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Item 2. Management’s Discussion and Analysis

2024-04-10 compared with 2023-10-12 · 158 added, 133 removed, 145 unchanged (67% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10‑Q and (2) the audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended November 30, 2022 included in our Annual Report on Form 10‑K filed on February 9, 2023 (2022 Form 10‑K).

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10‑Q and (2) the audited financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended November 30, 2023 included in our Annual Report on Form 10‑K filed on February 15, 2024.

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 II, Item 1A of this Quarterly Report on Form 10‑Q.

We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of medicines based on the modulation of cellular protein levels as a novel treatment approach for cancer and other challenging diseases.

We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of innovative small molecules and antibody therapies based on the modulation of cellular protein levels as a novel treatment approach for cancer, inflammatory conditions 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.

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(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.

(now a part of Pfizer Inc.

(Pfizer)), 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

Our portfolio of targeted protein degraders of BTK, a B‑cell signaling protein, comprises NX‑2127, an orally bioavailable BTK degrader for the treatment of relapsed or refractory B‑cell malignancies, and NX‑5948, an orally bioavailable BTK degrader for the treatment of relapsed or refractory B-cell malignancies and potentially autoimmune diseases.

We are currently enrolling patients in a Phase 1 trial for patients with relapsed or refractory B-cell malignancies which comprises a Phase 1a dose-escalation study and a Phase 1b cohort expansion study.

We have initiated Phase 1b expansion cohorts for patients with relapsed chronic lymphocytic leukemia, diffuse large B-cell lymphoma and mantle cell lymphoma, and enrollment continues in the Phase 1a dose-escalation portion of the trial for patients with several types of non-Hodgkin lymphoma.

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 portfolio of targeted protein degraders of BTK, a B‑cell signaling protein, comprises NX‑5948, an orally bioavailable BTK degrader for the treatment of relapsed or refractory B-cell malignancies and potentially autoimmune diseases, and NX‑2127, an orally bioavailable BTK degrader that also degrades cereblon neosubstrates IKZF1 (Ikaros) and IKZF3 (Aiolos) for the treatment of relapsed or refractory B‑cell malignancies.

We are currently treating patients in a Phase 1a/1b dose-escalation and cohort expansion study in patients with relapsed or refractory B-cell malignancies.

In January 2024, the U.S.

Food and Drug Administration (FDA) granted Fast Track designation for NX-5948 for the treatment of adult patients with relapsed or refractory chronic lymphocytic leukemia (CLL) or small lymphocytic lymphoma (SLL) after at least two lines of therapy, including a BTK inhibitor (BTKi) and a B-cell lymphoma 2 (BCL2) inhibitor.

We are currently treating patients in a Phase 1a/1b dose-escalation and cohort expansion study of NX-2127 in patients with relapsed or refractory B-cell malignancies.

We have initiated Phase 1b expansion cohorts for patients with relapsed CLL, diffuse large B-cell lymphoma (DLBCL) and mantle cell lymphoma (MCL).

In March 2024, the FDA lifted the partial clinical hold on the U.S.

Phase 1a/1b study evaluating NX-2127 in adults with relapsed/refractory B-cell malignancies.

We plan to reinitiate enrollment with the new chirally controlled drug substance in a standard dose escalation study within the current Phase 1a/1b trial.

Targeted Protein Elevation

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 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.

Our targeted protein elevation program includes NX-1607, an orally bioavailable inhibitor of CBL-B, an E3 ligase that regulates the activation of multiple immune cell types including T cells and NK cells.

NX-1607 is targeted for immuno-oncology indications.

We are currently treating patients in a Phase 1a/1b dose-escalation and cohort expansion study of NX-1607 in patients with 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.

We completed the safety run-in portion of a Phase 1 trial in patients with advanced gynecologic malignancies, which included three patients with advanced epithelial ovarian cancer who have been dosed with DeTIL-0255 and have cleared the initial safety evaluation.

Following a review of our portfolio we deprioritized the development of DeTIL-0255.

Any expansion of the DeTIL-0255 Phase 1 trial will be established following a determination regarding the potential inclusion of NX-1607 in future cohorts.

Preclinical Programs

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 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 mid-single digit to low tens percentage tiered royalties on annual net sales.

Drug Discovery Pipeline

In addition to our clinical stage drug candidates, we are extending our protein modulation portfolio, both on our own and with partners by developing new targeted protein degraders and ligase inhibitors for a number of targets for which we believe the protein modulation modality can be clinically advantageous over existing therapies.

These existing and future programs may have the potential to address diseases with significant unmet need, including cancer, autoimmunity, inflammation, and other challenging diseases.

