Nurix Therapeutics, Inc. 10-Q

Item 1. Financial Statements NURIX THERAPEUTICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (unaudited) February 28, 2022 November 30, 2021 Assets Current assets: Cash and cash equivalents $ 78,780 $ 80,506 Short-term investments 183,198 215,214 Accounts receivable 6,000 6,000 Contract assets 2,000 — Income tax receivable 204 204 Prepaid expenses and other current assets 10,302 9,194 Total current assets 280,484 311,118 Long-term investments 123,685 137,189 Operating lease right-of-use assets 15,872 14,005 Property and equipment, net 13,522 11,340 Restricted cash 901 286 Other assets 3,256 2,833 Total assets $ 437,720 $ 476,771 Liabilities and stockholdersʼ equity Current liabilities: Accounts payable $ 6,014 $ 6,650 Accrued expenses and other current liabilities 11,419 14,549 Operating lease liabilities, current 5,430 3,847 Deferred revenue, current 43,186 41,212 Total current liabilities 66,049 66,258 Operating lease liabilities, net of current portion 10,326 9,189 Deferred revenue, net of current portion 55,428 59,022 Total liabilities 131,803 134,469 Commitments and contingencies (Note 6) Stockholdersʼ equity: Preferred stock, $ 0.001 par value— 10,000,000 shares authorized as of February 28, 2022 and November 30, 2021; no shares issued and outstanding as of February 28, 2022 and November 30, 2021 — — Common stock, $ 0.001 par value— 500,000,000 shares authorized as of February 28, 2022 and November 30, 2021; 44,853,448 and 44,664,371 shares issued and outstanding as of February 28, 2022 and November 30, 2021, respectively 45 45 Additional paid-in capital 571,363 563,757 Accumulated other comprehensive income (loss) ( 2,066 ) ( 608 ) Accumulated deficit ( 263,425 ) ( 220,892 ) Total stockholdersʼ equity 305,917 342,302 Total liabilities and stockholdersʼ equity $ 437,720 $ 476,771 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 1 NURIX THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (unaudited) Three Months Ended February 28, 2022 2021 Collaboration revenue $ 9,621 $ 5,011 Operating expenses: Research and development 43,137 23,003 General and administrative 9,228 6,530 Total operating expenses 52,365 29,533 Loss from operations ( 42,744 ) ( 24,522 ) Interest and other income, net 211 318 Loss before income taxes ( 42,533 ) ( 24,204 ) Provision for income taxes — 71 Net loss $ ( 42,533 ) $ ( 24,275 ) Net loss per share, basic and diluted $ ( 0.95 ) $ ( 0.63 ) Weighted-average number of shares outstanding, basic and diluted 44,693,812 38,777,258 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 NURIX THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) (unaudited) Three Months Ended February 28, 2022 2021 Net loss $ ( 42,533 ) $ ( 24,275 ) Other comprehensive loss, net of tax: Unrealized loss on available-for-sale investments ( 1,458 ) ( 38 ) Total comprehensive loss $ ( 43,991 ) $ ( 24,313 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 NURIX THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (in thousands, except share amounts) (unaudited) Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Shares Amount capital income (loss) deficit equity Balance as of November 30, 2020 38,864,872 $ 39 $ 393,841 $ 87 $ ( 103,698 ) $ 290,269 Exercise of stock options 190,825 — 394 — — 394 Repurchase of unvested early exercised stock options ( 971 ) — — — — — Vesting of early-exercised stock options — — 40 — — 40 Issuance under employee stock purchase plan 64,589 — 1,043 — — 1,043 Stock-based compensation — — 2,700 — — 2,700 Unrealized loss on available-for-sale investments — — — ( 38 ) — ( 38 ) Net loss — — — — ( 24,275 ) ( 24,275 ) Balance as of February 28, 2021 39,119,315 $ 39 $ 398,018 $ 49 $ ( 127,973 ) $ 270,133 Common stock Additional paid-in Accumulated other comprehensive Accumulated Total stockholders’ Shares Amount capital income (loss) deficit equity Balance as of November 30, 2021 44,664,371 $ 45 $ 563,757 $ ( 608 ) $ ( 220,892 ) $ 342,302 Exercise of stock options 117,870 — 424 — — 424 Vesting of early-exercised stock options — — 47 — — 47 Issuance under employee stock purchase plan 71,207 — 1,064 — — 1,064 Stock-based compensation — — 6,071 — — 6,071 Unrealized loss on available-for-sale investments — — — ( 1,458 ) — ( 1,458 ) Net loss — — — — ( 42,533 ) ( 42,533 ) Balance as of February 28, 2022 44,853,448 $ 45 $ 571,363 $ ( 2,066 ) $ ( 263,425 ) $ 305,917 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 NURIX THERAPEUTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Three Months Ended February 28, 2022 2021 Cash flows from operating activities Net loss $ ( 42,533 ) $ ( 24,275 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 991 643 Stock-based compensation 6,071 2,700 Net amortization (accretion) of premium (discount) on investments 542 222 Amortization of operating lease right-of-use assets 1,262 742 Changes in operating assets and liabilities: Contract assets ( 2,000 ) 7,500 Income tax receivable — ( 135 ) Prepaid expenses and other assets ( 1,514 ) 1,335 Accounts payable ( 103 ) 899 Deferred revenue ( 1,620 ) 16,990 Operating lease liabilities ( 408 ) ( 737 ) Accrued expenses and other liabilities ( 3,318 ) 2,169 Net cash (used in) provided by operating activities ( 42,630 ) 8,053 Cash flows from investing activities Purchases of investments ( 15,245 ) ( 47,742 ) Maturities of investments 58,748 46,198 Purchases of property and equipment ( 3,472 ) ( 843 ) Net cash (used in) provided by investing activities 40,031 ( 2,387 ) Cash flows from financing activities Proceeds from exercise of stock options 424 317 Proceeds from issuance under employee stock purchase plan 1,064 1,043 Repurchase of unvested early exercised stock options — ( 1 ) Net cash provided by financing activities 1,488 1,359 Net (decrease) increase in cash, cash equivalents and restricted cash ( 1,111 ) 7,025 Cash, cash equivalents and restricted cash at beginning of period 80,792 119,526 Cash, cash equivalents and restricted cash at end of period $ 79,681 $ 126,551 Supplemental disclosures of non-cash investing and financing activities: Additions to property and equipment included in accounts payable and accrued expenses and other liabilities $ 2,207 $ 668 Vesting of early exercised stock options $ 47 $ 40 Deferred offering costs included in accounts payable and accrued liabilities $ — $ 343 As of February 28, 2022 2021 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 78,780 $ 126,381 Restricted cash 901 170 Total cash, cash equivalents and restricted cash $ 79,681 $ 126,551 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 NURIX THERAPEUTICS, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Description of Business Nurix Therapeutics, Inc. (the Company) previously known as Nurix, Inc., was incorporated in the state of Delaware on August 27, 2009 and is headquartered in San Francisco, California. The Company is a clinical stage biopharmaceutical company focused on the discovery, development and commercialization of small molecule and cell therapies based on the modulation of cellular protein levels as a novel treatment approach for cancer and other challenging diseases. Leveraging the Company’s expertise in E3 ligases together with its proprietary DNA-encoded libraries, the Company has 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. The Company’s 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 to treat disease. Initial Public Offering On July 23, 2020, the Company’s registration statement on Form S-1 (File No. 333-239651) relating to its initial public offering (IPO) of common stock became effective. The IPO closed on July 28, 2020 at which time the Company 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 the Company’s common stock on July 31, 2020, and this transaction closed on August 4, 2020. Immediately prior to the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock automatically converted into 22,245,251 shares of common stock. Net proceeds from the IPO were $ 218.1 million, after deducting underwriting discounts and commissions of $ 16.7 million and expenses of $ 3.6 million. