What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-01-28 compared with 2021-02-16 · 121 added, 138 removed, 230 unchanged (53% of the section changed)

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Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

A discussion regarding our financial condition and results of operation for the year ended November 30, 2020 compared to the year ended November 30, 2019 is presented below.

A discussion regarding our financial condition and results of operations for the year ended November 30, 2019 compared to the year ended November 30, 2018 is included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our prospectus for our IPO, which was filed with the SEC pursuant to Rule 424(b) on July 24, 2020.

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.

We are a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of small molecule therapies designed to modulate cellular protein levels as a novel treatment approach for cancer and other challenging diseases.

Leveraging our extensive expertise in E3 ligases together with our proprietary DNA-encoded libraries, we have built DELigase, an integrated discovery platform to identify and advance novel drug candidates targeting E3 ligases, a broad class of enzymes that can modulate proteins within the cell.

Our drug discovery approach is to either harness or inhibit the natural function of E3 ligases within the UPS to selectively decrease or increase cellular protein levels.

Our wholly owned pipeline comprises targeted protein degraders of 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 degrader for the treatment of relapsed or refractory B-cell malignancies.

We expect to dose the first patient in a Phase 1 clinical trial for NX-2127 in the first quarter of 2021.

Our drug discovery approach is to either harness or inhibit the natural function of E3 ligases within the ubiquitin-proteasome system to selectively decrease or increase cellular protein levels.

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

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

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

Our second drug candidate from our protein degradation portfolio, NX-5948, is also an orally bioavailable BTK degrader for the treatment of relapsed or refractory B-cell malignancies and potentially autoimmune diseases.

We anticipate 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.

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

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 commencing Phase 1 clinical trials in the second half of 2021.

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.

We anticipate enrolling our first patient in the first half of 2022 in the Phase 1a portion of a Phase 1a/1b dose-escalation and cohort expansion study in patients with relapsed or refractory B-cell malignancies.

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

We are currently enrolling patients in the Phase 1a portion of a Phase 1a/1b dose-escalation and cohort expansion study in patients with solid tumors and lymphomas.

We are also advancing the development of a CBL-B inhibitor, NX-0255, for ex vivo use to enhance adoptive T-cell therapy.

We are currently recruiting patients in a Phase 1 clinical trial for our first cell therapy candidate, DeTIL‑0255, in patients with gynecologic cancers including ovarian, endometrial, and cervical cancer.

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

Our therapeutic areas may be further expanded through our established strategic collaborations with Sanofi and Gilead.

Collaboration and License Agreements

Sanofi Collaboration and License Agreement

In December 2019, we entered into a strategic collaboration with Sanofi, which became effective in January 2020, and was subsequently expanded and amended in January 2021 (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, Sanofi exercised its option to expand the number of targets in the collaboration agreement from three to a total of five targets.

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 collaboration, Sanofi paid us $22.0 million to exercise its option to expand the number of targets in the collaboration agreement from three to a total of five targets.

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

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.

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.

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 CTMs in order to identify development candidates.

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.

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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, which was received in January 2020.

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 or exercises an option to extend the license term with respect to a particular target.

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.

From the signing of the Sanofi Agreement to November 30, 2021, we received a payment of $1.0 million for research milestones.

As of November 30, 2021, we are eligible to receive up to approximately $2.5 billion in total payments based on certain additional fees, payments and the successful completion of certain research development, regulatory and sales milestones, as well as tiered royalties ranging from mid-single digit to low teen percentages on annual net sales of any commercial products that may result from the collaboration, subject to certain reductions and excluding sales in the United States of any products for which we exercise our option to co-develop and co-promote, for which we share profits and losses evenly.

We recognized collaboration revenue from the Sanofi Agreement of $5.7 million during the year ended November 30, 2020.

We recognized collaboration revenue from the Sanofi Agreement of $13.2 million and $5.7 million during the year ended November 30, 2021 and 2020.

We recognized no collaboration revenue from the Sanofi Agreement during the year ended November 30, 2019.

As of November 30, 2021, there was $59.2 million of deferred revenue related to payments received by us under the Sanofi Agreement.

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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.

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.

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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 As of November 30, 2020, 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.

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

From the signing of the Gilead Agreement to November 30, 2021 , we received payments of $18.5 million for research milestones and additional payments, including $5.0 million , which was received in the fourth quarter of 2021.

Additionally, in November 2021, we recognized a research milestone and received a payment of $6.0 million in the first quarter of 2022.