We have entered into several revenue generating collaborations with large biopharmaceutical companies, including with Gilead, Sanofi and Seagen (now a part of Pfizer), to leverage our DELigase platform for drug discovery.

These collaborations allow us to further advance our future pipeline with multiple currently identified targets included in these collaborations.

In aggregate, we have received $413.0 million in non-dilutive financing from our collaborators to date, and as of February 29, 2024, we are eligible to receive up to $7.6 billion in potential future fees and milestone payments, as well as royalties on future product sales.

We retain certain options for co-development, co-commercialization and profit sharing in the United States for multiple drug candidates, pursuant to these collaborations.

Collaborations 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.

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

These amendments had no impact on revenue recognition.

In February and March 2024, as part of the existing collaboration agreement, Gilead elected to extend the five-year initial research term by two years for certain drug targets (Gilead Research Term Extension).

The Gilead Research Term Extension triggered a $15.0 million payment that we expect to receive in the second quarter of fiscal year 2024.

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, provided that we may only exercise such option once per licensed product and Gilead retains the right to veto our option selection for any one drug candidate of its choice.

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 March 2023, Gilead exercised the option, which did not represent a material right at contract inception, since it was not offered for free or at a discount, 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.

The license to the functional intellectual property and all goods and services related to the Gilead License Option Exercise were transferred during the second quarter of fiscal year 2023.

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 Gilead 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 split U.S.

development costs as well as U.S.

profits and losses evenly, and we will be eligible to receive royalties on net ex-U.S.

sales and reduced milestone payments.

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 February 29, 2024, we have received payments of $47.0 million for research milestones and additional payments and $20.0 million for a license option exercise payment.

As of February 29, 2024, we are eligible to receive up to approximately $1.8 billion in total additional payments based on certain additional fees, payments and the successful completion of certain preclinical, clinical, development and sales milestones.

We also 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 the parties share profits and losses evenly.

Subject to earlier expiration in certain circumstances, the Gilead Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of (1) the expiration of the last to expire patent with a valid claim covering the applicable licensed product in the applicable country, (2) the expiration of any regulatory exclusivity for the applicable licensed product in the applicable country or (3) ten years after the first commercial sale of the applicable licensed product in the applicable country covered by the Gilead Agreement, provided that the term for any profit-shared licensed product in the United States will expire upon the expiration or termination of the applicable profit-share term as set forth in an applicable profit-share agreement to be negotiated upon our exercise of our option to co-develop and co-promote such licensed product.

If Gilead does not exercise an option to license a drug candidate, then the Gilead Agreement will terminate at the end of the last to expire option period.

We recognized collaboration revenue from the Gilead Agreement of $4.6 million and $7.4 million during the three months ended February 29, 2024 and February 28, 2023, respectively.

As of February 29, 2024 and November 30, 2023, there was $5.3 million and $10.0 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.

In January 2021, as part of the existing Sanofi Agreement, Sanofi paid us $22.0 million to exercise its option to expand the number of targets in the Sanofi Agreement from three to a total of five targets.

In January 2021, we and Sanofi entered into the First Amendment to the Sanofi Agreement to modify the research term on all targets.

In December 2021, we and Sanofi entered into the Second Amendment to the Sanofi Agreement to extend the substitution deadline on certain targets.

In July 2022, we and Sanofi entered into the Third Amendment to the Sanofi Agreement to further extend the substitution deadline on certain targets.

The extensions of the substitution deadline had no impact on revenue recognition.

Also in July 2022, Sanofi elected to replace certain drug targets, and the substitution extended the research term of those targets by one year to 5.25 years and increased overall forecasted costs, which had an immaterial impact on revenue recognition.

In August 2022 and November 2023, we and Sanofi entered into the Fourth Amendment and Fifth Amendment, respectively, to the Sanofi Agreement to modify the research plan for certain targets, which had no impact on revenue recognition.

In March 2024, we and Sanofi entered into the Sixth Amendment to the Sanofi Agreement to extend the research term for the collaboration target STAT6 (signal transducer and activator of transcription 6), a key drug target in type 2 inflammation, by two years, which is expected to increase overall forecasted costs and have an impact on revenue recognition.

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 in the United States directed to up to two targets, one of which must be selected from a list of targets designated at the execution of the Sanofi Agreement or any replacement of such targets, and one of which must be selected from targets identified by Sanofi as part of their January 2021 expansion.

Our right to exercise our option to co-develop, co-promote and co-commercialize a given target is dependent on our ability to demonstrate, within a given timeframe, that we have sufficient cash resources and personnel to commercialize the product.

