What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-07-13 compared with 2021-04-13 · 71 added, 55 removed, 223 unchanged (36% of the section changed)

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Our wholly owned pipeline comprises targeted protein degraders of Bruton’s tyrosine kinase (BTK), a B-cell signaling protein, and inhibitors of Casitas B-lineage lymphoma proto-oncogene B (CBL-B), an E3 ligase that regulates T cell activation.

Our lead drug candidate from our protein degradation portfolio, NX-2127, is an orally available BTK degrader for the treatment of relapsed or refractory B-cell malignancies.

Our lead drug candidate from our protein degradation portfolio, NX-2127, is an orally bioavailable BTK degrader for the treatment of relapsed or refractory B-cell malignancies.

We filed an investigational new drug application (IND) for NX-2127 in December 2020 and received clearance by the U.S.

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We anticipate commencing a Phase 1 trial for NX-5948 in the second half of 2021.

Our lead drug candidate from our E3 ligase inhibitor portfolio, NX-1607, is an orally available CBL-B inhibitor for immuno-oncology indications.

Our lead drug candidate from our E3 ligase inhibitor portfolio, NX-1607, is an orally bioavailable CBL-B inhibitor for immuno-oncology indications.

We expect to commence a Phase 1 clinical trial in the second half of 2021.

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We anticipate commencing a Phase 1 clinical trial for our first cell therapy candidate, DeTIL-0255, in the second half of 2021.

Beyond these portfolios, we are advancing additional wholly owned, preclinical programs that may expand our therapeutic areas beyond oncology to autoimmune disease and viral diseases, including COVID-19.

All expected Phase 1 clinical trial commencements are based on calendar years.

Beyond these clinical candidates, we are advancing additional wholly owned, preclinical programs that may expand our therapeutic areas beyond oncology to autoimmune disease and viral diseases, including COVID-19.

Our therapeutic areas may be further expanded through our established strategic collaborations with Sanofi S.A.

(Sanofi), and Gilead Sciences, Inc.

All expected Phase 1 clinical trial commencements are based on calendar years.

Beyond these preclinical programs, we are advancing additional drug discovery programs, either independently or through our established strategic collaborations with Sanofi and 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.

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Since inception, we have generally incurred significant losses and negative cash flows from operations.

During the three months ended February 28, 2021 and February 29, 2020, we incurred net losses of $24.3 million and $12.4 million, respectively.

As of February 28, 2021, we had an accumulated deficit of $128.0 million.

During the six months ended May 31, 2021 and 2020, we incurred net losses of $50.7 million and $4.8 million, respectively.

As of May 31, 2021, we had an accumulated deficit of $154.4 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 February 28, 2021, we had $380.3 million in cash, cash equivalents and investments.

As of May 31, 2021, we had $496.5 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.

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See the section titled “—Liquidity and capital resources” for more information.

To finance our operations beyond that point, we will need to raise substantial additional capital to complete the development and commercialization of our drug candidates.

We will need to raise substantial additional capital to complete the development and commercialization of our drug candidates and pursue our long-term business plan.

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.

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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.

While the impact of the COVID-19 pandemic to our current operations has been minimal, 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.

Collaborations and License Agreements

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In January 2021, as part of the existing collaboration, Sanofi paid us $22 million to exercise its option to expand the number of targets in the collaboration agreement from three to a total of five targets.

We also entered into the First Sanofi Amendment to the collaboration agreement with Sanofi in January 2021 to modify the research term on all targets.

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

We also entered into the First Sanofi Amendment to the collaboration agreement with Sanofi in January 2021 to modify the research term on all targets.

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 under certain conditions.

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We are eligible to receive additional payments if Sanofi exercises an option to extend the license term with respect to a particular target.

As of February 28, 2021, we are eligible to receive up to approximately $2.5 billion in total payments based on certain additional fees, payments and the successful completion of certain research development, regulatory and

sales milestones, as well as tiered royalties ranging from mid-single digit to low teen percentages on annual net sales of any commercial products that may result from the collaboration, subject to certain reductions and excluding sales 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.