As of November 30, 2021 , we are eligible to receive up to approximately $2.3 billion in total additional payments based on certain additional fees, payments and the successful completion of certain preclinical, clinical, development and sales milestones.

In addition, we are eligible to receive tiered royalties from mid-single digit to low tens percentages on annual net sales from any commercial products directed to the optioned collaboration targets, subject to certain reductions and excluding sales 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.

In November 2020, we recognized two research milestones, resulting in a $7.5 million additional payment, which we received in January 2021.

We recognized collaboration revenue from the Gilead Agreement of $12.1 million and $2.7 million during the years ended November 30, 2020 and 2019, respectively.

We recognized collaboration revenue from the Gilead Agreement of $16.6 million, $12.1 million and $2.7 million during the years ended November 30, 2021, 2020 and 2019, respectively.

As of November 30, 2021, there was $41.1 million of deferred revenue related to payments received by us under the Gilead Agreement.

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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 year ended November 30, 2020.

During the years ended November 30, 2019, we recognized $28.4 million in collaboration revenue under the Celgene Agreement.

We recognized no collaboration revenue from the Celgene Agreement during the years ended November 30, 2021 and 2020.

During the year ended November 30, 2019, we recognized $28.4 million in collaboration revenue under the Celgene Agreement.

As of November 30, 2021, there was no deferred revenue related to payments received by us under the Celgene 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 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 has 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 Overview

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

We do not expect to generate product revenue unless and until we successfully develop and obtain approval for the commercialization of a product candidate, and we cannot assure you that we will ever generate significant revenue or profits.

We do not expect to generate product revenue unless and until we successfully develop and obtain approval for the commercialization of a drug candidate, and we cannot assure you that we will ever generate significant revenue or profits.

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

We incurred net losses of $43.2 million and $21.7 million during the years ended November 30, 2020 and 2019,

respectively.

We incurred net losses of $117.2 million, $43.2 million and $21.7 million during the years ended November 30, 2021, 2020 and 2019, respectively.

As of November 30, 2021, we had an accumulated deficit of $220.9 million.

These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations.

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;

We do not expect to generate any revenue from commercial product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our drug candidate s, which we expect will take a number of years.

We expect our expenses will increase substantially as we advance our drug candidate s 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;

apply our DELigase platform to advance additional drug candidate s and expand the capabilities of our platform;

seek marketing approvals for any drug candidate s 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;

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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 programs;

Our net losses and cash flows may fluctuate significantly from period to period, depending on, among other things, variations in the level of expense related to the ongoing development of our drug candidates, our DELigase platform or future development programs;

the delay, addition or termination of clinical trials;

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As of November 30, 2021, we had $432.9 million in cash, cash equivalents and investments.

In July 2020, we closed our IPO, and issued 12,550,000 shares of our common stock (including the exercise by the underwriters of their option to purchase an additional 1,550,000 shares of common stock 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.

In July 2020, we closed our initial public offering (IPO), and issued 12,550,000 shares of our common stock (including the exercise by the underwriters of their option to purchase an additional 1,550,000 shares of common stock 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.

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 $150.2 million, after deducting underwriting discounts and commissions of $9.6 million and expenses of $0.6 million.

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

See the section titled “—Liquidity and Capital Resources” for more information.

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

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

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements.

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We are subject to risks and uncertainties as a result of the current 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 only recently commenced clinical development of our first product candidate, 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.

The COVID-19 pandemic, including the resurgence of cases relating to the spread of the Delta and Omicron variants, is impacting worldwide economic activity and poses the risk that we or our employees, contractors, suppliers and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities.

While the impact of the COVID-19 pandemic to our current operations has been minimal as we have only recently commenced clinical development of our four lead drug candidates, the extent to which the COVID-19 pandemic will impact our business, financial condition, liquidity and results of operations in the future will depend on future developments that are highly uncertain and cannot be predicted at this time.

Components of Operating Results

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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 .

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.

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Research and development expenses

Research and development expenses consist primarily of costs incurred for the discovery and development of our product candidates.

Research and development expenses consist primarily of costs incurred for the discovery and development of our drug candidates.

We expense both internal and external research and development expenses to operations in the periods in which they are incurred.

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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.

We track the external research and development costs incurred for each of our drug candidates.

Internal research and development costs include:

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depreciation of research and development equipment, allocated overhead and facilities-related expenses.

