and more significant areas involving management’s judgments and estimates used in preparation of our financial statements are discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K.

Other than the updated policy on revenue recognition disclosed in Note 2, “Summary of Significant Accounting Policies—Revenue Recognition,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there have been no significant changes to these policies for the three and six months ended May 31, 2023.

Recent Accounting Pronouncements

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Results of Operations

Comparison of the three and six months ended May 31, 2023 and 2022

Our results of operations for the three and six months ended May 31, 2023 and 2022 are summarized as follows (in thousands):

Comparison of the three and nine months ended August 31, 2023 and 2022

Our results of operations for the three and nine months ended August 31, 2023 and 2022 are summarized as follows (in thousands):

Three Months Ended

May 31, Change Six Months Ended

May 31, Change

August 31, Change Nine Months Ended

August 31, Change

2023 2022 2023 2022

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Collaboration Revenue

Our collaboration revenue for the three and six months ended May 31, 2023 and 2022 is summarized as follows (in thousands):

Our collaboration revenue for the three and nine months ended August 31, 2023 and 2022 is summarized as follows (in thousands):

Three Months Ended

May 31, Change Six Months Ended

May 31, Change

August 31, Change Nine Months Ended

August 31, Change

2023 2022 2023 2022

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Total collaboration revenue $ 18,467 $ 10,791 $ 7,676 $ 41,828 $ 31,844 $ 9,984

Our collaboration revenue decreased by $0.8 million during the three months ended May 31, 2023 compared to the three months ended May 31, 2022 primarily due to increased forecasted expenditure and less milestone payments achieved.

Our collaboration revenue increased by $2.3 million during the six months ended May 31, 2023 compared to the six months ended May 31, 2022, primarily due to increased effort resulting in a higher percentage of completion of performance obligations under our collaborations with Gilead and Sanofi in the current period.

Our collaboration revenue increased by $7.7 million during the three months ended August 31, 2023 compared to the three months ended August 31, 2022 primarily due to increased effort resulting in a higher percentage of completion of performance obligations under our collaborations with Gilead and Sanofi in the current period.

The increase was also due to higher achievement of research milestones that resulted in higher revenue recognized in each period and impacted the cumulative catch up in revenue for activities satisfied in previous periods.

Our collaboration revenue increased by $10.0 million during the nine months ended August 31, 2023 compared to the nine months ended August 31, 2022, primarily due to increased effort resulting in a higher percentage of completion of performance obligations under our collaborations with Gilead and Sanofi in the current period.

License Revenue

Our license revenue was $20.0 million for the three and six months ended May 31, 2023 and is related to the Gilead License Option Exercise.

There was no license revenue for the three and six months ended May 31, 2022.

Our license revenue was $20.0 million for the nine months ended August 31, 2023 and is related to the Gilead License Option Exercise.

There was no license revenue for the three months ended August 31, 2023, or for the three and nine months ended August 31, 2022.

Research and Development Expenses

Our research and development expenses for the three and six months ended May 31, 2023 and 2022 are summarized as follows (in thousands):

Our research and development expenses for the three and nine months ended August 31, 2023 and 2022 are summarized as follows (in thousands):

Three Months Ended

May 31, Change Six Months Ended

May 31, Change

August 31, Change Nine Months Ended

August 31, Change

2023 2022 2023 2022

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Total research and development expenses $ 47,856 $ 47,761 $ 95 $ 139,435 $ 138,391 $ 1,044

Our research and development expenses decreased by $1.7 million during the three months ended May 31, 2023 compared to the three months ended May 31, 2022.

There was a decrease in research related costs, as we concluded certain studies and sponsored research agreements and a decrease in contract manufacturing as we stabilize the supply needed for our clinical trials, offset by an increase in compensation and related personnel costs and in non-cash stock-based compensation expense that were primarily attributable to higher headcount and the issuance of restricted stock units (RSUs) and incentive stock options.

Our research and development expenses increased by $0.1 million during the three months ended August 31, 2023 compared to the three months ended August 31, 2022.

There was an increase in clinical costs as we continued our clinical trial programs and ongoing patient enrollment, offset by a decrease in research related costs as we concluded certain studies and research activities and a decrease in contract manufacturing as we stabilized the supply needed for our clinical trials.

There was also an increase in facility and other costs primarily driven by additional investments in information technology and expenses related to our leases of office and laboratory space.

Our research and development expenses increased by $0.9 million during the six months ended May 31, 2023 compared to the six months ended May 31, 2022.

There was a increase in compensation and related personnel costs and in non-cash stock-based compensation expense that were primarily attributable to higher headcount and issuance of RSUs and incentive stock options.

Our research and development expenses increased by $1.0 million during the nine months ended August 31, 2023 compared to the nine months ended August 31, 2022.

There was an increase in compensation and related personnel costs and in non-cash stock-based compensation expense that were primarily attributable to higher headcount and issuance of restricted stock units (RSUs) and incentive stock options.

