Nurix Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended November 30, 2021 included in our Annual Report on Form 10‑K filed on January 28, 2022 (2021 Form 10-K). As discussed in the section titled “Special Note Regarding Forward Looking Statements,” the following discussion and analysis contains forward looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. Overview We are 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 our extensive expertise in E3 ligases together with our proprietary DNA-encoded libraries, we have built DELigase, an integrated discovery platform to identify and advance novel drug candidates targeting E3 ligases, a broad class of enzymes that can modulate proteins within the cell. Our drug discovery approach is to either harness or inhibit the natural function of E3 ligases within the ubiquitin-proteasome system to selectively decrease or increase cellular protein levels. Our wholly owned pipeline comprises 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 are actively recruiting 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, for which we were awarded an Innovative Passport from the UK Medicines and Healthcare products Regulatory Agency to accelerate time to market and facilitate patient access to novel drugs to treat serious and life-threatening diseases, 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 enrolling patients in the Phase 1 clinical trial for our first cell therapy candidate, DeTIL-0255, in patients with gynecologic cancers including ovarian cancer, endometrial cancer, 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 S.A. (Sanofi), and Gilead Sciences, Inc. (Gilead). Since the commencement of our operations, we have devoted substantially all of our resources to conducting research and development activities, establishing and maintaining our intellectual property portfolio, establishing our corporate infrastructure, raising capital and providing general and administrative support for these operations. We have funded our operations to date primarily from proceeds received under collaboration and license agreements with Sanofi, Gilead, and Celgene Corporation (Celgene) and the issuance and sale of common and redeemable convertible preferred stock. We do not expect to generate product revenue unless and until we successfully develop and obtain approval for the commercialization of a drug candidate, and we cannot assure you that we will ever generate significant revenue or profits. Since inception, we have generally incurred significant losses and negative cash flows from operations. During the three months ended February 28, 2022 and 2021, we incurred net losses of $42.5 million and $24.3 million, respectively. As of February 28, 2022, we had an accumulated deficit of $263.4 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. 20 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 candidates, which we expect will take a number of years. We expect our expenses will increase substantially as we advance our drug candidates through preclinical and into clinical development; enter advanced clinical development and scale up external manufacturing capabilities to supply clinical trials; apply our DELigase platform to advance additional drug candidates and expand the capabilities of our platform; seek marketing approvals for any drug candidates that successfully complete clinical trials; ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any products for which we may obtain marketing approval; expand, maintain and protect our intellectual property portfolio; and hire additional clinical, regulatory, manufacturing, quality assurance and scientific personnel. Furthermore, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, accounting, insurance, investor relations and other administrative and professional services expenses. Our net losses and cash flows may fluctuate significantly from period to period, depending on, among other things, variations in the level of expense related to the ongoing development of our drug candidates, our DELigase platform or future development programs; the delay, addition or termination of clinical trials; and the execution of any additional collaboration, licensing or similar arrangements, and the timing of payments we may make or receive under such arrangements. As of February 28, 2022, we had $385.7 million in cash, cash equivalents and investments. 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 $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 $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 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. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. We are subject to risks and uncertainties as a result of the current COVID-19 pandemic. The COVID-19 pandemic, including the resurgence of cases relating to the spread of new 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 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. Collaborations and License Agreements Gilead Collaboration, Option and License Agreement In June 2019, we entered into a global strategic collaboration agreement with Gilead, which was amended in August 2019 (the Gilead Agreement), to discover, develop and commercialize a pipeline of targeted protein degradation drugs for patients with cancer and other challenging diseases using our DELigase platform to identify novel agents that utilize E3 ligases to induce degradation of five specified drug targets. Under the Gilead Agreement, Gilead has the option to license drug candidates directed to up to five targets resulting from the collaboration and is responsible for the clinical development and commercialization of drug candidates resulting from the collaboration. We retain the option to co-develop and co-promote, under a profit share structure, up to two drug candidates in the United States 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. 