External research and development expenses consist primarily of costs incurred for the development of our product candidates and may include:

External research and development expenses consist primarily of costs incurred for the development of our drug candidates and may include:

fees paid to third parties such as consultants, contractors and contract research organizations to conduct our discovery programs, preclinical studies and clinical trials;

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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 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.

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

The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming.

To the extent that our 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.

To the extent that our drug candidates advance and continue to advance into clinical trials, our expenses will increase substantially and may become more variable.

The actual probability of success for our drug candidates may be affected by a variety of factors, including the safety and efficacy of our drug candidates, investment in our clinical programs, the ability of collaborators to successfully develop our licensed drug candidates, manufacturing capability, competition with other products and commercial viability.

As a result of these variables, we are unable to determine when and to what extent we will generate revenue from the commercialization and sale of our drug candidates.

We may never succeed in achieving regulatory approval for any of our drug candidates.

General and administrative expenses

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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 NOL deferred tax asset and valuation allowance.

Provision for (benefit from) income taxes

The provision for income taxes primarily consists of reserves for unrecognized tax benefits and state taxes.

The benefit for income taxes consists of a discrete tax benefit from an adjustment to the net operating loss (NOL) deferred tax asset and valuation allowance.

We have generated NOLs since inception and have established a full valuation allowance against our deferred tax assets due to the uncertainty surrounding the realization of such assets.

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We recognize revenue associated with the non-substantive milestones upon achievement of the milestone if we have no remaining deliverables.

During the years ended November 30, 2019, no milestone payments were received, no milestone revenues were recognized and no milestones were considered substantive.

During the year ended November 30, 2019, no milestone payments were received, no milestone revenues were recognized and no milestones were considered substantive.

Effective December 1, 2019, we adopted Topic 606, Revenue from Contracts with Customers using the modified retrospective method, which was only applied to contracts that were not completed as of the adoption date.

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We evaluate the measure of proportional performance each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

To measure the proportional performance, we are required to make our best estimates of forecasted expenditures and development timelines, which are subject to uncertainties associated with pharmaceutical product development.

Forecasted total expenditures are driven primarily by the number of full-time employees, and the number may change based on the progress of our product development and requires significant management judgement.

Milestone payments :

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All revenue was derived from customers located in the United States during the years ended November 30, 2021, 2020 and 2019.

Stock-Based Compensation

We account for stock-based compensation using a fair value-based method, which requires the recognition of compensation expense for costs related to all stock-based payments including stock options and purchase rights under the employee stock purchase plan.

We estimate the fair value of stock-based payment awards on the date of grant using the Black-Scholes option pricing model.

The model requires management to make a number of assumptions including expected volatility, expected term, risk-free interest rate and expected dividend yield.

Prior to our IPO, the fair value of our common stock was determined by our board of directors with assistance from management and an independent third party valuation firm, using significant judgment and several factors including important developments in our operations, sales of preferred stock and the lack of liquidity of the common stock.

Subsequent to the IPO, we determine the fair value using the market closing price of our common stock on the date of grant.

For stock-based payments with service conditions only, we use the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period.

Subsequent to the adoption of ASU 2018-07, Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting as of December 1, 2019, stock-based compensation expense for non-employee stock-based awards is also measured based on the grant date fair value with the estimated fair value expensed over the period for which the non-employee is required to provide service in exchange for the award.

For stock-based payments with performance conditions, we evaluate the probability of achieving performance conditions at each reporting date.

We begin to recognize compensation cost using an accelerated attribution method when it is deemed probable that the performance condition will be met.

We account for forfeitures as they occur.

We account for income taxes under the asset and liability method.

Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income.

Valuation allowances are established when in management’s estimate, it is more likely than not, that the deferred tax assets will not be recovered.

Financial statement effects of uncertain tax positions are recognized when it is more likely than not, based on the technical merits of the position, that it will be sustained upon examination.

It is our policy to include penalties and interest expense related to income taxes as a component of the provision for income taxes.

Results of Operations

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Loss before income taxes

(Benefit) provision for income taxes

Provision for (benefit from) income taxes

Collaboration revenue for the years ended November 30, 2021, 2020 and 2019 includes related party revenue of $0, $0 and $28.4 million, respectively.

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Total collaboration revenue

Our collaboration revenue increased by $11.9 million for the year ended November 30, 2021 compared with the year ended November 30, 2020.

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

The increase was also due to partial revenue recognized during the year ended November 30, 2021 for the achievement of certain preclinical milestones under our collaborations with Gilead and Sanofi.