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding. In connection with the closing of the IPO, the Company restated its Restated Certificate of Incorporation to change the authorized capital stock to 500,000,000 shares designated as common stock, and 10,000,000 shares designated as preferred stock, all with a par value of $ 0.001 per share. Follow-on Offering In March 2021, the Company completed a follow-on offering and issued 5,175,000 shares of 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 $ 150.2 million, after deducting underwriting discounts and commissions of $ 9.6 million and expenses of $ 0.6 million. Equity Distribution Agreement In August 2021, the Company filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission (SEC). This shelf registration statement, which includes a base prospectus, allows the Company 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, the Company entered into an Equity Distribution Agreement with Piper Sandler & Co. (Piper Sandler) pursuant to which, from time to time, the Company 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. The Company is no t required to sell any shares at any time during the term of the Equity Distribution Agreement. The Company 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 February 28, 2022, the Company has 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. Liquidity and Management Plans The Company’s operations have historically been financed through the issuance of common and redeemable convertible preferred stock and proceeds received under the Company’s collaboration and license agreements. Since inception, the Company has generally incurred significant losses and negative net cash flows from operations. During the three months ended February 28, 2022, the Company incurred a net loss of $ 42.5 million and had negative net cash flows from operating activities of $ 42.6 million. The Company had an accumulated deficit of $ 263.4 million as of February 28, 2022 and will require substantial additional capital for research and development activities. The Company anticipates incurring additional losses until such time, if ever, that it can generate significant sales of its drug candidates currently in development. As of February 28, 2022, the Company had cash, cash equivalents and investments of $ 385.7 million. 6 Management believes that its cash, cash equivalents and investments are sufficient to continue operating activities for at least 12 months following the issuance date of these condensed consolidated financial statements. Future capital requirements will depend on many factors, including the timing and extent of spending on research and development and payments the Company may receive under its collaboration agreements with Sanofi S.A. (Sanofi) and Gilead Sciences, Inc. (Gilead) or future collaboration agreements, if any. There can be no assurance that, in the event the Company requires additional financing, such financing will be available at terms acceptable to the Company if at all. If additional capital is not available, failure to generate sufficient cash flows from operations, raise additional capital and reduce discretionary spending could have a material adverse effect on the Company’s ability to achieve its intended business objectives. 2. Summary of Significant Accounting Policies Basis of Presentation The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and applicable rules and regulations of the SEC regarding interim financial reporting. The Company’s condensed consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair statement of the Company’s financial position as of and for the three months ended February 28, 2022. The condensed consolidated balance sheet as of November 30, 2021 was derived from the audited annual financial statements as of that date. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted from these interim financial statements. These interim financial statements and related disclosures have been prepared with the presumption that users of the interim financial statements have read or have access to the audited annual financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited annual financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended November 30, 2021, as filed with the SEC. These interim results are not necessarily indicative of results to be expected for the full fiscal year or any future interim period. Principles of Consolidation The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, including DeCART Therapeutics Inc. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to the useful lives of long-lived assets, the measurement of stock-based compensation, accruals for research and development activities, income taxes and revenue recognition. The Company bases its estimates on historical experience and on other relevant assumptions that are reasonable under the circumstances. Actual results could materially differ from those estimates. Refer to Note 3 for more information regarding the estimates related to revenue recognition. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents and investments. The Company’s investments consist of debt securities issued by highly rated corporate entities, the U.S. federal government or state and local governments. The Company’s exposure to any individual corporate entity is limited by policy. Deposits may, at times, exceed federally insured limits. The Company invests its cash equivalents in highly rated money market funds. During the periods presented, the Company has not experienced any losses on its deposits of cash, cash equivalents or investments. Other Risks and Uncertainties The Company is subject to a number of risks similar to other clinical stage biopharmaceutical companies, including, but not limited to, changes in any of the following areas that the Company believes could have a material adverse effect on its future financial position or results of operations: risks related to the successful discovery and development of its drug candidates, ability to raise additional capital, development of new technological innovations by its competitors and delay or inability to obtain drug substance and finished drug product from the Company’s third-party contract manufacturers necessary for the Company’s drug candidates, including due to the impact of the current coronavirus (COVID-19) pandemic, protection of intellectual property rights, litigation or claims against the Company based on intellectual property rights and regulatory clearance and market acceptance for any of the Company’s products candidates for which the Company receives marketing approval. 7 Moreover, the current COVID-19 pandemic, which is impacting worldwide economic activity, poses the risk that the Company or its 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. The extent to which the COVID-19 pandemic will impact the Company’s business will depend on future developments that are highly uncertain and cannot be predicted at this time. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s financial statements is highly uncertain and subject to change. Management considered the potential impact of the COVID-19 pandemic on its estimates and assumptions and there was not a material impact to the Company’s condensed consolidated financial statements as of and for the three months ended February 28, 2022; however, actual results could differ from those estimates and there may be changes to management’s estimates in future periods. The Company relies on single source manufacturers and suppliers for the supply of its drug candidates. Disruption from these manufacturers or suppliers would have a negative impact on the Company’s business, financial position and results of operations. Leases The Company determines if an arrangement contains a lease at inception. Lease right-of-use (ROU) assets, current lease liabilities and long-term lease liabilities are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term at the commencement date. ROU assets also include any initial direct costs incurred and any lease payments made on or before the lease commencement date, less lease incentives received. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as the Company’s leases generally do not provide an implicit rate. The incremental borrowing rate, the ROU asset and the lease liability are reevaluated upon a lease modification. The Company determines its incremental borrowing rate based on the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term, in an amount equal to the lease payments in a similar economic environment. Lease terms may include options to extend or terminate the lease when the Company is reasonably certain that the option will be exercised. Lease expense for operating leases is recognized on a straight-line basis over the lease term. The Company does not have any finance leases. The Company elected to apply each of the practical expedients described in Topic 842 which allow companies (i) not to reassess prior conclusions on whether any expired or existing contracts are or contain a lease, lease classification, and initial direct costs, (ii) combine lease and non-lease components for all underlying assets groups, and (iii) not recognize ROU assets or lease liabilities for short-term leases. A short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise. Revenue Recognition The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To recognize revenue from a contract with a customer, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses the goods or services promised within each contract, whether each promised good or service is distinct, and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied. The Company enters into collaboration agreements under which it may obtain upfront payments, milestone payments, royalty payments and other fees. Promises under these arrangements may include research licenses, research services, including selection campaign research services for certain replacement targets, the obligation to share information during the research and the participation of alliance managers and in joint research committees, joint patent committees and joint steering committees. The Company assesses these promises within the context of the agreements to determine the performance obligations. 8 Research and collaboration licenses: If a license is determined to be distinct from the other promises identified in the arrangement, the Company recognizes revenue from upfront payments allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, upfront payments. The Company evaluates the measure of proportional performance each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Milestone payments: At the inception of each arrangement that includes research, development, or regulatory milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. The Company uses the most likely amount method for research, development and regulatory milestone payments. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. If it is probable that a significant revenue reversal would not occur, the associated milestone amount is included in the transaction price. Sales-based milestones and royalties: For arrangements that include sales-based milestone or royalty payments based on the level of sales, and in which the license is deemed to be the predominant item to which the sales-based milestone or royalties relate to, the Company recognizes revenue in the period in which the sales-based milestone is achieved and in the period in which the sales associated with the royalty occur. To date, the Company has not recognized any sales-based milestone or royalty revenue resulting from its collaboration arrangements. Customer options: Customer options, such as options granted to allow a licensee to extend a license or research term, to select additional research targets or to choose to research, develop and commercialize licensed compounds are evaluated at contract inception to determine whether those options provide a material right (i.e., an optional good or service offered for free or at a discount) to the customer. If the customer options represent a material right, the material right is treated as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the standalone selling price. As a practical alternative to estimating the standalone selling price of a material right when the underlying goods or services are both (i) similar to the original goods or services in the contract and (ii) provided in accordance with the terms of the original contract, the Company allocates the total amount of consideration expected to be received from the customer to the total goods or services expected to be provided to the customer. Amounts allocated to any material right are recognized as revenue when or as the related future goods or services are transferred or when the option expires. Deferred revenue, which is a contract liability, represents amounts received by the Company for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount to be recognized within one year from the condensed consolidated balance sheet date based on the estimated performance period of the underlying performance obligation. The noncurrent portion of deferred revenue represents amounts to be recognized after one year through the end of the performance period of the performance obligation. Recently Adopted Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) No. 2019‑12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes (ASU 2019-12), which is intended to simplify accounting for income taxes and eliminate certain exceptions from Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also requires the amount of tax that is based on income to be accounted for under Topic 740 as an income-based tax, with any incremental amount accounted for as a non-income-based tax recognized entirely in the period incurred. The Company adopted ASU 2019-12 as of December 1, 2021 using the modified retrospective method, and recognized an immaterial non-income-based tax within operating expenses in the current period. The adoption had no other impact on the Company’s condensed consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02), which requires the lessee to recognize a ROU asset and a lease liability for operating leases, initially measured at the present value of lease payments, in its consolidated balance sheet. On November 30, 2021, the Company adopted ASU 2016-02 using the alternative modified transition method effective as of December 1, 2020. As a result, the Company has retrospectively changed its previously issued condensed consolidated financial statements as of February 28, 2021 and for the three months ended February 28, 2021 as presented in its February 28, 2021 Quarterly Report on Form 10-Q to reflect the adoption of Topic 842 on December 1, 2020 . The condensed consolidated financial statements for the three months ended February 28, 2021 presented herein differ from the Company’s condensed consolidated financial statements included in its February 28, 2021 Quarterly Report on Form 10-Q, as those financial statements were prepared using the former accounting standard referred to as ASC Topic 840, Leases . 