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 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 targeted protein degraders 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 the U.S.

development costs, and the parties will split U.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, 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 February 29, 2024, we received payments of $11.0 million for research milestones.

Additionally, we achieved a research milestone in February 2024 and received a payment of $2.0 million in the second quarter of fiscal year 2024.

As of February 29, 2024, we are eligible to receive up to approximately $2.4 billion in total additional 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 the parties share profits and losses evenly.

Subject to earlier expiration in certain circumstances, the Sanofi Agreement expires on a licensed product-by-licensed product or profit-shared licensed product-by-profit-shared licensed product basis and country-by-country basis upon on the later of (1) the expiration of the last-to-expire patent with a valid claim covering the applicable licensed product in the applicable country, (2) the expiration of any regulatory exclusivity for the applicable licensed product in the applicable country or (3) ten years after the first commercial sale of the applicable licensed product in the applicable country covered by the Sanofi Agreement.

We recognized collaboration revenue from the Sanofi Agreement of $8.3 million and $5.3 million during the three months ended February 29, 2024 and February 28, 2023, respectively.

As of February 29, 2024 and November 30, 2023, there was $22.5 million and $24.9 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 Inc.

(now a part of Pfizer Inc.) (the Pfizer Agreement) to develop a suite of targeted protein degraders against multiple targets nominated by Pfizer that are suitable for antibody conjugation.

Pfizer 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.

Under the Pfizer Agreement, Pfizer has the option to obtain exclusive licenses to develop and commercialize certain degraders, while we retain an option for U.S.

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

For the targets nominated by Pfizer under the collaboration, we shall use commercially reasonable efforts to identify, synthesize, characterize and deliver targeted protein degraders that selectively bind to and degrade such targets.

Development of licensed degraders, with the exception of licensed products for which we exercised our profit-share options, will be at Pfizer’s sole cost and expense.

For the profit-share products, the parties will share net profits and net losses and global development costs, and we will be eligible to receive royalty and milestone payments on such optioned products.

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

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 percentage tiered royalties on future sales.

Subject to the exceptions described in the Pfizer Agreement, the Pfizer Agreement expires upon the first to occur of (1) the expiration of the last-to-expire option exercise period under the Pfizer Agreement if no such option has been exercised prior to such expiration and (2) the expiration of the last-to-expire royalty term under the Pfizer Agreement.

We recognized collaboration revenue from the Pfizer Agreement of $3.7 million during the three months ended February 29, 2024.

As of February 29, 2024 and November 30, 2023, there was $54.7 million and $58.3 million, respectively, of deferred revenue related to payments received by us under the Pfizer 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 Celgene Corporation, Gilead, Sanofi and Seagen 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 Pfizer 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 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.

During the three months ended February 29, 2024 and February 28, 2023, we incurred net losses of $41.5 million and $40.7 million, respectively.

As of February 29, 2024, we had an accumulated deficit of $586.7 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 August 31, 2023, we had $268.7 million in cash, cash equivalents and marketable securities.

As of February 29, 2024, we had $254.3 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 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).

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

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 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.

Over time and subject to certain limitations, Sanofi may elect to replace the drug targets with other reserved targets.

In January 2021, we entered into the First Amendment to the Sanofi Agreement to modify the research term on all targets.

In December 2021, we entered into the Second Amendment to the Sanofi Agreement to extend the substitution deadline on certain targets.

In July 2022, we entered into the Third Amendment to the Sanofi Agreement to further extend the substitution deadline on certain targets.

The extensions of the substitution deadline had no impact on revenue recognition.

In August 2022, we entered into the Fourth Amendment to the Sanofi Agreement to modify the research plan for a certain target, which had no impact on revenue recognition.

Upon signing the Sanofi Agreement, Sanofi paid us an upfront payment of $55.0 million.

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 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.

Impact of Current Global Business, Political and Macroeconomic Conditions

Uncertainty in the global business, political and macroeconomic environments present significant risks to our business.

We are subject to continuing risks and uncertainties, including increasing financial market volatility and uncertainty, inflation, increasing interest rates, uncertainty with respect to the federal budget and debt ceiling and potential government shutdowns related thereto, instability in the global banking system, cybersecurity events, the impact of war or military conflict, including regional conflicts around the world, and public health pandemics.

We are closely monitoring the impact of these factors on all aspects of our business, including the impacts on our clinical trial patients, employees, partner, suppliers, and vendors.

The ultimate extent of the impact of global economic conditions on our business remains highly uncertain and will depend on future developments and factors that continue to evolve.

Most of these developments and factors are outside of our control and could exist for an extended period of time.

As a result, we are subject to continuing risks and uncertainties and continue to closely monitor the impact of the current conditions on our business.