Our collaboration revenue decreased by $13.3 million for the year ended November 30, 2020 compared with the year ended November 30, 2019.

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(in thousands)

Compensation and related personnel costs

Compensation and related

personnel costs

Supplies and contract research

Preclinical activities and contract

manufacturing

Preclinical activities and

contract manufacturing

Stock-based compensation

Clinical costs

Facility and other costs

Total research and development expenses

Total research and development

Our research and development expense increased by $49.9 million, or 75.1%, during the year ended November 30, 2021 compared with the year ended November 30, 2020.

The increase was primarily related to an increase of $17.3 million in compensation and related personnel costs attributable to an increase in headcount.

There was an increase of $11.9 million in supplies and contract research and $5.9 million in preclinical activities and contract manufacturing attributable to an increase in our preclinical development activities and drug discovery research and preparation for upcoming clinical programs for our lead drug candidates.

There was an increase of $5.4 million in clinical costs due to ongoing clinical trial startup and patient enrollment.

There was also an increase of $6.4 million in non-cash stock-based compensation expense and an increase of $3.1 million in facility and other costs primarily due to expansion of leased premises and investments in information technology.

Our research and development expenses increased by $21.5 million, or 47.7%, during the year ended November 30, 2020, compared to the year ended November 30, 2019.

The increase was primarily related to an increase of $7.8 million in supplies and contract research attributable to increases in our preclinical development activities and drug discovery research.

There was also an increase of $7.1 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 November 30, 2019.

There was also an increase of $5.8 million in compensation and related personnel costs attributable to an increase in headcount and an increase of $1.4 million in non-cash stock-based compensation expense.

Preclinical activities and contract manufacturing costs increased by $4.4 million primarily due to preparation for upcoming clinical programs for our lead drug candidates.

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Our general and administrative expenses increased by $14.9 million, or 91.3%, during the year ended November 30, 2021, compared to the year ended November 30, 2020.

The increase was primarily related to an increase of $4.0 million in compensation related expenses attributable to a higher headcount and non-cash stock-based compensation expense.

The increase was primarily related to an increase of $5.1 million in non-cash stock-based compensation expense and an increase of $4.6 million in compensation related expenses attributable to higher headcount.

There was also an increase of $3.7 million in consultant and other professional services primarily related to becoming a public company.

Our general and administrative expenses increased by $8.0 million, or 95.9%, during the year ended November 30, 2020, compared to the year ended November 30, 2019.

The increase was primarily related to an increase of $2.4 million in non-cash stock-based compensation expense and an increase of $1.7 million in compensation related expenses attributable to a higher headcount.

We also had an increase of $1.8 million in legal and accounting expenses mainly related to external audit and legal fees and an increase of $1.9 million in consultant, insurance and other professional service expenses primarily related to becoming a public company.

Interest and other income, net

Interest and other income, net was $1.2 million and $0.8 million for the years ended November 30, 2020 and 2019, respectively.

The increase was primarily related to interest received as part of the tax refund for a carryback claim that we filed in April 2020 in connection with the CARES Act.

Interest and other income, net was $0.8 million, $1.2 million and $0.8 million for the years ended November 30, 2021, 2020 and 2019, respectively.

The decrease during the year ended November 30, 2021, compared to the year ended November 30, 2020, and the increase during the year ended November 30, 2020, compared to the year ended November 30, 2019, was primarily related to interest received in fiscal 2020 related to the tax refund for a carryback claim that we filed in April 2020 in connection with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Other than the interest earned on tax refund, interest and other income, net in all periods is mainly related to interest earned on our deposits, money market funds and investments.

Provision (benefit) for income taxes

The provision for income taxes was a benefit of $20.5 million and an expense of $0.2 million during the years ended November 30, 2020 and 2019, respectively, 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.

Provision for (benefit from) income taxes

The provision for income taxes was an expense of $0.1 million, a benefit of $20.5 million and an expense of $0.2 million during the years ended November 30, 2021, 2020 and 2019, respectively.

The increase during the year ended November 30, 2021, compared to the year ended November 30, 2020, and the decrease during the year ended November 30, 2020, compared to the year ended November 30, 2019, was primarily related to a discrete tax benefit in fiscal 2020, which consists of carryback claims and the reversal of the uncertain tax liability related to research and development tax credits as a result of the CARES Act that was enacted on March 27, 2020 in response to the COVID-19 pandemic.

