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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                        

Commission File Number: 001-39398

 

NURIX THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

27-0838048

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1700 Owens Street, Suite 205

San Francisco, CA

 

94158

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (415) 660-5320

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

NRIX

 

Nasdaq Global Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).     Yes      No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes     No  

As of March 31, 2022, the Registrant had 44,950,194 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements concerning our business strategy and plans, future operating results and financial position, as well as our objectives and expectations for our future operations, are forward-looking statements.

In some cases, you can identify forward-looking statements by such terminology as “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements about:

 

the timing of investigational new drug application (IND) submissions for our drug candidates;

 

the timing and conduct of our clinical trial programs for our lead drug candidates NX-2127, NX-1607, NX-5948, DeTIL‑0255 and other drug candidates, including statements regarding the timing of initiation of the clinical trials;

 

the timing of, and our ability to obtain, marketing approvals for our lead drug candidates NX-2127, NX-1607, NX-5948, DeTIL-0255 and other drug candidates;

 

our plans to pursue research and development of other drug candidates;

 

the potential advantages of our DELigase platform and our drug candidates;

 

the extent to which our scientific approach and DELigase platform may potentially address a broad range of diseases;

 

the potential benefits of our arrangements with Sanofi S.A. and Gilead Sciences, Inc.;

 

the timing of and our ability to obtain and maintain regulatory approvals for our drug candidates;

 

the potential receipt of revenue from future sales of our drug candidates;

 

the rate and degree of market acceptance and clinical utility of our drug candidates;

 

our estimates regarding the potential market opportunity for our drug candidates;

 

our sales, marketing and distribution capabilities and strategy;

 

our ability to establish and maintain arrangements for the manufacturing of our drug candidates;

 

the impact of the ongoing coronavirus (COVID-19) pandemic, including the resurgence of cases relating to the spread of new variants, on our business, clinical trials, financial condition, liquidity and results of operations;

 

the potential achievement of milestones and receipt of royalty payments under our collaborations;

 

our ability to enter into additional collaborations with third parties;

 

our intellectual property position;

 

our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

 

the impact of government laws and regulations; and

 

our competitive position.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations, prospects, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. We disclaim any intention or obligation to publicly update or revise any forward-looking statements for any reason or to conform such statements to actual results or revised expectations, except as required by law.


 


 

 

TABLE OF CONTENTS

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statements of Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

82

Item 3.

Defaults Upon Senior Securities

82

Item 4.

Mine Safety Disclosures

82

Item 5.

Other Information

82

Item 6.

Exhibits

83

SIGNATURES

84

 

 

 


 

 

PART I – FINANCIAL INFORMATION

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 not 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, 2020 (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.