As of May 31, 2021, we are eligible to receive up to approximately $2.5 billion in total payments based on certain additional fees, payments and the successful completion of certain research development, regulatory and sales milestones, as well as tiered royalties ranging from mid-single digit to low teen percentages on annual net sales of any

commercial products that may result from the collaboration, subject to certain reductions and excluding sales 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 accounted for the First Sanofi Amendment as if it were part of the existing contract with Sanofi as the remaining goods and services to be provided after the contract modification are not distinct from the goods and services already provided and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification.

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The effect of the revised research period on our measure of progress toward complete satisfaction of the performance obligation was recognized as an adjustment to revenue at the date of the contract modification on a cumulative catch-up basis.

We recognized collaboration revenue from the Sanofi Agreement of $2.3 million and $0.4 million during the three months ended February 28, 2021 and February 29, 2020, respectively.

As of February 28, 2021, there was $69.0 million of deferred revenue related to payments received by us under the Sanofi Agreement.

We recognized collaboration revenue from the Sanofi Agreement of $3.3 million and $5.6 million during the three and six months ended May 31, 2021, respectively, and $1.8 million and $2.2 million during the three and six months ended May 31, 2020, respectively.

As of May 31, 2021, there was $65.7 million of deferred revenue related to payments received by us under the Sanofi Agreement.

Gilead Collaboration, Option and License Agreement

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

Subsequently, we have received payments of $11.0 million for research milestones and additional payments.

As of February 28, 2021, we are eligible to receive up to approximately $2.3 billion in total additional payments based on certain additional fees, payments and the successful completion of certain preclinical, clinical, development and sales milestones.

Subsequently, we have received payments of $13.5 million for research milestones and additional payments, including $2.5 million in the second quarter of 2021.

As of May 31, 2021, we are eligible to receive up to approximately $2.3 billion in total additional payments based on certain additional fees, payments and the successful completion of certain preclinical, clinical, development and sales milestones.

In addition, we are eligible to receive tiered royalties from mid-single digit to low tens percentages on annual net sales from any commercial products directed to the optioned collaboration targets, subject to certain reductions and excluding sales 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 $2.7 million and $2.4 million during the three months ended February 28, 2021 and February 29, 2020, respectively.

As of February 28, 2021, there was $41.4 million of deferred revenue related to payments received by us under the Gilead Agreement.

We recognized collaboration revenue from the Gilead Agreement of $3.7 million and $6.5 million during the three and six months ended May 31, 2021, respectively, and $2.4 million and $4.8 million during the three and six months ended May 31, 2020, respectively.

As of May 31, 2021, there was $40.2 million of deferred revenue related to payments received by us under the Gilead Agreement.

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), 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 exclusively with respect to three 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.

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Results of Operations

Comparison of the Three Months Ended February 28, 2021 and February 29, 2020

Three Months Ended

Comparison of the Three and Six Months Ended May 31, 2021 and 2020

Three Months Ended May 31,

Six Months Ended May 31,

(in thousands)

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Loss from operations

Interest income and other income

Interest and other income, net

Loss before income taxes

Provision for income taxes

Provision (benefit) for income taxes

Net income (loss)

Collaboration Revenue

Our collaboration revenue for the three months ended February 28, 2021 and February 29, 2020 is summarized as follows:

Three Months Ended

Our collaboration revenue for the three and six months ended May 31, 2021 and 2020 is summarized as follows:

Three Months Ended May 31,

Six Months Ended May 31,

(in thousands)

Total collaboration revenue

Our collaboration revenue increased by $2.1 million for the three months ended February 28, 2021 compared with the three months ended February 29, 2020.

The increase was primarily due to our collaboration with Sanofi, which continued to scale up resources as compared to the prior period, resulting in a higher percentage of completion in the current period.

Our collaboration revenue increased by $2.9 million and $5.1 million during the three and six months ended May 31, 2021, respectively, compared to the three and six months ended May 31, 2020.

The increase was due to the continued scale up of internal resources and external spending for our collaborations with Sanofi and Gilead as compared to the prior periods, resulting in a higher percentage of completion in the current periods.

Research and Development Expenses

Our research and development expenses for the three months ended February 28, 2021 and February 29, 2020 are summarized as follows:

Three Months Ended

Our research and development expenses for the three and six months ended May 31, 2021 and 2020 are summarized as follows:

Three Months Ended May 31,

Six Months Ended May 31,

(in thousands)

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Preclinical activities and contract manufacturing

Clinical costs

Facility and other costs

Total research and development expenses

Our research and development expenses increased by $10.0 million, or 77.4%, for the three months ended February 28, 2021, compared with the three months ended February 29, 2020.