Liquidity and Capital Resources

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Net proceeds from the IPO and the transaction with the underwriters were approximately $218.1 million, after deducting underwriting discounts and commissions of $16.7 million and expenses of $3.6 million.

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 net proceeds from equity offerings of $536.4 million and proceeds from collaborations of $300.5 million.

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

As of November 30, 2021, we had $432.9 million in cash, cash equivalents and investments.

In March 2020, we closed a sale of our Series D redeemable convertible preferred stock that resulted in net proceeds of $119.9 million.

In December 2019, we entered into the Sanofi Agreement, pursuant to which we received an upfront payment of $55.0 million in January 2020.

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 fiscal 2020, we received $3.5 million under the Gilead Agreement for milestones and additional fees.

Subsequently in January 2021, we received an additional $7.5 million from Gilead for additional milestones.

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 expect that our existing cash, cash equivalents and investments are sufficient to meet our cash requirements and continue operating activities, including the clinical trials of our drug candidates NX‑2127, NX‑1607, NX‑5948 and DeTIL‑0255 and the expansion of our intellectual property portfolio and infrastructure for at least the next 12 months.

We will need substantial additional funding to support our continuing operations and pursue our long-term business plan.

We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements.

Because of the numerous risks and uncertainties associated with the development and commercialization of our 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.

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.

We have a shelf registration statement on Form S-3 on file with the SEC.

This shelf registration statement, which includes a base prospectus, allows us at any time to offer and sell registered common stock, preferred stock, debt securities, warrants, subscriptions rights and or units or any combination of securities described in the prospectus in one or more offerings.

In addition, in August 2021, we entered into an Equity Distribution Agreement with Piper Sandler & Co.

(Piper Sandler) pursuant to which, from time to time, we may offer and sell through Piper Sandler up to $150.0 million of the common stock registered under the shelf registration statement pursuant to one or more “at the market” offerings.

We are not required to sell any shares at any time during the term of the Equity Distribution Agreement.

We agreed to pay Piper Sandler a commission of 3% of the gross sales price of any shares sold pursuant to the Equity Distribution Agreement.

As of November 30 , 2021, we have not sold any shares of common stock pursuant to the Equity Distribution Agreement and $150.0 million in shares remained available under the Equity Distribution Agreement.

Unless otherwise specified in a prospectus supplement accompanying the base prospectus, we intend to use the net proceeds from the sale of any securities offered pursuant to the shelf registration statement for general corporate purposes, which may include funding research, clinical and process development, increasing our working capital, reducing indebtedness, acquisitions or investments in businesses, products or technologies that are complementary to our own and capital expenditures.

Pending such uses, we may invest the net proceeds in marketable securities that may include investment-grade interest-bearing securities, money market accounts, certificates of deposit, commercial paper and guaranteed obligations of the U.S.

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 progress, costs and results of our planned and ongoing Phase 1 clinical trials for our lead drug candidates NX-2127, NX-1607, NX-5948 and DeTIL-0255, and any future clinical development of such drug candidates;

the scope, progress, costs and results of preclinical and clinical development for our other drug candidates and development programs;

the number and development requirements of other drug candidates that we pursue;

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

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

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

the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our drug candidates for which we receive marketing approval;

the revenue, if any, received from commercial sales of our drug candidates for which we receive marketing approval;

the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

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.

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Cash provided by financing activities

Net increase in cash, cash equivalents and

restricted cash

Net (decrease) increase in cash, cash equivalents

and restricted cash

Operating activities

Net cash used in operating activities was $84.4 million for the year ended November 30, 2021 and consisted of a decrease in net assets of $9.1 million and non-cash adjustments of $23.7 million, offset by our net loss of $117.2 million.

The decrease in net assets consisted primarily of a decrease in contract assets of $7.5 million related to proceeds received for Gilead milestones, an increase in deferred revenue of $6.8 million primarily related to proceeds received pursuant to the Sanofi agreement, an increase in accrued expenses and other liabilities of $6.2 million primarily related to an increase in accrued compensation from higher incentive compensation and an increase in accrued contract research and lab supplies due to the growth in clinical development for our lead drug candidates and a decrease in income tax receivable of $3.6 million related to the collection of the NOL carryback claims as a result of the CARES Act.