There was also an increase in clinical costs as we continued our clinical trial programs and ongoing patient enrollment, offset by a decrease in research related costs as we concluded certain studies and sponsored research agreements and a decrease in contract manufacturing as we stabilized the supply needed for our clinical trials.

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General and Administrative Expenses

Our general and administrative expenses increased by $2.0 million during the three months ended May 31, 2023 compared to the three months ended May 31, 2022.

There was an increase in non-cash stock-based compensation expense resulting from the increased issuance of RSUs and incentive stock options and an increase in outside consulting and professional service costs.

Our general and administrative expenses increased by $2.6 million during the six months ended May 31, 2023 compared to the six months ended May 31, 2022.

There was an increase in compensation related expenses and non-cash stock-based compensation expense primarily driven by higher headcount and the issuance of RSUs and incentive stock options.

Our general and administrative expenses increased by $0.9 million during the three months ended August 31, 2023 compared to the three months ended August 31, 2022.

There was an increase in non-cash stock-based compensation expense primarily driven by the increased issuance of RSUs and incentive stock options and an increase in professional service costs related to the Seagen Agreement, offset by a decrease in outside consulting costs.

Our general and administrative expenses increased by $3.5 million during the nine months ended August 31, 2023 compared to the nine months ended August 31, 2022.

Liquidity and Capital Resources

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In June 2022, we issued and sold 2,000,000 shares of common stock under the Equity Distribution Agreement at a price of $10.0001 per share of common stock for net proceeds of approximately $19.3 million after deducting offering commissions and expenses paid by us (the June 2022 ATM Offering).

As of May 31, 2023, we had $130.0 million of common stock remaining available for sale under the Equity Distribution Agreement.

As of August 31, 2023, we had $130.0 million of common stock remaining available for sale under the Equity Distribution Agreement.

In July 2022, we entered into separate securities purchase agreements with certain purchasers to issue and sell pre‑funded warrants to purchase an aggregate of 6,814,920 shares of our common stock in registered direct offerings (RDOs) at a price of $13.939 per pre-funded warrant.

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A holder of the pre-funded warrants may increase or decrease this percentage not in excess of 19.99% by providing us at least 61 days’ prior notice.

As of May 31, 2023, a total of 6,666,423 pre-funded warrants remained available for exercise.

In June 2023, pre-funded warrants to purchase a total of 568,863 shares of our common stock were exercised and as of June 30, 2023, pre-funded warrants to purchase a total of 6,097,560 shares of our common stock remained available for exercise.

As of August 31, 2023, a total of 6,097,560 pre-funded warrants remained available for exercise.

Funding Requirements

As of May 31, 2023, our operations have primarily been funded through the net proceeds from equity offerings of $650.5 million and proceeds from collaboration agreements of $341.0 million.

As of August 31, 2023, our operations have primarily been funded through the net proceeds from equity offerings of $650.5 million and proceeds from collaboration agreements of $341.0 million.

We do not have any products approved for sale, and we have not generated any revenue from product sales.

As of May 31, 2023, we had $308.6 million in cash, cash equivalents and marketable securities.

As of August 31, 2023, we had $268.7 million in cash, cash equivalents and marketable securities.

We expect that our existing cash, cash equivalents and marketable securities are sufficient to meet our cash requirements and continue operating activities, including the clinical trials of our drug candidates NX‑2127, NX‑1607 and NX‑5948 and the expansion of our intellectual property portfolio and infrastructure, for at least the next 12 months.

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• 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 success of our collaborations with Gilead, Sanofi, Seagen and any other collaborations we may establish;

• the costs, timing and outcome of regulatory review of our drug candidates;

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Our contractual obligations mostly consist of our operating lease obligations for facilities in San Francisco, California and The Woodlands, Texas.

Our total operating lease commitments as of May 31, 2023, were approximately $43.5 million, of which $7.7 million is expected to be paid within the next twelve months.

Our total operating lease commitments as of August 31, 2023, were approximately $41.6 million, of which $7.6 million is expected to be paid within the next 12 months.

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.

We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

Our cash flows for the six months ended May 31, 2023 and 2022 are summarized as follows (in thousands):

Six Months Ended

Our cash flows for the nine months ended August 31, 2023 and 2022 are summarized as follows (in thousands):

Nine Months Ended

Cash used in operating activities $ (108,054) $ (121,852)

Cash provided by investing activities 59,899 35,266

Cash provided by (used in) investing activities 82,674 (27,810)

Cash provided by financing activities 3,210 117,327

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Operating activities

Net cash used in operating activities was $66.9 million for the six months ended May 31, 2023 and consisted of a net loss of $65.0 million and an increase in net assets of $23.9 million, offset by non-cash adjustments of $22.0 million.

The increase in net assets consisted of a decrease in deferred revenue of $14.9 million as we increased effort in our programs and recognized revenue, a decrease in accrued expenses and other liabilities of $4.6 million primarily related to the payment of annual incentive compensation in the first quarter of fiscal year 2023, a decrease in operating lease liabilities of $3.1 million due to lease payments made during the period and a decrease in accounts payable of $1.8 million from payments to vendors.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $17.2 million, depreciation and amortization expenses of $3.6 million and amortization of operating lease right-of-use assets of $2.9 million.

Net cash used in operating activities was $75.5 million for the six months ended May 31, 2022 and consisted of a net loss of $87.9 million and an increase in net assets of $6.5 million, offset by non-cash adjustments of $18.9 million.

The increase in net assets consisted of a decrease in deferred revenue of $13.1 million as we increased effort in our programs and recognized revenue, a decrease in operating lease liabilities of $2.5 million and an increase in prepaid expenses and other assets of $1.5 million primarily related to increased prepaid clinical and contract manufacturing costs and software license costs, offset by a decrease in accounts receivable of $6.0 million related to payments received under the Gilead Agreement, an increase in accrued expenses and other liabilities of $2.8 million primarily related to equipment purchases and the accrual of incentive compensation and an increase in accounts payable of $1.7 million from payments to vendors.

Net cash used in operating activities was $108.1 million for the nine months ended August 31, 2023 and consisted of a net loss of $102.0 million and an increase in net assets of $38.7 million, offset by non-cash adjustments of $32.6 million.

The increase in net assets consisted of a decrease in deferred revenue of $31.3 million, which included an increase in contract assets of $6.0 million related to the achievement of a milestone under the Gilead Agreement, as we increased effort in our programs and recognized revenue, a decrease in operating lease liabilities of $4.9 million due to lease payments made during the period, a decrease in accounts payable of $3.0 million from payments to vendors and an increase in accounts receivable of $2.0 million related to the achievement of a milestone under the Sanofi Agreement, offset by decrease in prepaid and other assets of $2.6 million primarily due to the recognition of expenses for prepaid services.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $25.6 million, depreciation and amortization expenses of $5.6 million, amortization of operating lease right-of-use assets of $4.3 million and net accretion of discount on marketable securities of $3.5 million.

Net cash used in operating activities was $121.9 million for the nine months ended August 31, 2022 and consisted of a net loss of $133.6 million and an increase in net assets of $17.1 million, offset by non-cash adjustments of $28.9 million.

The increase in net assets consisted of a decrease in deferred revenue of $22.3 million as we increased effort in our programs and recognized revenue, a decrease in operating lease liabilities of $3.7 million and an increase in prepaid expenses and other assets of $2.3 million primarily related to increased prepaid clinical and contract manufacturing costs and software license costs, offset by a decrease in accounts receivable of $6.0 million related to payments received under the Gilead Agreement, an increase in accrued expenses and other liabilities of $4.2 million primarily related to equipment purchases and the accrual of annual incentive compensation and an increase in accounts payable of $1.0 million.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $19.8 million, amortization of operating lease right-of-use assets of $4.0 million and depreciation and amortization expenses of $3.7 million.

Investing activities

Net cash provided by investing activities was $59.9 million for the six months ended May 31, 2023 and consisted of the maturity of marketable securities of $146.6 million, offset by the purchase of marketable securities of $83.4 million and the purchase of property and equipment of $3.4 million.

Net cash provided by investing activities was $35.3 million for the six months ended May 31, 2022 and consisted of the maturity of investments of $121.6 million, offset by the purchase of investments of $80.0 million and the purchase of property and equipment of $6.3 million.

Net cash provided by investing activities was $82.7 million for the nine months ended August 31, 2023 and consisted of the maturity of marketable securities of $246.4 million, offset by the purchase of marketable securities of $157.9 million and the purchase of property and equipment of $5.8 million.

Net cash used in investing activities was $27.8 million for the nine months ended August 31, 2022 and consisted of the purchase of marketable securities of $212.5 million and the purchase of property and equipment of $9.7 million, offset by the maturity of marketable securities of $194.3 million.

Financing activities

Net cash provided by financing activities was $1.5 million for the six months ended May 31, 2023 and consisted primarily of proceeds from the issuance of common stock under our Employee Stock Purchase Plan (ESPP).

Net cash provided by financing activities was $1.9 million for the six months ended May 31, 2022 and consisted primarily of proceeds from the issuance of common stock under our ESPP.

Net cash provided by financing activities was $3.2 million for the nine months ended August 31, 2023 and consisted primarily of proceeds from the issuance of common stock under our Employee Stock Purchase Plan (ESPP).

Net cash provided by financing activities was $117.3 million for the nine months ended August 31, 2022 and consisted primarily of net proceeds from the issuance of pre-funded warrants in the RDOs of $94.9 million and from the issuance of common stock in the June 2022 ATM Offering of $19.4 million.

Quantitative and Qualitative Disclosures About Market Risk

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What changed 10-Q

Item 2. Management’s Discussion and Analysis