9 The following table summarizes the effect of the adoption of Topic 842 on the condensed consolidated balance sheet as of December 1, 202 0 (in thousands): As Previously Reported Impact of Topic 842 Adoption As Adjusted Assets Operating lease right-of-use assets — 13,343 13,343 Liabilities Operating lease liabilities, current — 3,342 3,342 Operating lease liabilities, net of current portion — 10,903 10,903 Accrued and other current liabilities 8,328 ( 52 ) 8,276 Other long-term liabilities 850 ( 850 ) — The following table summarizes the effect of the adoption of Topic 842 on the condensed consolidated statement of cash flows for the three months ended February 28, 2021 (in thousands): As Previously Reported Impact of Topic 842 Adoption As Adjusted Cash flows from operating activities Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of operating lease right-of-use assets — 742 742 Changes in operating assets and liabilities: Operating lease liabilities — ( 737 ) ( 737 ) Accrued expenses and other liabilities 2,174 ( 5 ) 2,169 3. Collaboration Agreements Gilead In June 2019, the Company 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 the Company’s DELigase platform to identify novel agents that utilize E3 ligases to induce degradation of five specified drug targets. Under the Gilead Agreement, Gilead has the option to license drug candidates directed to up to five targets resulting from the collaboration and is responsible for the clinical development and commercialization of drug candidates resulting from the collaboration. The Company retains the option to co-develop and co-promote, under a profit share structure, up to two drug candidates in the United States, provided that the Company may only exercise such option once per licensed product and Gilead retains the right to veto the Company’s option selection for any one drug candidate of its choice. The collaboration excludes the Company’s current internal protein degradation programs for which the Company retains all rights, and also excludes the Company’s future internal programs, provided that the Company has 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, the Company is 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. The Company has 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 the Company exercises its co-development and co-promotion option. For those programs that the Company exercises its option to co-develop and co-promote, the Company and Gilead will split U.S. development costs as well as U.S. profits and losses evenly, and the Company will be eligible to receive royalties on net ex-U.S. sales and reduced milestone payments. Upon signing the Gilead Agreement, Gilead paid the Company an upfront payment of $ 45.0 million plus $ 3.0 million in additional fees. In addition, from the signing of the Gilead Agreement to February 28, 2022, the Company has received payments of $ 24.5 million for research milestones and additional payments. Additionally, the Company recognized a research milestone in February 2022 and received a payment of $ 6.0 million in the second fiscal quarter of 2022. The Company is eligible to receive up to approximately $ 2.3 billion in total additional payments, including up to $ 671.5 million upon the achievement of specified development milestones, up to $ 1.5 billion upon the achievement of specified sales milestones, subject to reduction for any product for which the Company exercises its option to co-develop and co-promote, and up to $ 139.8 million in certain additional fees related to target licensing, reservation and selection and research term extensions. In addition, the Company is 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 the Company exercises its option to co-develop and co-promote, for which the Company and Gilead share profits and losses evenly. 10 Subject to earlier expiration in certain circumstances, the Gilead Agreement expires on a licensed product-by-licensed product and country-by-country basis upon the later of (1) the expiration of the last to expire patent with a valid claim covering the applicable licensed product in the applicable country, (2) the expiration of any regulatory exclusivity for the applicable licensed product in the applicable country or (3) ten years after the first commercial sale of the applicable licensed product in the applicable country covered by the Gilead Agreement, provided that the term for any profit-shared licensed product in the United States will expire upon the expiration or termination of the applicable profit-share term as set forth in an applicable profit-share agreement to be negotiated upon the Company’s exercise of its option to co-develop and co-promote such licensed product. If Gilead does not exercise an option to license a drug candidate, then the Gilead Agreement will terminate at the end of the last to expire option period. The Company identified the following promises in the Gilead Agreement: (1) the research licenses, (2) the research services, including selection campaign research services for certain replacement targets and (3) the obligation to share information during the research and to participate in the joint research committee and joint steering committee. The Company determined that the research licenses are not capable of being distinct due to the specialized nature of the research services to be provided by the Company, and, accordingly, this promise was combined with the research services and participation in the joint research committee as one single performance obligation. The Company concluded that, at the inception of the Gilead Agreement, Gilead’s options to obtain an exclusive development, manufacturing and commercialization license for each collaboration target, to extend the five-year research term and to perform selection campaign research services for certain replacement targets do not represent material rights and are not considered performance obligations because they do not contain a significant and incremental discount. The Company concluded that Gilead’s target reservation right is not a performance obligation as it does not require any specific action from the Company and it is rather an exclusivity right and an attribute of other performance obligations in the Gilead Agreement, such as the research licenses. In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. Certain milestones and additional fees were considered variable consideration, which were not included in the transaction price based on the most likely amount method as of February 28, 2022. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. The Company determined that the transaction price at the inception of the Gilead Agreement consists of the upfront payment of $ 45.0 million and $ 3.0 million in additional fees. Upon the achievement of research milestones and additional fees related to target reservations, $ 30.5 million in variable consideration was added to the transaction price, and a cumulative effect was recorded as revenue in the period the transaction price increased. The transaction price is recognized as collaboration revenue using the cost-based input method over the estimated contract term of five years . The contract term was determined to be the five-year initial research term which represents the estimated timing of completion of the identified deliverables. Additionally, the Company considered the impact of Gilead terminating the agreement prior to the completion of the research services during the initial five-year research term and determined that there were significant economic costs to Gilead for doing so, and as such, did not adjust the contract term. Using the cost-based input method, which the Company determined most faithfully depicts the transfer of its performance obligation to Gilead, the Company recognizes revenue based on actual costs incurred as a percentage of total estimated costs as the Company completes its performance obligation under the contract. Costs consist primarily of internal full-time employee (FTE) and third-party contract costs related to the Gilead Agreement. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligation is recorded in the period in which changes are identified and amounts can be reasonably estimated. Total estimated costs are primarily driven by the number of estimated FTEs, which requires significant management judgment. For the three months ended February 28, 2022, the Company recognized collaboration revenue related to the Gilead Agreement of $ 6.2 million, of which $ 3.3 million was included in deferred revenue as of November 30, 2021, and $ 2.5 million was related to activities satisfied in previous periods. For the three months ended February 28, 2021, the Company recognized collaboration revenue related to the Gilead Agreement of $ 2.7 million, all of which was included in deferred revenue as of November 30, 2020, and $ 0.5 million was related to activities satisfied in previous periods. Deferred revenue related to the Gilead Agreement was $ 40.9 million, of which $ 19.8 million was current, as of February 28, 2022, and $ 41.1 million, of which $ 19.9 million was current, as of November 30, 2021. Additionally, as of both February 28, 2022 and November 30, 2021, $ 6.0 million was recorded in accounts receivable representing the billed amount related to the research milestones recognized in February 2022 and November 2021. 11 Sanofi In December 2019, the Company 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 the Company’s 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 agreement, Sanofi paid the Company $ 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. In January 2021, the Company and Sanofi entered into a first amendment to the collaboration agreement to modify the research term on all targets (the First Sanofi Amendment) . Over time and subject to certain limitations, Sanofi may elect to replace the drug targets with other reserved targets. In December 2021, the Company and Sanofi entered into a second amendment to the collaboration agreement to extend the substitution deadline on certain 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 the Company retains the option to co-develop, co-promote and co-commercialize up to two targets, one of which must be selected from a list of targets designated at the execution of the Sanofi Agreement and one of which must be selected from targets identified by Sanofi in the future. The Company’s right to exercise its option to co-develop, co-promote and co-commercialize a given target is dependent on its ability to demonstrate, within a given timeframe, that it has sufficient cash resources and personnel to commercialize the product. The collaboration excludes the Company’s current internal protein degradation programs for which it retains all rights, and also excludes future internal programs, provided that the Company distinguished future programs as excluded from the scope of the collaboration. For drug targets that are subject to the collaboration, the Company has 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. The Company is obligated to use commercially reasonable efforts to identify relevant target binders and chimeric targeting molecules 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 the Company exercises its co-development and co-promotion option. For those programs that the Company exercises its option to co-develop, co-promote and co-commercialize, the Company will be responsible for a portion of the U.S. development costs, and the parties will split U.S. profits and losses evenly and the Company will be eligible to receive royalties on ex-U.S. net sales and reduced milestone payments on such optioned products. Upon signing the Sanofi Agreement, Sanofi paid the Company an upfront payment of $ 55.0 million. Subsequently, in January 2021, Sanofi paid the Company an additional $ 22.0 million to exercise its option to expand the number of targets beyond the initial targets included in the collaboration. The Company is eligible to receive additional payments if Sanofi exercises an option to extend the license term with respect to a particular target. From the signing of the Sanofi Agreement to February 28, 2022, the Company has received a payment of $ 1.0 million for a research milestone. Additionally, the Company recognized another research milestone in February 2022 and anticipates a payment of $ 2.0 million in the second fiscal quarter of 2022. The Company is eligible to receive up to approximately $ 2.5 billion in total additional payments, including payments of up to $ 497.0 million upon the achievement of specified development milestones, up to $ 625.0 million upon the achievement of specified regulatory milestones and up to $ 1.3 billion upon the achievement of certain sales milestones, as well as up to $ 131.8 million in certain additional fees related to target licensing and reservation. In addition, the Company is eligible to receive 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 the Company exercises its option to co-develop and co-promote, for which the parties share profits and losses evenly. Subject to earlier expiration in certain circumstances, the Sanofi Agreement expires on a licensed product-by-licensed product or profit-shared licensed product-by-profit-shared licensed product basis and country-by-country basis upon on the later of the expiration of (i) the last-to-expire patent with a valid claim covering the applicable licensed product in the applicable country, (ii) the expiration of any regulatory exclusivity for the applicable licensed product in the applicable country or (iii) ten years after the first commercial sale of the applicable licensed product in the applicable country covered by the Sanofi Agreement. The Company identified the following promises in the Sanofi Agreement: (1) the research licenses, (2) the research services, (3) the obligation to share information during the research term and (4) the participation of alliance managers in the joint research committee and joint patent committee. The Company determined that the research licenses are not capable of being distinct due to the specialized nature of the research services to be provided by the Company, and, accordingly, this promise was combined with the research services as one single performance obligation. The Company also determined that Sanofi’s exclusive right to add up to two additional targets constitutes a material right as it represents a significant and incremental discount that Sanofi would not have received without entering into the Sanofi Agreement. The option to extend the license term does not represent a material right because it does not contain a significant and incremental discount. 12 In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. Milestone and additional fees were considered variable consideration, which were not included in the transaction price based on the most likely amount method as of February 28, 2022. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur. At the inception of the Sanofi Agreement, the Company determined that the transaction price consists of the upfront payment of $ 55.0 million. To account for the material right related to the two additional targets, instead of determining the standalone selling price for the option directly, the Company applied the practical alternative to allocating the transaction price by determining the consideration that it expects to receive in exchange for the research activities that it expects to provide on the two additional targets for a total of five targets. The practical alternative can be applied as the research activities for the two additional targets are similar to the research activities for the initial three targets. Consequently, for the purpose of applying the practical alternative to estimating the standalone selling price of the material right, an expected consideration of $ 77.0 million was used for revenue recognition allocation, which represents the $ 55.0 million paid upfront for the three initial drug targets, and the $ 22.0 million for the additional consideration related to two additional targets, which was included as part of applying the practical alternative, which was subsequently exercised by Sanofi. Subsequently, upon the achievement of research milestones, $ 3.0 million in variable consideration was added to the transaction price, and a cumulative effect was recorded as revenue in the period the transaction price increased. Revenue is recognized over the research term of 4.25 years, the revised research period that was agreed to in January 2021 in the First Sanofi Amendment, using the cost-based input method. Using the cost-based input method, which the Company determined most faithfully depicts the transfer of its performance obligation to Sanofi, the Company recognizes revenue based on actual costs incurred as a percentage of total estimated costs as the Company completes its performance obligation under the contract. Costs consist primarily of internal FTE and third-party contract costs related to the Sanofi Agreement. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligation is recorded in the period in which changes are identified and amounts can be reasonably estimated. Total estimated costs are primarily driven by the number of estimated FTEs, which requires significant management judgment. The Company 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. The contract modification did not have an effect on the contract transaction price. The effect of the revised research period on the Company’s 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. For the three months ended February 28, 2022, the Company recognized collaboration revenue related to the Sanofi Agreement of $ 3.4 million, of which $ 2.9 million was included in deferred revenue as of November 30, 2021 and $ 0.4 million was related to activities satisfied in previous periods. For the three months ended February 28, 2021, the Company recognized collaboration revenue related to the Sanofi Agreement of $ 2.3 million, all of which was included in deferred revenue as of November 30, 2020. Deferred revenue related to the Sanofi Agreement was $ 57.7 million, of which $ 23.4 million was current, as of February 28, 2022, and $ 59.2 million, of which $ 21.3 million was current, as of November 30, 2021. Additionally, as of February 28, 2022, $ 2.0 million was recorded as contract assets representing the unbilled amount related to the research milestone recognized in February 2022. 4. Condensed Consolidated Balance Sheet Components Property and Equipment, Net Property and equipment, net, consisted of the following (in thousands): February 28, November 30, 2022 2021 Laboratory equipment $ 20,667 $ 18,321 Leasehold improvements 3,299 3,083 Computer equipment 544 538 Furniture and fixtures 437 437 Software 4,005 3,349 Software in progress 277 491 Total property and equipment, gross 29,229 26,219 Less: Accumulated depreciation and amortization ( 15,707 ) ( 14,879 ) Total property and equipment, net $ 13,522 $ 11,340 Depreciation and amortization expense was $ 1.0 million and $ 0.6 million for the three months ended February 28, 2022 and 2021, respectively. All long-lived assets are maintained in the United States. 13 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following (in thousands): February 28, November 30, 2022 2021 Accrued compensation $ 4,004 $ 8,854 Accrued contract research and lab supplies 5,581 4,158 Accrued professional services 1,230 803 Accrued taxes 53 75 Other 551 659 Total accrued expenses and other current liabilities $ 11,419 $ 14,549 5. Fair Value Measurements In accordance with the authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Company discloses and recognizes the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows: Level 1—Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date; Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and Level 3—Inputs that are unobservable. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and considers factors specific to the asset or liability. The following tables present the Company’s investments, which consist of cash equivalents and investments classified as available-for-sale investments, that are measured at fair value on a recurring basis as of February 28, 2022 and November 30, 2021 (in thousands): February 28, 2022 Level Amortized cost Unrealized gain Unrealized loss Estimated fair value Money market funds Level 1 $ 75,597 $ — $ — $ 75,597 U.S. treasury securities Level 1 22,046 1 ( 32 ) 22,015 Corporate debt securities Level 2 40,468 — ( 175 ) 40,293 U.S. government agency securities Level 2 16,497 — ( 83 ) 16,414 Corporate commercial paper Level 2 94,450 — — 94,450 Municipal securities Level 2 10,054 — ( 28 ) 10,026 Long-term investments: U.S. treasury securities Level 1 39,943 — ( 472 ) 39,471 Corporate debt securities Level 2 62,068 — ( 877 ) 61,191 U.S. government agency securities Level 2 16,238 — ( 326 ) 15,912 Municipal securities Level 2 7,185 — ( 74 ) 7,111 Total $ 384,546 $ 1 $ ( 2,067 ) $ 382,480 Included in Cash and cash equivalents $ 75,597 $ — $ — $ 75,597 Included in Short-term investments $ 183,515 $ 1 $ ( 318 ) $ 183,198 Included in Long-term investments $ 125,434 $ — $ ( 1,749 ) $ 123,685 14 November 30, 2021 Level Amortized cost Unrealized gain Unrealized loss Estimated fair value Money market funds Level 1 $ 73,438 $ — $ — $ 73,438 U.S. treasury securities Level 1 20,608 — ( 9 ) 20,599 Corporate debt securities Level 2 46,599 1 ( 54 ) 46,546 U.S. government agency securities Level 2 16,496 1 ( 14 ) 16,483 Corporate commercial paper Level 2 121,495 — — 121,495 Municipal securities Level 2 10,082 9 — 10,091 Long-term investments: U.S. treasury securities Level 1 39,932 — ( 85 ) 39,847 Corporate debt securities Level 2 74,334 — ( 365 ) 73,969 U.S. government agency securities Level 2 16,236 — ( 67 ) 16,169 Municipal securities Level 2 7,229 — ( 25 ) 7,204 Total $ 426,449 $ 11 $ ( 619 ) $ 425,841 Included in Cash and cash equivalents $ 73,438 $ — $ — $ 73,438 Included in Short-term investments $ 215,280 $ 11 $ ( 77 ) $ 215,214 Included in Long-term investments $ 137,731 $ — $ ( 542 ) $ 137,189 The accrued interest receivable related to the Company’s investments was $ 0.9 million as of each of February 28, 2022 and November 30, 2021, and was included in prepaid expenses and other current assets on the condensed consolidated balance sheet. The Company classifies its money market funds and U.S. treasury securities, which are valued based