21 Over time, Gilead may elect to replace the initial drug targets with other drug targets. For drug targets that are subject to the collaboration, we are obligated to use commercially reasonable efforts to undertake a research program in accordance with a research plan agreed to by the parties and established on a target-by-target basis. We have primary responsibility under the agreement for performing preclinical research activities (including target validation, drug discovery, identification or synthesis) pursuant to a research plan. Each party will bear its own costs in the conduct of research activities. Gilead will be responsible for any development, commercialization and manufacturing activities, unless we exercise our co-development and co-promotion option. For those programs that we exercise our option to co-develop and co-promote, we and Gilead will split U.S. development costs as well as U.S. profits and losses evenly, and we will be eligible to receive royalties on ex-U.S. net sales and reduced milestone payments. Upon signing the Gilead Agreement, Gilead paid us an upfront payment of $45.0 million plus $3.0 million in additional fees. In addition, from the signing of the Gilead Agreement to February 28, 2022, we received payments of $24.5 million for research milestones and additional payments. Additionally, we recognized a research milestone in February 2022 and received a payment of $6.0 million in the second fiscal quarter of 2022. As of February 28, 2022, we are eligible to receive up to approximately $2.3 billion in total additional payments based on certain additional fees, payments and the successful completion of certain preclinical, clinical, development and sales milestones. In addition, we are eligible to receive tiered royalties from mid-single digit to low tens percentages on annual net sales from any commercial products directed to the optioned collaboration targets, subject to certain reductions and excluding sales in the United States of any products for which we exercise our option to co-develop and co-promote, for which we share profits and losses evenly. We recognized collaboration revenue from the Gilead Agreement of $6.2 million and $2.7 million during the three months ended February 28, 2022 and 2021, respectively. As of February 28, 2022 and November 30, 2021, there was $40.9 million and $41.1 million, respectively, of deferred revenue related to payments received by us under the Gilead Agreement. Sanofi Collaboration and License Agreement In December 2019, we entered into a strategic collaboration with Genzyme Corporation, a subsidiary of Sanofi, which became effective in January 2020 (as subsequently expanded and amended, the Sanofi Agreement), to discover, develop and commercialize a pipeline of targeted protein degradation drugs for patients with challenging diseases in multiple therapeutic areas using our DELigase platform to identify small molecules designed to induce degradation of three specified initial drug targets. In January 2021, as part of the existing 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. In January 2021, we entered into the First Sanofi Amendment to the collaboration agreement with Sanofi to modify the research term on all targets. In December 2021, we entered into the Second Sanofi Amendment to the collaboration agreement with Sanofi 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 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 chimeric targeting molecules (CTMs) in order to identify development candidates. Subject to certain exceptions, each party will bear its own costs in the conduct of such research. Sanofi will be responsible for any development and commercialization activities unless we exercise our co-development and co-promotion option. For those programs that we exercise our option to co-develop, co-promote and co-commercialize, we will be responsible for a portion of the U.S. development costs, and the parties will split U.S. profits and losses evenly, and we will be eligible to receive royalties on ex-U.S. net sales and reduced milestone payments on such optioned products. Upon signing the Sanofi Agreement, Sanofi paid us an upfront payment of $55.0 million. Subsequently, in January 2021, Sanofi paid us an additional $22.0 million to exercise its option to expand the number of targets beyond the initial targets included in the collaboration. In addition, from the signing of the Sanofi Agreement to February 28, 2022, we received a payment of $1.0 million for a research milestone. Additionally, we recognized another research milestone in February 2022 and anticipate a payment of $2.0 million in the second fiscal quarter of 2022. As of February 28, 2022, 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. 22 We recognized collaboration revenue from the Sanofi Agreement of $3.4 million and $ 2.3 million during the three months ended February 28, 2022 and 2021 , respectively . As of February 28, 2022 and November 30, 2021 , there was $57.7 million and $59.2 million, respectively, of deferred revenue related to payments received by us under the Sanofi Agreement. Components of Results of Operations Collaboration Revenue We have no products approved for commercial sale and to date have not generated any revenue from the sale of products and do not expect to generate any revenue from the sale of products in the near future. Our revenue to date has been generated from payments received pursuant to collaboration and license arrangements with strategic partners. Collaboration revenue consists of revenue received from upfront, milestone and contingent payments received from our collaborators. We recognize revenue from upfront payments over the contract term using the cost-based input method. The material right to the two additional targets under the Sanofi Agreement was accounted for using the practical alternative and the expected consideration to be received on the options was included for revenue allocation. We expect to continue recognizing revenue from upfront payments related to our collaboration agreements using the cost-based input method in the foreseeable future. In addition to receiving upfront payments, we may also be entitled to milestones and other contingent payments upon achieving predefined objectives. If a milestone is considered probable of being reached, and if it is probable that a significant revenue reversal would not occur, the associated milestone amount would also be included in the transaction price. We expect that any collaboration revenue we generate from our current collaboration and license agreements, and from any future collaboration partners, will fluctuate in the future as a result of the timing and amount of upfront, milestones and other collaboration agreement payments and other factors. Research and Development Expenses Research and development expenses consist primarily of costs incurred for the discovery and development of our drug candidates. We expense both internal and external research and development expenses to operations in the periods in which they are incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and as services are performed. We track the external research and development costs incurred for each of our drug candidates. Internal research and development costs include: • payroll and personnel expenses, including benefits, stock-based compensation and travel expenses, for our research and development functions; and • depreciation of research and development equipment, allocated overhead and facilities-related expenses. 