For more information regarding these risks and uncertainties, see the section titled “Risk Factors” in this Quarterly Report on Form 10-Q.

Components of Results of Operations

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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.

License Revenue

Our license revenue consists of a payment received from the Gilead License Option Exercise.

Research and Development Expenses

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• expenses related to laboratory supplies and services.

We expect our research and development expenses to increase substantially for the foreseeable future as we conduct clinical trials for our drug candidates, continue to invest in research and development activities for discovery programs and preclinical studies, pursue regulatory approval of our drug candidates and expand our drug candidate pipeline.

We expect our research and development expenses to increase for the foreseeable future as we conduct clinical trials for our drug candidates, continue to invest in research and development activities for discovery programs and preclinical studies, 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.

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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 for the foreseeable future as we continue to improve our infrastructure and operate as a public company.

This may include expenses related to compliance with the rules and regulations of the Securities and Exchange Commission (SEC) 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.

We expect our general and administrative expenses to increase for the foreseeable future as we continue to improve our infrastructure, operate as a public company and support our research and development activities.

This may include expenses related to compliance with the rules and regulations of the Securities and Exchange Commission and listing standards applicable to companies listed on a national securities exchange, additional insurance, investor relations activities and other administrative and professional services.

Interest and Other Income, Net

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generally accepted accounting principles (U.S.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.

The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods.

Our estimates are based on our historical experience and on other relevant assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

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 Annual Report on Form 10-K for the fiscal year ended November 30, 2022.

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 nine months ended August 31, 2023.

Our critical accounting policies and more significant areas involving management’s judgments and estimates used in preparation of our condensed consolidated financial statements are discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended November 30, 2023.

There have been no significant changes to these policies for the three months ended February 29, 2024.

Recent Accounting Pronouncements

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Results of Operations

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

August 31, Change Nine Months Ended

August 31, Change

2023 2022 2023 2022

Comparison of the three months ended February 29, 2024 and February 28, 2023

Our results of operations for the three months ended February 29, 2024 and February 28, 2023 are summarized as follows (in thousands):

Three Months Ended Change

February 29, 2024 February 28, 2023

Collaboration revenue $ 16,585 $ 12,685 $ 3,900

License revenue — — — 20,000 — 20,000

Total revenue 16,585 12,685 3,900

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Interest and other income, net 3,791 2,219 1,572

Loss before income taxes (41,428) (40,733) (695)

Provision for income taxes 90 — 90

Net loss $ (41,518) $ (40,733) $ (785)

Collaboration Revenue

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

Three Months Ended

August 31, Change Nine Months Ended

August 31, Change

2023 2022 2023 2022

Our collaboration revenue for the three months ended February 29, 2024 and February 28, 2023 is summarized as follows (in thousands):

Three Months Ended Change

February 29, 2024 February 28, 2023

Gilead $ 4,616 $ 7,358 $ (2,742)

Sanofi 8,312 5,327 2,985

Pfizer 3,657 — 3,657

Total collaboration revenue $ 16,585 $ 12,685 $ 3,900

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 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.

Our collaboration revenue increased by $3.9 million during the three months ended February 29, 2024 compared to the three months ended February 28, 2023 primarily due to the recognition of revenue from our collaboration with Pfizer that was entered into in the fourth quarter of fiscal year 2023, and increased effort resulting in a higher percentage of completion of performance obligation under our collaboration with Sanofi in the current period.

The increase in revenue under our collaboration with Sanofi was also due to the achievement of a research milestone that resulted in the cumulative catch up in revenue for activities satisfied in previous periods.

The decrease in revenue under our collaboration with Gilead was primarily due to a decrease in activity as we approach the end of the initial five year research term.

Research and Development Expenses

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

August 31, Change Nine Months Ended

August 31, Change

2023 2022 2023 2022

Our research and development expenses for the three months ended February 29, 2024 and February 28, 2023 are summarized as follows (in thousands):

Three Months Ended Change

February 29, 2024 February 28, 2023

Compensation and related personnel costs $ 19,684 $ 20,150 $ (466)

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Total research and development expenses $ 50,005 $ 45,816 $ 4,189

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 $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.

There was also an increase in facility and other costs primarily driven by additional investments in information technology, depreciation from equipment placed into service during the prior fiscal year, and expenses related to our leases of office and laboratory space.

Our research and development expenses increased by $4.2 million during the three months ended February 29, 2024 compared to the three months ended February 28, 2023.

There was an increase in clinical costs and contract manufacturing costs as we continued our clinical trial programs and ongoing patient enrollment and an increase in supplies to support our collaboration with Pfizer.