on quoted market prices in active markets with no valuation adjustment, as Level 1 assets within the fair value hierarchy. The Company classifies its investments in corporate debt securities, U.S. government agency securities, corporate commercial paper, and municipal securities as Level 2 assets within the fair value hierarchy. The fair values of these investments are estimated by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data and other observable inputs. There were no transfers of financial instruments between valuation levels during the three months ended February 28, 2022 and 2021. As of February 28, 2022 and November 30, 2021, the unrealized losses for available-for-sale investments were non-credit related, and the Company does no t intend to sell the investments that were in an unrealized loss position, nor will it be required to sell those investments before recovery of their amortized cost basis, which may be maturity. As of February 28, 2022 and November 30, 2021, no allowance for credit losses for the Company’s investments was recorded. During the three months ended February 28, 2022 and 2021, the Company did no t recognize any impairment losses related to investments. 6. Commitments and Contingencies Legal Proceedings From time to time, the Company may be involved in legal proceedings in the ordinary course of business. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. Significant judgment is required to determine both probability and the estimated amount. Legal fees and other costs associated with such actions are expensed as incurred. As of February 28, 2022, the Company was not a party to any material legal proceedings. Indemnifications In the ordinary course of business, the Company often includes standard indemnification provisions in its arrangements with its partners, suppliers and vendors, among others. Pursuant to these provisions, the Company may be obligated to indemnify such parties for losses or claims suffered or incurred in connection with its service, breach of representations or covenants, intellectual property infringement or other claims made against such parties. These provisions may limit the time within which an indemnification claim can be made. It is not possible to determine the maximum potential amount under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. The Company has not incurred any material costs as a result of such indemnifications and has not accrued any liabilities related to such obligations in these condensed consolidated financial statements as management believes such liability is immaterial. 15 In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s condensed consolidated financial statements. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements. However, the Company currently has directors’ and officers’ insurance that reduces its exposure and may enable the Company to recover a portion of any future amounts paid. Operating Leases The Company leases office and laboratory facilities in San Francisco, California under a lease agreement. The original lease term was scheduled to end 60 months following the Company’s full occupancy of the leased premises, which occurred in April 2015. In October 2015, the Company entered into a second lease agreement for additional space in the same building as its existing office and laboratory facilities. In November 2017, the Company entered into an amendment to its original lease agreement that combined the Company’s two leases into a single lease agreement and extended the term of the lease agreement through April 30, 2025 . The Company has an option to renew this lease for an additional two years which has not been included in the lease term used to calculate the ROU asset and lease liability as it is not reasonably certain that the Company will exercise this option. The Company is required to pay base rent plus the tenant’s proportionate share of operating expenses as defined in the lease agreement. Under the terms of the lease agreement, the Company paid the landlord security deposits totaling $ 91,000 and issued a letter of credit to the landlord in the amount of $70,000, which is collateralized by a restricted deposit of $ 70,000 . In June 2020, the Company entered into a new lease agreement for additional space in the same building as the Company’s existing office for a 14 -month term ending on July 31, 2021 . In July 2021, the Company entered into a lease agreement for the lease of approximately 19,320 square feet of office space located at 455 Mission Bay Boulevard South, San Francisco, California, for a research and development laboratory and related uses (Mission Bay Lease). The lease commenced on December 1, 2021 and will expire on June 30, 2024 , unless terminated earlier. The minimum rent payable by the Company under the lease will be approximately $ 0.1 million per month and increase by 3 % per year for total minimum rent payments of $ 3.8 million over the lease term. The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating and tax expenses and utilities costs for the building. Under the terms of the lease agreement, the Company issued a letter of credit to the landlord in the amount of $ 0.1 million, which is collateralized by a restricted deposit of $ 0.1 million. Operating lease expenses were $ 1.4 million and $ 0.8 million for the three months ended February 28, 2022 and 2021, respectively. Short-term lease expense was not material for all periods presented. Other information related to leases were as follows (in thousands): Three Months Ended February 28, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Cash flows from operating leases $ 1,317 $ 846 Supplemental disclosures of non-cash investing and financing activities: Right-of-use assets recognized in exchange for lease obligations $ 3,916 $ — The undiscounted future non-cancellable lease payments under the Company’s lease agreements as of February 28, 2022 were as follows (in thousands): Year ending November 30, Operating Leases 2022 (remaining 9 months) $ 4,110 2023 5,592 2024 5,060 2025 1,738 Total undiscounted lease payments 16,500 Less: imputed interest ( 744 ) Total lease liabilities $ 15,756 Operating lease current liabilities $ 5,430 Operating lease long-term liabilities 10,326 Total lease liabilities $ 15,756 16 7. Common Stock The Company’s Restated Certificate of Incorporation authorizes the Company to issue up to 500,000,000 shares of common stock, $ 0.001 par value per share, as of February 28, 2022 and November 30, 2021. Holders of common stock are entitled to dividends when and if declared by the Company’s board of directors, subject to the prior rights of the holders of shares of preferred stock. The holder of each share of common stock is entitled to one vote. As of February 28, 2022, no dividends have been declared. Common stock reserved for future issuance, on an as-if converted basis, as of February 28, 2022 and November 30, 2021, consists of the following: February 28, November 30, 2022 2021 Issuance of options under stock option plan 6,523,560 5,878,552 Shares available for future stock option grants 2,956,884 2,562,570 Shares available for issuance under employee stock purchase plan 1,390,620 1,015,184 Restricted stock units issued and outstanding 649,382 20,000 Total common stock reserved for future issuance 11,520,446 9,476,306 8. Stock-Based Compensation Equity Incentive Plans The Company’s 2020 Equity Incentive Plan (the 2020 Plan) serves as the successor to the Company’s 2012 Equity Incentive Plan (together with the 2020 Plan, the Stock Plans) and provides for the granting of stock options, stock appreciation rights (SARs), restricted stock awards (RSAs), restricted stock units (RSUs), performance awards and stock bonus awards to employees, directors, consultants, independent contractors and advisors of the Company. Option activity under the Stock Plans is set forth below: Number of options outstanding Weighted- average exercise price Weighted- average contractual life (in years) Aggregate intrinsic value (1) (in thousands) Balances as of November 30, 2021 5,878,552 $ 19.42 8.67 $ 65,692 Options granted 920,557 19.89 Options exercised ( 117,870 ) 3.60 Options forfeited ( 157,679 ) 18.98 Balances as of February 28, 2022 6,523,560 $ 19.78 8.66 $ 24,246 Options vested and expected to vest as of February 28, 2022 (2) 6,465,082 $ 19.86 8.66 $ 23,997 Options exercisable as of February 28, 2022 2,823,207 $ 11.60 7.90 $ 22,599 (1) The aggregate intrinsic values were calculated as the pre-tax difference between the exercise price of stock options and the quoted market price of the Company’s common stock on February 28, 2022 for all in-the-money stock options. (2) Certain stock options granted by the Company prior to the date of IPO are exercisable at the date of grant, with unvested shares subject to repurchase by the Company in the event of voluntary or involuntary termination of employment of the stockholder. Such exercises are recorded as a liability in the condensed consolidated balance sheets and reclassified into equity as the options vest. As of February 28, 2022, a total of 41,522 shares of common stock were subject to repurchase by the Company at the lower of (i) the fair market value of such shares on the date of repurchase, or (ii) the original exercise price of such shares. The corresponding exercise value of $ 0.3 million as of February 28, 2022 is recorded in share-based compensation liability. 17 RSU activity under the Stock Plans is set forth below: Number of RSUs Weighted-average grant date fair value Balances as of November 30, 2021 20,000 $ 27.42 RSUs granted 630,032 21.01 RSUs vested — — RSUs forfeited ( 650 ) 18.89 Balances as of February 28, 2022 649,382 $ 21.21 Employee Stock Purchase Plan Under the Company’s 2020 Employee Stock Purchase Plan (the ESPP), eligible employees are entitled to purchase shares of common stock with accumulated payroll deductions. During the three months ended February 28, 2022, the Company issued 71,207 shares pursuant to the ESPP at a weighted-average price of $ 14.94 per share. Stock-Based Compensation Stock-based compensation expense related to the Stock Plans and the ESPP that is included in the Company’s condensed consolidated statements of operations is as follows (in thousands): Three Months Ended, February 28, 2022 2021 Research and development $ 3,541 $ 1,223 General and administrative 2,530 1,477 Total stock-based compensation $ 6,071 $ 2,700 As of February 28, 2022, the total compensation cost related to stock-based awards not yet recognized was $ 75.2 million, which is expected to be amortized on a straight-line basis over the weighted-average remaining vesting period of approximately 3.0 years. 9. Defined Contribution Plan The Company sponsors a defined-contribution savings plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the 401(k) Plan), which provides for the Company to make discretionary matching or discretionary annual contributions to the 401(k) Plan, for its employees. Substantially all of the Company’s employees are eligible to participate. Employees may contribute a percentage of their annual compensation to the plan, subject to statutory limitations. The Company has made contributions to the 401(k) Plan and recorded contribution expense of $ 0.5 million and $ 0.2 million during the three months ended February 28, 2022 and 2021, respectively. 10. Income Taxes For the three months ended February 28, 2022, the Company did no t record any current income tax expense or provision and for the three months ended February 28, 2021, the Company recorded a current income tax expense of $ 71,000 . Deferred income taxes reflect the net tax effects of loss and credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of the deferred tax assets is dependent upon future taxable income, the amount, if any, and timing of which are uncertain. The Company has generated losses since inception and has established a valuation allowance to offset deferred tax assets as of February 28, 2022 and November 30, 2021 due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets. In January 2019, the California Franchise Tax Board (FTB) commenced an examination of the Company’s California income tax returns for the tax years ending in 2015, 2016, 2017 and 2018. During the year ended November 30, 2021, the FTB issued proposed audit assessments related to revenue sourcing and R&D credits. The Company does not agree with the FTB assessments and intends to challenge the assessments. Pursuant to a measurement analysis, the Company has not recorded an unrecognized tax benefit related to the FTB’s sourcing position. The Company maintains an unrecognized tax benefit related to its California R&D credits for all years. 18 11. Net Loss Per Share The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to common stockholders, which excludes shares which are legally outstanding but subject to repurchase by the Company (in thousands, except share and per share data): Three Months Ended February 28, 2022 2021 Numerator: Net loss $ ( 42,533 ) $ ( 24,275 ) Denominator: Weighted-average number of shares outstanding, basic and diluted 44,693,812 38,777,258 Net loss per share, basic and diluted $ ( 0.95 ) $ ( 0.63 ) The following potentially dilutive securities were excluded from the computation of the diluted net loss per share of common stock for the periods presented because their effect would have been anti-dilutive: February 28, 2022 2021 Options to purchase common stock 6,523,560 5,095,996 Options early exercised subject to vesting 41,522 121,134 Shares expected to be purchased under employee stock purchase plan 73,851 34,606 Restricted stock 649,382 — Total 7,288,315 5,251,736 12. Related Party Transactions The Company’s Chief Financial Officer is a trustee for the Company’s healthcare plan provider. Expenses related to the healthcare plan premiums were $ 0.9 million and $ 0.5 million for the three months ended February 28, 2022 and 2021, respectively. As of February 28, 2022 and November 30, 2021, the amount recorded in accrued liabilities and accounts payable in connection with this healthcare plan provider was not material. 13. Subsequent Events On March 1, 2022, the Company entered into a lease agreement (the 8800 Technology Forest Pl Lease) with 8800 Technology Forest Pl, LLC, effective as of March 1, 2022, for the lease of approximately 46,434 square feet of office space located at 8800 Technology Forest Place, The Woodlands, Texas, for a research and development laboratory and related uses. The commencement date of the 8800 Technology Forest Pl Lease is expected to be on or about August 1, 2022 , and the lease will expire on March 1, 2035 , unless terminated earlier. The minimum rent payable by the Company under the 8800 Technology Forest Pl Lease will be approximately $ 205,084 per month, beginning on March 1, 2023, which amount will increase by 3 % per year over the term of the lease; provided that, for the period between March 1, 2023 and February 29, 2024, the minimum rent payable by the Company under the lease will be approximately $ 153,813 per month. The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating and tax expenses and utilities costs for the building. Refer to Note 6 for more information regarding leases. 19