The decrease in net assets was offset by an increase in accounts receivable of $6.0 million related to a Gilead research milestone, an increase in prepaid expenses and other assets of $5.4 million primarily related to an increase in prepaid clinical costs and a decrease in operating lease liabilities of $5.1 million due to payments made on operating leases.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $15.8 million, amortization of operating lease right-of-use assets of $3.3 million and depreciation and amortization expenses of $2.8 million.

Net cash used in operating activities was $0.1 million for the year ended November 30, 2020 and consisted of a decrease in net assets of $36.4 million and non-cash adjustments of $6.8 million, offset by our net loss of $43.2 million.

The decrease in net assets consisted primarily of an increase in deferred revenue of $48.2 million related to proceeds received pursuant to the Sanofi Agreement and offset by revenue recognized pursuant to the Sanofi Agreement and the Gilead Agreement.

The decrease in net assets was offset by an increase in contract assets of $7.5 related to unbilled revenue for Gilead milestones and an increase in income tax receivables of $3.9 million related to NOL carryback claims as a result of the CARES Act.

The decrease in net assets was offset by an increase in contract assets of $7.5 million related to unbilled revenue for Gilead milestones and an increase in income tax receivables of $3.9 million related to NOL carryback claims as a result of the CARES Act.

Non-cash adjustments primarily consisted of stock-based compensation expenses of $4.3 million and depreciation and amortization expenses of $2.2 million.

Net cash provided by operating activities was $0.6 million for the year ended November 30, 2019 and consisted of a decrease in net assets of $19.5 million and non-cash adjustments of $2.8 million, offset by our net loss of $21.7 million.

The decrease in net assets consisted primarily of an increase in deferred revenue of $16.9 million related to $48.0 million in proceeds received pursuant to the Gilead Agreement and offset by $31.1 million in revenue recognized pursuant to the Celgene Agreement and the Gilead Agreement and an increase in accrued and other liabilities of $2.4 million primarily related to an increase in accrued compensation from higher incentive compensation.

The decrease in net assets consisted primarily of an increase in deferred revenue of $16.9 million related to $48.0 million in proceeds received pursuant to the Gilead Agreement and offset by $31.1 million in revenue recognized pursuant to the Celgene Agreement and the Gilead Agreement and an increase in accrued expenses and other liabilities of $2.4 million primarily related to an increase in accrued compensation from higher incentive compensation.

Non-cash adjustments primarily consisted of depreciation and amortization expenses of $2.4 million.

Investing activities

Net cash used in investing activities was $254.4 million for the year ended November 30, 2020 and consisted primarily of the purchase of investments of $275.2 million and purchases of property and equipment of $4.6 million, offset by the maturity of investments of $25.4 million.

Net cash used in investing activities was $108.3 million for the year ended November 30, 2021 and consisted of the purchase of investments of $348.5 million and purchases of property and equipment of $5.7 million, offset by the maturity of investments of $238.9 million and the sale of investments of $7.0 million.

Net cash used in investing activities was $254.4 million for the year ended November 30, 2020 and consisted of the purchase of investments of $275.2 million and purchases of property and equipment of $4.6 million, offset by the maturity of investments of $25.4 million.

Net cash provided by investing activities was $8.5 million for the year ended November 30, 2019 and consisted primarily of maturities of investments of $19.5 million, offset by the purchase of investments of $9.4 million.

Financing activities

Net cash provided by financing activities was $339.0 million for the year ended November 30, 2020 and consisted primarily of net proceeds from issuance of common stock related to our IPO in July 2020 and the sale of our Series D redeemable convertible preferred stock in March 2020.

Net cash provided by financing activities was $0.1 million for the year ended November 30, 2019 and consisted primarily of proceeds from the exercise of stock options of $0.1 million.

Net cash provided by financing activities was $153.9 million for the year ended November 30, 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 $339.0 million for the year ended November 30, 2020 and consisted primarily of net proceeds from issuance of common stock in July and August 2020 related to our IPO and the sale of our Series D redeemable convertible preferred stock in March 2020.

Net cash provided by financing activities was $0.1 million for the year ended November 30, 2019 and consisted primarily of proceeds from the exercise of stock options.

Contractual Obligations and Other Commitments

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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.

Emerging Growth Company and Smaller Reporting Company Status

We are an “emerging growth company” 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;

(ii) provide all of the compensation disclosure that may be required of non-EGCs 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.

Quantitative and Qualitat ive Disclosures About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

Information About Segments

We currently operate in a single business segment.

See additional information in our financial statements contained in Part II, Item 8 of this Annual Report.

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-K

Item 7. Management’s Discussion and Analysis