There was also an increase in facility and other costs primarily driven by our lease in The Woodlands, Texas.

There was a decrease in non-cash stock-based compensation expense primarily due to the cancellation of incentive stock options and restricted stock units (RSUs).

General and Administrative Expenses

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.

Our general and administrative expenses increased by $2.0 million during the three months ended February 29, 2024 compared to the three months ended February 28, 2023.

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

As of February 29, 2024, 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 August 31, 2023, a total of 6,097,560 pre-funded warrants remained available for exercise.

As of February 29, 2024, a total of 6,097,560 pre-funded warrants remained available for exercise.

Funding Requirements

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.

As of February 29, 2024, our operations have primarily been funded through the net proceeds from equity offerings of $650.5 million and proceeds from collaborations of $413.0 million.

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

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

As of February 29, 2024, we had $254.3 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-5948, NX-2127 and NX-1607 and the expansion of our intellectual property portfolio and infrastructure, for at least the next 12 months.

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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.

In the long term, our ability to support our working capital and capital expenditure requirements will depend on many factors, including the following:

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• the scope of, and costs associated with, future advancements to our DELigase platform;

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

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

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

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• 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.

We considered whether there are conditions or events that raise substantial doubt about our ability to continue as a going concern and evaluated the funds necessary to maintain operations.

If we are unable to obtain additional funding, we will be required to implement plans that are within our control, which may include the delay or scaling back of certain research and development programs, to maintain liquidity and operations.

Additionally, we may be required to 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.

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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 August 31, 2023, were approximately $41.6 million, of which $7.6 million is expected to be paid within the next 12 months.

Our total operating lease commitments as of February 29, 2024, were approximately $40.5 million, of which $7.5 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 nine months ended August 31, 2023 and 2022 are summarized as follows (in thousands):

Nine Months Ended

Our cash flows for the three months ended February 29, 2024 and February 28, 2023 are summarized as follows (in thousands):

Three Months Ended

February 29, 2024 February 28, 2023

Cash used in operating activities $ (41,951) $ (48,452)

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

Cash provided by investing activities 35,513 16,068

Cash provided by financing activities 1,624 1,481

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Operating activities

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.

Net cash used in operating activities was $42.0 million for the three months ended February 29, 2024 and consisted of a net loss of $41.5 million and an increase in net assets of $10.2 million, offset by non-cash adjustments of $9.8 million.

The increase in net assets consisted of a decrease in deferred revenue of $12.6 million, which included an increase in contract assets of $2.0 million related to the achievement of a milestone under the Sanofi Agreement, as we increased effort in our programs and recognized revenue, a decrease in operating lease liabilities of $1.5 million due to lease payments made during the period and a decrease in accounts payable of $0.9 million from payments to vendors, offset by an increase in accrued expenses and other liabilities of $3.6 million primarily due to the accrual of compensation and other related personnel costs and a decrease in prepaid and other assets of $1.2 million primarily due to the recognition of expenses for prepaid services.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $7.8 million, depreciation and amortization expenses of $2.0 million, amortization of operating lease right-of-use (ROU) assets of $1.8 million and net accretion of discount on marketable securities of $1.9 million.

Net cash used in operating activities was $48.5 million for the three months ended February 28, 2023 and consisted of a net loss of $40.7 million and an increase in net assets of $18.6 million, offset by non-cash adjustments of $10.9 million.

The increase in net assets consisted of a decrease in deferred revenue of $9.2 million as we increased effort in our programs and recognized revenue, a decrease in accrued expenses and other liabilities of $6.9 million primarily related to the payment of annual incentive compensation, an increase in prepaid expenses and other assets of $1.6 million primarily related to reimbursement receivables for landlord-owned improvements and a decrease in operating lease liabilities of $1.3 million due to lease payments made during the period.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $8.5 million, depreciation and amortization expenses of $1.8 million and amortization of operating lease ROU assets of $1.4 million.

Investing activities

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.

Net cash provided by investing activities was $35.5 million for the three months ended February 29, 2024 and consisted of the maturity of marketable securities of $93.2 million, offset by the purchase of marketable securities of $54.8 million and the purchase of property and equipment of $2.9 million.

Net cash provided by investing activities was $16.1 million for the three months ended February 28, 2023 and consisted of the maturity of marketable securities of $41.0 million, offset by the purchase of marketable securities of $22.6 million and the purchase of property and equipment of $2.3 million.

Financing activities

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.

Net cash provided by financing activities was $1.6 million for the three months ended February 29, 2024 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 $1.5 million for the three months ended February 28, 2023 and consisted primarily of proceeds from the issuance of common stock under our ESPP.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis