Nurix Therapeutics, Inc. 10-Q

Item 2. 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 our interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus (Prospectus) dated July 23, 2020 and filed with the U.S. Securities and Exchange Commission (SEC) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act) on July 24, 2020. 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 and in our Prospectus. Overview We are a biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapies designed to modulate cellular protein levels as a novel treatment approach for cancer and immune disorders. Leveraging our extensive expertise in E3 ligases together with our proprietary DNA-encoded libraries, we have built DELigase, an integrated discovery platform to identify and advance novel drug candidates targeting E3 ligases, a broad class of enzymes that can modulate proteins within the cell. Our drug discovery approach is to either harness or inhibit the natural function of E3 ligases within the ubiquitin-proteasome system to selectively decrease or increase cellular protein levels. Our wholly owned pipeline comprises targeted protein degraders of Bruton’s tyrosine kinase (BTK), a B-cell signaling protein, and inhibitors of CBL-B, an E3 ligase that regulates T cell activation. Our lead drug candidate from our protein degradation portfolio, NX-2127, is an orally available BTK degr ader for the treatment of relapsed or refractory B-cell malignancies. We expect to file an investigational new drug application (IND) for NX-2127 with the U.S. Food and Drug Administration (FDA) in late fourth quarter of 2020 or the first quarter of 2021 and to commence a Phase 1 clinical trial thereafter. Our lead drug candidate from our E3 ligase inhibitor portfolio, NX-1607, is an orally available CBL-B inhibitor for immuno-oncology indications. We expect to file an IND for NX-1607 with the FDA in the third quarter of 2021 and to commence a Phase 1 clinical trial thereafter. We have two additional clinical candidates, NX-5948, an orally available BTK degrader, and DeTIL-0255, a drug-enhanced tumor infiltrating lymphocyte adoptive cellular therapy, for which we anticipate filing INDs in the second half of 2021. All expected IND submission timings are based on calendar quarters. Beyond these preclinical programs, we are advancing additional drug discovery programs, either independently or through our established strategic collaborations with Sanofi S.A. (Sanofi), Gilead Sciences, Inc. (Gilead). 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 (Celgene) and the issuance and sale of common and redeemable convertible preferred stock. We do not expect to generate product revenue unless and until we successfully develop and obtain approval for the commercialization of a product candidate, and we cannot assure you that we will ever generate significant revenue or profits. Since inception, we have generally incurred significant losses and negative cash flows from operations. We incurred net losses of $18.5 million and $23.3 million during the three and nine months ended August 31, 2020, respectively, and $2.4 million and $8.2 million during the three and nine months ended August 31, 2019, respectively. As of August 31, 2020, we had an accumulated deficit of $83.8 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. We do not expect to generate any revenue from commercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. We expect our expenses will increase substantially as we advance our product candidates through preclinical and into clinical development; enter advanced clinical development and scale up external manufacturing capabilities to supply clinical trials; apply our DELigase platform to advance additional product candidates and expand the capabilities of our platform; seek marketing approvals for any product candidates that successfully complete clinical trials; ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain marketing approval; expand, maintain and protect our intellectual property portfolio; and hire additional clinical, regulatory, manufacturing, quality assurance and scientific personnel. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other administrative and professional services expenses. Our net losses and cash flows may fluctuate significantly from period to period, depending on, among other things, variations in the level of expense related to the ongoing development of our product candidates, our DELigase platform or future development 25 programs; the delay, addition or termination of clinical trials; and the execution of any additional collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under such arr angements. As of August 31, 2020, we had $395.1 million in cash, cash equivalents and investments. In July 2020, we closed our initial public offering, and issued 12,550,000 shares of our common stock (including the exercise by the underwriters of their option to purchase an additional 1,550,000 shares of common stock in August 2020) at a price to the public of $19.00 per share for net proceeds of approximately $218.1 million, after deducting underwriting discounts and commissions of $16.7 million and expenses of $3.6 million. We expect that our existing cash, cash equivalents and investments are sufficient to fund our operations for at least the next 12 months. See the section titled “—Liquidity and capital resources” for more information. To finance our operations beyond that point, we will need to raise substantial additional capital to complete the development and commercialization of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. We are subject to risks and uncertainties as a result of the current coronavirus (COVID-19) pandemic. The COVID-19 pandemic, which is impacting worldwide economic activity, poses the risk that we or our employees, contractors, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. While the impact of the COVID-19 pandemic to our current operations has been minimal as we have not yet commenced clinical trials, the extent to which the COVID-19 pandemic will impact our business, financial condition, liquidity and results of operations in the future will depend on future developments that are highly uncertain and cannot be predicted at this time. Collaboration and license agreements Sanofi Collaboration and License Agreement In December 2019, we entered into a strategic collaboration with Sanofi, which became effective in January 2020 (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, with an option by Sanofi to expand to a total of five targets. Over time and subject to certain limitations, Sanofi may elect to replace the drug targets with other reserved targets. Under the Sanofi Agreement, Sanofi has exclusive rights and is responsible for the clinical development, commercialization and manufacture of product candidates resulting from the collaboration while we retain the option to co-develop, co-promote and co-commercialize all product candidates in the United States directed to up to two targets under certain conditions. The collaboration excludes our current internal protein degradation programs for which we retain all rights, and also excludes our future internal programs, provided that we have distinguished future programs as excluded from the scope of the collaboration. For drug targets that are subject to the collaboration, we have primary responsibility for conducting preclinical research activities (including target validation, drug discovery, identification or synthesis) in accordance with the applicable research plan agreed to by the parties and established on a target-by-target basis. We are obligated to use commercially reasonable efforts to identify relevant target binders and chimeric targeting molecules (CTMs) in order to identify development candidates. Subject to certain exceptions, each party will bear its own costs in the conduct of such research. Sanofi will be responsible for any development and commercialization activities, unless we exercise our co-development and co-promotion option. For those programs that we exercise our option to co-develop, co-promote and co-commercialize, we will be responsible for a portion of 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 agreed to pay us an upfront payment of $55.0 million, which was received in January 2020, and we are eligible to receive additional payments if Sanofi exercises its option to expand the number of targets beyond the initial targets included in the collaboration or exercises an option to extend the license term with respect to a particular target. In addition, 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. 26 We recognized collaboration revenue from the Sanofi Agreement of $ 4 .2 million during the nine months ended Aug ust 31, 2020 . As of August 31, 2020 , there was $5 0 .8 million of deferred revenue related to payments received by us under the Sanofi Agreement. Gilead Collaboration, Option and License Agreement In June 2019, we entered into a global strategic collaboration agreement with Gilead, which was amended in August 2019 (the Gilead Agreement), to discover, develop and commercialize a pipeline of targeted protein degradation drugs for patients with cancer and other challenging diseases using our DELigase platform to identify novel agents that utilize E3 ligases to induce degradation of five specified drug targets. Under the Gilead Agreement, Gilead has the option to license drug candidates directed to up to five targets resulting from the collaboration and is responsible for the clinical development and commercialization of product candidates resulting from the collaboration. We retain the option to co-develop and co-promote, under a profit share structure, up to two product 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. Over time, Gilead may elect to replace the initial drug targets with other drug targets. For drug targets that are subject to the collaboration, we are obligated to use commercially reasonable efforts to undertake a research program in accordance with a research plan agreed to by the parties and established on a target-by-target basis. We have primary responsibility under the agreement for performing preclinical research activities (including target validation, drug discovery, identification or synthesis) pursuant to a research plan. Each party will bear its own costs in the conduct of research activities. Gilead will be responsible for any development, commercialization and manufacturing activities, unless we exercise our co-development and co-promotion option. For those programs that we exercise our option to co-develop and co-promote, we and Gilead will split U.S. development costs as well as U.S. profits and losses evenly, and we will be eligible to receive royalties on ex-U.S. net sales and reduced milestone payments. Pursuant to the Gilead Agreement, we received an upfront payment of $45.0 million, plus $3.0 million in additional fees, and 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. In February 2020, we achieved a research milestone, resulting in a $2.5 million additional payment, which we received in April 2020, and in May 2020, we recorded $1.0 million in additional fees related to a certain target reservation, which we received in June 2020. We recognized collaboration revenue from the Gilead Agreement of $6.9 million and $0.8 million during the nine months ended August 31, 2020 and 2019, respectively. As of August 31, 2020 , there was $41.9 million of deferred revenue related to payments received by us under the Gilead Agreement. Celgene Research and Collaboration Agreement In September 2015, we entered into a strategic collaboration with Celgene (the Celgene Agreement) with an initial research term of four years pursuant to which we received an upfront payment of $150.0 million. In addition, in September 2015, Celgene purchased 1,622,222 shares of our Series C redeemable convertible preferred stock at a price of $10.50 per share, resulting in net proceeds of $17.0 million. In January 2019, Celgene and Bristol-Myers Squibb Company (BMS) entered into a definitive merger agreement pursuant to which Celgene agreed to be acquired by BMS. Based on our request for notification of the future disposition of our agreement, in June 2019, Celgene notified us that it was terminating the Celgene Agreement. Upon termination of the Celgene Agreement in June 2019, any rights that Celgene had under the agreement reverted to us and no termination payments were due or payable. We recognized no collaboration revenue from the Celgene Agreement during the nine months ended August 31, 2020. During the nine months ended August 31, 2019, we recognized $28.4 million in collaboration revenue under the Celgene Agreement. As of August 31, 2020, there was no deferred revenue related to payments received by us under the Celgene Agreement. 27 Formation of DeCART Therapeutics Inc. In June 2020, we established DeCART Therapeutics Inc. (DeCART), a wholly owned subsidiary, with an investment of $3.0 million and granted DeCART a license to three of our compounds, including NX-0255, for drug-enhanced isolation of T cells nonexclusively with respect to one chimeric antigen receptor T cell (CAR-T) therapy target and exclusively with respect to three novel CAR-T therapy targets. DeCART expects to combine our protein modulation technologies with novel CAR-T therapies to address current immunotherapy limitations and improve outcomes for patients with cancer, and subsequently seek equity financing from third parties and become an independent operating entity. DeCART granted to its external founders stock options to purchase shares of DeCART’s common stock equal to 14% of the fully diluted capitalization of DeCART. Following either the third-party funding or the exercise of the stock option grants, DeCART will no longer be a wholly owned subsidiary. Financial operations overview Collaboration revenue We have no products approved for commercial sale and to date have not generated any revenue and do not expect to generate any revenue from the sale of products in the near future. Our revenue to date has been generated from payments received pursuant to collaboration and license arrangements with strategic partners. Collaboration revenue consists of revenue received from upfront, milestone and contingent payments received from our collaborators. Prior to December 1, 2019, we recognized revenue from upfront payments over the term of our estimated period of performance using either a straight-line or input/proportional performance approach, depending on the agreement, in accordance with Accounting Standards Codification (ASC) 605, Revenue Recognition . Revenue related to the upfront payment received pursuant to the Celgene Agreement was recognized using a straight-line basis. Effective December 1, 2019, we began recognizing revenue from upfront payments over the contract term using a cost-based input method under Topic 606, Revenue from Contracts with Customers . Revenue related to the upfront payments received pursuant to the Gilead Agreement was recognized using the input/proportional performance approach prior to December 1, 2019 and the cost-based input method beginning December 1, 2019. There would have been no difference between the revenue recognized under Topic 606 and the revenue recognized under ASC 605 for the Gilead Agreement. Revenue related to the upfront payment received pursuant to the Sanofi Agreement was recognized using the cost-based input method. The material right to the two additional targets under the Sanofi Agreement was accounted for using the practical alternative and the expected consideration to be received on the options was included for revenue allocation. We expect to continue recognizing revenue from upfront payments related to our collaboration agreements using the cost-based input method in the foreseeable future. In addition to receiving upfront payments, we may also be entitled to milestones and other contingent payments upon achieving predefined objectives. If a milestone is considered probable of being reached, and if it is probable that a significant revenue reversal would not occur, the associated milestone amount would also be included in the transaction price. We expect that any collaboration revenue we generate from our current collaboration and license agreements, and from any future collaboration partners, will fluctuate in the future as a result of the timing and amount of upfront, milestones and other collaboration agreement payments and other factors. Research and development expenses Research and development expenses consist primarily of costs incurred for the discovery and development of our product candidates. We expense both internal and external research and development expenses to operations in the periods in which they are incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and as services are performed. We track the external research and development costs incurred for each of our product candidates. Internal research and development costs include: • payroll and personnel expenses, including benefits, stock-based compensation and travel expenses, for our research and development functions; and • depreciation of research and development equipment, allocated overhead and facilities-related expenses. 28 External research and development expenses consist primarily of costs incurred for the development of our product candidates and may include: • fees paid to third parties such as consultants, contractors and contract research organizations to conduct our discovery programs, preclinical studies and clinical trials; • costs to acquire, develop and manufacture supplies for preclinical studies and clinical trials, including fees paid to third parties such as contract manufacturing organizations; and • expenses related to laboratory supplies and services. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities to advance our product candidates into and through our preclinical studies and clinical trials, pursue regulatory approval of our product candidates and expand our product candidate pipeline. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. To the extent that our product candidates advance and continue to advance into clinical trials, our expenses will increase substantially and may become more variable. The actual probability of success for our product candidates may be affected by a variety of factors, including the safety and efficacy of our product candidates, investment in our clinical programs, the ability of collaborators to successfully develop our licensed product candidates, manufacturing capability, competition with other products and commercial viability. As a result of these variables, we are unable to determine when and to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. General and administrative expenses General and administrative expenses consist primarily of payroll and personnel expenses, including benefits and stock-based compensation, facilities-related expenses and professional fees for legal, consulting, and audit and tax services. We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to build our infrastructure, increase our headcount and operate as a public company. This may include expenses related to compliance with the rules and regulations of 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. Interest and other income, net Interest and other income, net primarily consists of interest earned on our cash, cash equivalents and investments. We expect interest income to vary each reporting period depending on our average bank deposit, money market fund, and investment balances during the period and market interest rates. Provision (benefit) for income taxes The provision for income taxes primarily consists of reserves for unrecognized tax benefits and minimum state taxes. The benefit for income taxes consists of a discrete tax benefit from an adjustment to the net operating loss (NOL) deferred tax asset and valuation allowance. We have generated net operating losses since inception, and have established a full valuation allowance against our deferred tax assets due to the uncertainty surrounding the realization of such assets. 29 Results of operations Comparison of the three and nine months ended August 31, 2020 and 2019 Three months ended August 31, Change Nine months ended August 31, Change (in thousands) 2020 2019 $ 2020 2019 $ Collaboration revenue (1) $ 4,085 $ 10,580 $ (6,495 ) $ 11,131 $ 29,253 $ (18,122 ) Operating expenses: Research and development 18,939 11,008 7,931 46,049 32,201 13,848 General and administrative 4,338 2,184 2,154 10,057 5,724 4,333 Total operating expenses 23,277 13,192 10,085 56,106 37,925 18,181 Loss from operations (19,192 ) (2,612 ) (16,580 ) (44,975 ) (8,672 ) (36,303 ) Interest income and other income 675 195 480 1,071 521 550 Loss before provision (benefit) for income taxes (18,517 ) (2,417 ) (16,100 ) (43,904 ) (8,151 ) (35,753 ) Provision (benefit) for income taxes — 10 (10 ) (20,576 ) 29 (20,605 ) Net loss $ (18,517 ) $ (2,427 ) $ (16,090 ) $ (23,328 ) $ (8,180 ) $ (15,148 ) (1) Collaboration revenue for the three months ended August 31, 2020 and 2019 includes related party revenue of $0 and $9.7 million, respectively. Collaboration revenue for the nine months ended August 31, 2020 and 2019 includes related party revenue of $0 and $28.4 million, respectively. Collaboration revenue Our collaboration revenue was $4.1 million for the three months ended August 31, 2020 and was related to payments received pursuant to the Gilead Agreement and the Sanofi Agreement, and $10.6 million for the three months ended August 31, 2019 and was related to payments received pursuant to the Gilead Agreement and the Celgene Agreement. The decrease in collaboration revenue was attributable to the termination of the Celgene Agreement in June 2019, which resulted in no revenue recognition in 2020, offset by the revenue recognized related to the Gilead Agreement and the Sanofi Agreement. Our collaboration revenue was $11.1 million for the nine months ended August 31, 2020 and was related to payments received pursuant to the Gilead Agreement and the Sanofi Agreement, and $29.3 million for the nine months ended August 31, 2019 and was related to payments received pursuant to the Gilead Agreement and the Celgene Agreement. The decrease in collaboration revenue for the nine months year-over-year was also attributable to the termination of the Celgene Agreement in June 2019, which resulted in no revenue recognition in 2020, offset by the revenue recognized related to the Gilead Agreement and the Sanofi Agreement. Research and development expenses Our research and development expenses for the three and nine months ended August 31, 2020 and 2019 are summarized as follows: Three months ended August 31, Change Nine months ended August 31, Change (in thousands) 2020 2019 $ 2020 2019 $ Compensation and related personnel costs $ 6,273 $ 4,026 $ 2,247 $ 16,139 $ 12,079 $ 4,060 Supplies and contract research 7,742 3,678 4,064 16,313 11,698 4,615 Preclinical activities and contract manufacturing 2,324 1,051 1,273 6,400 1,965 4,435 Facility and other costs 2,600 2,253 347 7,197 6,459 738 Total research and development expenses $ 18,939 $ 11,008 $ 7,931 $ 46,049 $ 32,201 $ 13,848 Our research and development expenses increased by $7.9 million, or 72%, during the three months ended August 31, 2020, compared to the three months ended August 31, 2019. The increase was primarily related to an increase of $4.1 million in supplies and contract research attributable to increases in our preclinical development activities and drug discovery research. There