The increase was primarily related to an increase of $4.6 million in compensation and related personnel costs attributable to an increase in headcount and higher non-cash stock-based compensation expense due to additional stock awards granted since February 29, 2020.

There was also an increase of $3.5 million in supplies and contract research attributable to increases in our preclinical development activities and drug discovery research and an increase of $1.1 million in preclinical activities and contract manufacturing costs primarily due to preparation for upcoming clinical programs for our lead drug candidates.

Our research and development expenses increased by $11.9 million during the three months ended May 31, 2021, compared to the three months ended May 31, 2020.

The increase was primarily related to an increase of $5.3 million in compensation and related personnel costs attributable to an increase in headcount.

Compensation and related personnel costs includes $1.9 million of non-cash stock-based compensation expense in the three months ended May 31, 2021, compared to $0.2 million in the three months ended May 31, 2020.

There was also an increase of $4.2 million in supplies and contract research attributable to increases in our preclinical development activities and drug discovery research and an increase of $1.1 million in clinical costs due to the start of clinical trial patient enrollment.

Our research and development expenses increased by $21.9 million during the six months ended May 31, 2021, compared to the six months ended May 31, 2020.

The increase was primarily related to an increase of $9.8 million in compensation and related personnel costs attributable to an increase in headcount.

Compensation and related personnel costs includes $3.0 million of non-cash stock-based compensation expense in the six months ended May 31, 2021, compared to $0.3 million in the six months ended May 31, 2020.

There was also an increase of $7.7 million in supplies and contract research attributable to increases in our preclinical development activities and drug discovery research and an increase of $1.8 million in clinical costs due to the start of clinical trial patient enrollment.

General and Administrative Expenses

Our general and administrative expenses increased by $4.1 million, or 166.5%, for the three months ended February 28, 2021, compared with the three months ended February 29, 2020.

The increase was primarily related to an increase of $2.4 million in compensation related expenses attributable to a higher headcount and includes $1.4 million of higher non-cash stock-based compensation expense due to additional stock awards granted since February 29, 2020.

Our general and administrative expenses increased by $4.2 million during the three months ended May 31, 2021, compared to the three months ended May 31, 2020.

The increase was primarily related to an increase of $3.0 million in compensation related expenses attributable to a higher headcount.

There was also an increase of $1.1 million in consultant and other professional service expenses primarily related to becoming a public company.

Our general and administrative expenses increased by $8.3 million during the six months ended May 31, 2021, compared to the six months ended May 31, 2020.

The increase was primarily related to an increase of $5.5 million in compensation related expenses attributable to a higher headcount.

Compensation and related personnel costs includes $3.4 million of non-cash stock-based compensation expense in the six months ended May 31, 2021, compared to $0.3 million in the six months ended May 31, 2020.

There was also an increase of $2.1 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 insignificant for each of the three months ended February 28, 2021 and February 29, 2020 and is related to interest earned on our deposits, money market funds and investments.

Interest and other income, net was insignificant for each of the three and six months ended May 31, 2021 and 2020 and is related to interest earned on our deposits, money market funds and investments.

Provision for Income Taxes

Provision for income taxes was insignificant for each of the three months ended February 28, 2021 and February 29, 2020.

Provision for income taxes was $0.1 million and $0.2 million for the three and six months ended May 31, 2021.

For the three and six months ended May 31, 2020, an income tax benefit of $20.6 million was recognized 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.

Liquidity and Capital Resources

Source of Liquidity

Sources of Liquidity

Our initial public offering closed on July 28, 2020 at which time we issued 11,000,000 shares of our common stock at a price to the public of $19.00 per share.

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In March 2021, we completed a follow-on offering and issued 5,175,000 shares of our common stock (including the exercise by the underwriters of their option to purchase an additional 675,000 shares of common stock) at a price to the public of $31.00 per share for net proceeds of approximately $150.1 million, after deducting underwriting discounts and commissions of $9.6 million and expenses of $0.7 million.

To date, our operations have been funded through the issuance of common and redeemable convertible preferred stock and proceeds from collaboration agreements.

To date, our operations have primarily been funded through the gross proceeds from equity offerings of $553.0 million and proceeds from collaborations of $288.5 million.

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

As of February 28, 2021, we had $380.3 million in cash, cash equivalents and investments.

Funding R equirements

As of May 31, 2021, we had $496.5 million in cash, cash equivalents and investments.

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.

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The following table summarizes our cash flows during the periods indicated:

Three Months Ended

Six Months Ended May 31,

(in thousands)

Cash provided by operating activities

Cash (used in) provided by operating activities

Cash used in investing activities

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Operating activities

Net cash provided by operating activities was $8.1 million for the three months ended February 28, 2021 and consisted of a decrease in net assets of $28.8 million and non-cash adjustments of $3.6 million, offset by our net loss of $24.3 million.

The decrease in net assets consisted primarily of an increase in deferred revenue of $17.0 million and a decrease in contract assets of $7.5 million.

Net cash used in operating activities was $23.5 million for the six months ended May 31, 2021 and consisted of our net loss of $50.7 million, offset by a decrease in net assets of $18.7 million and non-cash adjustments of $8.5 million.

The decrease in net assets consisted primarily of an increase in deferred revenue of $12.4 million, a decrease in contract assets of $7.5 million due to payments received under the Gilead Agreement and an increase in accounts receivable of $2.5 million.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $6.6 million and depreciation and amortization expenses of $1.3 million.

Net cash provided by operating activities was $41.0 million for the three months ended February 29, 2020 and consisted of a decrease in net assets of $52.7 million and non-cash adjustments of $0.7 million, offset by our net loss of $12.4 million.

The decrease in net assets consisted primarily of an increase in deferred revenue of $54.6 million from the payment received under the Sanofi Agreement, offset by the recognition of revenue related to the Gilead Agreement and Sanofi Agreement.

Non-cash adjustments primarily consisted of depreciation and amortization expenses of $0.5 million.

Net cash provided by operating activities was $26.5 million for the six months ended May 31, 2020 and consisted of a decrease in net assets of $29.7 million and non-cash adjustments of $1.7 million, offset by our net loss of $4.8 million.

The decrease in net assets consisted primarily of an increase in deferred revenue of $51.5 million from the payment received under the Sanofi Agreement, partially offset by an increase in income tax receivable of $19.6 million related to the expected refund following the enactment of the CARES Act.

Non-cash adjustments primarily consisted of depreciation and amortization expenses of $1.0 million and stock-based compensation expense of $0.7 million.

Investing activities

Net cash used in investing activities was $2.4 million for the three months ended February 28, 2021 and consisted primarily of the purchase of investments of $47.7 million, offset by the maturity of investments of $46.2 million.

Net cash used in investing activities was $19.4 million for the three months ended February 29, 2020 and consisted primarily of the purchase of investments of $19.1 million.

Net cash used in investing activities was $59.5 million for the six months ended May 31, 2021 and consisted primarily of the purchase of investments of $183.2 million, partially offset by the sale of investments of $7.0 million and the maturity of investments of $119.7 million.

Net cash used in investing activities was $21.8 million for the six months ended May 31, 2020 and consisted primarily of the purchase of investments of $29.6 million, partially offset by the maturity of investments of $9.9 million.

Financing activities

Net cash provided by financing activities was $1.4 million for the three months ended February 28, 2021 and consisted primarily of proceeds from issuances under the 2020 ESPP.

Net cash provided by financing activities was insignificant for the three months ended February 29, 2020.

Net cash provided by financing activities was $151.8 million for the six months ended May 31, 2021 and consisted primarily of proceeds from the issuance of common stock from the follow-on offering in March 2021.

Net cash provided by financing activities was $119.7 million for six months ended May 31, 2020 and consisted primarily of net proceeds from the sale of our Series D redeemable convertible preferred stock in March 2020.

Contractual Obligations and Other Commitments

The following table summarizes our contractual obligations as of February 28, 2021:

The following table summarizes our contractual obligations as of May 31, 2021:

Payments due by period

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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;

(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;

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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 2020 Form 10-K.

Other than the updated policy on revenue recognition disclosed in Note 2, Summary of Significant Accounting Policies , 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 months ended February 28, 2021.

Recent Accounting Pronouncements

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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