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 clinical trials, discovery programs and preclinical studies; • costs to acquire, develop and manufacture supplies for clinical trials and preclinical studies, including fees paid to third parties such as contract manufacturing organizations; and • expenses related to laboratory supplies and services. We expect our research and development expenses to increase substantially for the foreseeable future as we conduct clinical trials for our drug candidates, continue to invest in research and development activities for discovery programs and preclinical studies, pursue regulatory approval of our drug candidates and expand our drug candidate pipeline. The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. To the extent that our drug candidates advance to and continue to advance through clinical trials, our expenses will continue increasing 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. 23 General and A dministrative E xpenses General and administrative expenses consist primarily of payroll and personnel expenses, including benefits and stock-based compensation, facilities-related expenses and professional fees for legal, consulting, and audit and tax services. We expect our general and administrative expenses to increase for the foreseeable future as we continue to improve our infrastructure, increase our headcount and operate as a public company. This may include expenses related to compliance with the rules and regulations of the Securities and Exchange Commission (SEC) and listing standards applicable to companies listed on a national securities exchange, additional insurance, investor relations activities and other administrative and professional services. We also expect our intellectual property expenses to increase as we expand our intellectual property portfolio. Interest and Other Income, Net Interest and other income, net primarily consists of interest earned on our cash, cash equivalents and investments. We expect interest income to vary each reporting period depending on our average bank deposit, money market fund, and investment balances during the period and market interest rates. Provision for 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. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on other relevant assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and more significant areas involving management’s judgments and estimates used in preparation of our financial statements are discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K. There have been no significant changes to these policies for the three months ended February 28, 2022. Recent Accounting Pronouncements See Note 2, “Summary of significant accounting policies—Recent accounting pronouncements” to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for more information. 24 Results of Operations Comparison of the three months ended February 28, 2022 and 2021 Our results of operations for the three months ended February 28, 2022 and 2021 are summarized as follows (in thousands): Three Months Ended February 28, 2022 2021 Change Collaboration revenue $ 9,621 $ 5,011 $ 4,610 Operating expenses: Research and development 43,137 23,003 20,134 General and administrative 9,228 6,530 2,698 Total operating expenses 52,365 29,533 22,832 Loss from operations (42,744 ) (24,522 ) (18,222 ) Interest and other income, net 211 318 (107 ) Loss before income taxes (42,533 ) (24,204 ) (18,329 ) Provision for income taxes — 71 (71 ) Net loss $ (42,533 ) $ (24,275 ) $ (18,258 ) Collaboration Revenue Our collaboration revenue for the three months ended February 28, 2022 and 2021 is summarized as follows (in thousands): Three Months Ended February 28, 2022 2021 Change Gilead $ 6,183 $ 2,719 $ 3,464 Sanofi 3,438 2,292 1,146 Total collaboration revenue $ 9,621 $ 5,011 $ 4,610 Our collaboration revenue increased by $4.6 million during the three months ended February 28, 2022 compared to the three months ended February 28, 2021. The increase was primarily due to the recognition of revenue as a cumulative catch up for activities satisfied in previous periods as we achieved certain research milestones under our collaborations with Gilead and Sanofi. The increase was also due to increased effort resulting in a higher percentage of completion of performance obligations under our collaboration with Gilead and Sanofi in the current period. Research and Development Expenses Our research and development expenses for the three months ended February 28, 2022 and 2021 are summarized as follows (in thousands): Three Months Ended February 28, 2022 2021 Change Compensation and related personnel costs $ 15,807 $ 8,181 $ 7,626 Stock-based compensation 3,541 1,223 2,318 Supplies and contract research 12,121 7,765 4,356 Preclinical activities 1,433 874 559 Contract manufacturing 3,112 1,493 1,619 Clinical costs 2,669 704 1,965 Facility and other costs 4,454 2,763 1,691 Total research and development expenses $ 43,137 $ 23,003 $ 20,134 Our research and development expenses increased by $20.1 million during the three months ended February 28, 2022 compared to the three months ended February 28, 2021. There was an increase in compensation and related personnel costs and in non-cash stock-based compensation expense of $7.6 million and $2.3 million, respectively, that were attributable to higher headcount. There was also an increase in cost related to supplies and contract research and preclinical activities of $4.4 million and $0.6 million, respectively, as we continued to expand our preclinical development activities and drug discovery research, and an increase in costs related to contract manufacturing and clinical of $1.6 million and $2.0 million, respectively, primarily due to ongoing clinical trial startup and patient enrollment. 