was also an increase of $2.2 million in compensation and related personnel costs attributable to an increase in headcount and higher stock-based 30 compensation expense d ue to additional stock awards granted since August 31, 2019 . Preclinical activities and c ontract manufacturing costs increased by $1.3 million, primarily due to preparation for upcoming clinical programs for our lead drug candidates. Our research and development expenses increased by $13.8 million, or 43%, during the nine months ended August 31, 2020, compared to the nine months ended August 31, 2019. Supplies and contract research costs increased by $4.6 million primarily due to our drug discovery and cell therapy research activities. Preclinical activities and contract manufacturing costs increased by $4.4 million, primarily due to preparation for upcoming clinical programs for our lead drug candidates. Compensation and related personnel costs increased by $4.1 million primarily due to an increase in headcount and higher stock-based compensation due to additional stock awards granted since August 31, 2019. General and administrative expenses Our general and administrative expenses increased by $2.2 million, or 99%, during the three months ended August 31, 2020, compared to the three months ended August 31, 2019. The increase was primarily related to an increase of $0.9 million in compensation related expenses attributable to a higher headcount, an increase of $0.7 million in legal and accounting expenses mainly related to external audit fees and an increase of $0.2 million in consultant and other professional service expenses primarily related to becoming a public company. Our general and administrative expenses increased by $4.3 million, or 76%, during the nine months ended August 31, 2020, compared to the nine months ended August 31, 2019. The increase was primarily related to an increase of $1.7 million in compensation related expenses attributable to an increase in headcount, an increase of $1.5 million in legal and accounting expenses incurred primarily related to external audit fees and an increase of $0.7 million in consultant and other professional service expenses primarily related to becoming a public company. Interest and other income, net Interest and other income, net was $0.7 million and $0.2 million for the three months ended August 31, 2020 and 2019, respectively, and $1.1 million and $0.5 million for the nine months ended August 31, 2020 and 2019, respectively. The increase was primarily related to interest received as part of the tax refund for the first carryback claim that we filed in April 2020 in connection with the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). Other than the interest earned on tax refund, interest and other income, net in all periods is mainly related to interest earned on our deposits, money market funds and investments. Provision (benefit) for income taxes The provision for income taxes was insignificant during the three months ended August 31, 2020 and 2019. The benefit for income taxes was $20.6 million during the nine months ended August 31, 2020 and was related to a discrete tax benefit, which consists of carryback claims and the reversal of the uncertain tax liability related to research and development tax credits as a result of the CARES Act that was enacted on March 27, 2020 in response to the COVID-19 pandemic. The provision for income taxes was insignificant during the nine months ended August 31, 2019. Critical accounting policies and estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). 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. 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 significant accounting policies are described in the notes to our condensed consolidated financial statements. 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 Prospectus, and there have been no significant changes to these policies for the three months and nine months ended August 31, 2020. 31 Liquidity and capital resources Source of liquidity On July 23, 2020, our registration statement on Form S-1 (File No. 333-239651) relating to our initial public offering of common stock became effective. The initial public offering closed on July 28, 2020 at which time we issued 11,000,000 shares of its common stock at a price to the public of $19.00 per share. In addition, the underwriters exercised their option to purchase an additional 1,550,000 shares of our common stock on July 31, 2020, and this transaction closed on August 4, 2020. Net proceeds from the initial public offering and the transaction with the underwriters were approximately $218.1 million, after deducting underwriting discounts and commissions of $16.7 million and expenses of $3.6 million. To date, our operations have been funded through the issuance of common and redeemable convertible preferred stock and proceeds from collaboration agreements. We do not have any products approved for sale, and we have not generated any revenue from product sales. As of August 31, 2020, we had $395.1 million in cash, cash equivalents and investments. In December 2019, we entered into the Sanofi Agreement, pursuant to which we received an upfront payment of $55.0 million in January 2020. Additionally, in March 2020, we closed a sale of our Series D redeemable convertible preferred stock that resulted in net proceeds of $119.9 million. Funding requirements We expect that our existing cash, cash equivalents and investments are sufficient to continue operating activities for at least the next 12 months. We will need substantial additional funding to support our continuing operations and pursue our long-term business plan. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. Because of the numerous risks and uncertainties associated with the development and commercialization of our product 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. Our future funding requirements will depend on many factors, including the following: • the progress, costs and results of our planned Phase 1 clinical trials for our lead product candidates NX-2127 and NX-1607 and other drug candidates, and any future clinical development of such product candidates; • the scope, progress, costs and results of preclinical and clinical development for our other product candidates and development programs; • the number and development requirements of other product candidates that we pursue; • the scope of, and costs associated with, future advancements to our DELigase platform; • the success of our collaborations with Sanofi, Gilead and any other collaborations we may establish; • the costs, timing and outcome of regulatory review of our product candidates; • the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; • the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and • our ability to establish additional collaboration arrangements with other biotechnology or pharmaceutical companies on favorable terms, if at all, for the development or commercialization of our product candidates. If adequate funds are not available at favorable terms, we may be required to reduce operating expenses, delay or reduce the scope of our product development and commercial expansion programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. 32 Cash flows The following table summarizes our cash flows during the periods indicated: Nine months ended August 31, (in thousands) 2020 2019 Cash provided by operating activities $ 20,402 $ 13,349 Cash provided by (used in) investing activities (129,841 ) 12,863 Cash provided by financing activities 340,150 46 Net increase in cash, cash equivalents and restricted cash $ 230,711 $ 26,258 Operating activities Net cash provided by operating activities was $20.4 million for the nine months ended August 31, 2020 and consisted of a decrease in net assets of $40.3 million and non-cash adjustments of $3.4 million, offset by our net loss of $23.3 million. The decrease in net assets consisted primarily of an increase in deferred revenue of $47.4 million related to proceeds received pursuant to the Sanofi Agreement and offset by revenue recognized pursuant to the Sanofi Agreement and the Gilead Agreement. Non-cash adjustments primarily consisted of stock-based compensation expenses of $1.8 million and depreciation and amortization expenses of $1.5 million. Net cash provided by operating activities was $13.3 million for the nine months ended August 31, 2019 and consisted of a decrease in net assets of $19.5 million and non-cash adjustments of $2.0 million, offset by our net loss of $8.2 million. The decrease in net assets consisted primarily of an increase in deferred revenue of $18.7 million from the payment received under the Gilead Agreement and offset by the recognition of revenue related to the Gilead Agreement and Celgene Agreement. Non-cash adjustments primarily consisted of depreciation and amortization expenses of $1.8 million and stock-based compensation expenses of $0.3 million. Investing activities Net cash used in investing activities was $129.8 million for the nine months ended August 31, 2020 and consisted primarily of the purchase of investments of $141.1 million, offset by the maturity of investments of $14.9 million. Net cash provided by investing activities was $12.9 million for the nine months ended August 31, 2019 and consisted primarily of the maturity of investments of $19.5 million, offset by the purchase of investments of $5.9 million. Financing activities Net cash provided by financing activities was $340.2 million for the nine months ended August 31, 2020 and consisted primarily of net proceeds from issuance of common stock related to our initial public offering in July 2020 and the sale of our Series D redeemable convertible preferred stock in March 2020. Net cash provided by financing activities was insignificant for the nine months ended August 31, 2019. Contractual obligations and other commitments The following table summarizes our contractual obligations as of August 31, 2020: Payments due by period (in thousands) Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Operating lease obligations $ 3,342 $ 6,725 $ 5,904 $ — $ 15,971 Total contractual obligations $ 3,342 $ 6,725 $ 5,904 $ — $ 15,971 In addition, we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice. These payments are not included in the table above. Off-balance sheet arrangements We have not entered into any off-balance sheet arrangements as defined in Item 303 of Regulation S-K. 33 Emerging growth company and smaller reporting company status We are an “emerging growth company,” or EGC, as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the JOBS Act). We will remain an EGC until the earliest of: (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which generally is when a company has more than $700.0 million in market value of its stock held by non-affiliates as of the prior May 31, has been a public company for at least 12 months and has filed one annual report on Form 10-K. Under the JOBS Act, EGCs can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an EGC or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, the information we provide may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an EGC we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act); (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million as of the prior May 31 and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million as of the prior May 31 or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million as of the prior May 31. If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to EGCs, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Recent accounting pronouncements See Note 2, “Summary of significant accounting policies—Recent accounting pronouncements” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information.