25 General and A dministrative E xpenses Our general and administrative expenses increased by $2.7 million during the three months ended February 28, 2022 compared to the three months ended February 28, 2021. There was an increase of $0.4 million in compensation related expenses and an increase of $1.1 million in non-cash stock-based compensation expense, both of which were primarily attributable to higher headcount. There was also an increase of $1.1 million in professional service expenses, including legal and accounting expenses related to infrastructure improvements. Liquidity and Capital Resources Sources of Liquidity On July 23, 2020, our registration statement on Form S-1 (File No. 333-239651) relating to our IPO of common stock became effective. The IPO closed on July 28, 2020, at which time we issued 11,000,000 shares of our common stock at a price to the public of $19.00 per share. In addition, the underwriters exercised their option to purchase an additional 1,550,000 shares of our common stock on July 31, 2020, and this transaction closed on August 4, 2020. Net proceeds from the IPO were $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 $150.2 million, after deducting underwriting discounts and commissions of $9.6 million and expenses of $0.6 million. To date, our operations have primarily been funded through the net proceeds from equity offerings of $536.4 million and proceeds from collaborations of $306.5 million. We do not have any products approved for sale, and we have not generated any revenue from product sales. As of February 28, 2022, we had $385.7 million in cash, cash equivalents and investments. Funding Requirements 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 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 February 28, 2022, 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. government. In the long term, our ability to support our working capital and capital expenditure requirements will depend on many factors, including the following: • 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; 26 • 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 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; and • our ability to establish additional collaboration arrangements with other biotechnology or pharmaceutical companies on favorable terms, if at all, for the development or commercialization of our drug candidates. If adequate funds are not available at favorable terms, we may be required to reduce operating expenses, delay or reduce the scope of our product development and commercial expansion programs, obtain funds through arrangements with others that may require us to relinquish rights to certain of our technologies or products that we would otherwise seek to develop or commercialize ourselves, or cease operations. If we do raise additional capital through public or private equity or convertible debt offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. As of February 28, 2022, our material cash requirements include the following contractual and other obligations (in thousands): Payments due by period Less than 1 year 1 to 3 years 3 to 5 years More than 5 years Total Operating lease obligations $ 5,498 $ 10,307 $ 695 $ — $ 16,500 Total contractual obligations $ 5,498 $ 10,307 $ 695 $ — $ 16,500 In addition, we enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical studies and other services and products for operating purposes, which are generally cancelable upon written notice. These payments are not included in the table above. We did not have during the periods presented, and we do not currently have, any commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources. Cash flows Our cash flows for the three months ended February 28, 2022 and 2021 are summarized as follows (in thousands): Three Months Ended February 28, 2022 2021 Cash (used in) provided by operating activities $ (42,630 ) $ 8,053 Cash (used in) provided by investing activities 40,031 (2,387 ) Cash provided by financing activities 1,488 1,359 Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,111 ) $ 7,025 Operating activities Net cash used in operating activities was $42.6 million for the three months ended February 28, 2022 and consisted of a net loss of $42.5 million and an increase in net assets of $9.0 million, offset by non-cash adjustments of $8.9 million. The increase in net assets consisted primarily of a decrease in accrued expenses and other liabilities of $3.3 million primarily related to the payment of annual incentive compensation, an increase in contract assets of $2.0 million related to a milestone recognized pursuant to the Sanofi Agreement, a decrease in deferred revenue of $1.6 million and an increase in prepaid expenses and other assets of $1.5 million primarily related to increased prepaid clinical and contract manufacturing costs. Non-cash adjustments primarily consisted of stock-based compensation expenses of $6.1 million and amortization of operating lease right-of-use assets of $1.3 million. 27 Net cash provided by operating activities was $8.1 million for the three months ended February 28, 2021 and consisted of a decrease in net assets of $28. 0 million and non-cash adjustments of $ 4.3 million, offset by a net loss of $24.3 million. The decrease in net assets consisted primarily of an increase in deferred revenue of $17.0 million and a decrease in contract assets of $7.5 million. Non-cash adjustments primarily consisted of stock-based compensation expenses of $2.7 million , amortization of operating lease right-of-use assets of $0.7 million and depreciation and amortization expenses of $0.6 million. Investing activities Net cash used in investing activities was $40.0 million for the three months ended February 28, 2022 and consisted of the maturity of investments of $58.7 million, offset by the purchase of investments of $15.2 million and the purchase of property and equipment of $3.5 million. Net cash used in investing activities was $2.4 million for the three months ended February 28, 2021 and consisted primarily of the purchase of investments of $47.7 million, offset by the maturity of investments of $46.2 million. Financing activities Net cash provided by financing activities was $1.5 million for the three months ended February 28, 2022 and consisted primarily of proceeds from the issuance of common stock under our Employee Stock Purchase Plan. Net cash provided by financing activities was $1.4 million for the three months ended February 28, 2021 and consisted primarily of proceeds from the issuance of common stock under our Employee Stock Purchase Plan. 28 Item 3. Quantitative and Qualitative Disclosures About Market Risk Our market risks, as of February 28, 2022, have not changed materially from those discussed in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended November 30, 2021, filed with the SEC on January 28, 2022.