Nurix Therapeutics, Inc. quarterly report, Q3 FY2020

Business context and reporting period

Nurix Therapeutics is a pre-revenue biopharmaceutical company developing small-molecule therapies that modulate cellular protein levels for cancer and immune disorders. Its DELigase platform supports internal programs and collaborations. This 10-Q covers the quarter and nine months ended August 31, 2020; this differs from the request metadata’s “2019 Q3.”

Lead candidates NX-2127 and NX-1607 remained in preclinical development. The company completed its IPO in July 2020 and converted all outstanding preferred stock into common stock.

Financial performance and position

For the nine-month period, a $20.6 million income tax benefit—primarily related to CARES Act NOL carryback claims—reduced the net loss from the $43.9 million pretax loss. The quarter had no material income tax provision or benefit.

At August 31, 2020, cash and cash equivalents were $265.5 million and investments were $129.6 million, totaling $395.1 million in cash, cash equivalents and investments. Current assets were $364.1 million and current liabilities $41.0 million. Total liabilities were $104.3 million, primarily deferred revenue; the filing reports no debt balance. Accumulated deficit was $83.8 million.

Nine-month operating cash flow was positive $20.4 million, supported mainly by a $47.4 million increase in deferred revenue from collaboration funding, despite the net loss. Investing cash outflow was $129.8 million, primarily reflecting investment purchases. Financing cash inflow was $340.2 million, mainly from $218.1 million of IPO proceeds and $119.9 million from Series D preferred stock. The IPO issued 12.55 million shares at $19 per share; preferred shares converted into common stock at closing.

Material changes versus the prior comparable periods

• Quarterly revenue fell $6.5 million, from $10.6 million to $4.1 million; nine-month revenue declined $18.1 million, from $29.3 million to $11.1 million. The main reason was the June 2019 termination of the Celgene collaboration, which had contributed $9.7 million in the prior-year quarter and $28.4 million in the prior-year nine months. Gilead and Sanofi revenue partly offset the decline.
• Quarterly R&D expense rose 72% to $18.9 million; nine-month R&D rose 43% to $46.0 million, reflecting increased discovery, preclinical, manufacturing preparation, staffing and stock-based compensation.
• Quarterly G&A expense rose 99% to $4.3 million; nine-month G&A rose 76% to $10.1 million, mainly from staffing, audit and legal costs, and public-company expenses.
• Cash and investments increased substantially following the Series D financing and IPO. Common shares outstanding rose to 38.8 million at August 31, from 3.6 million at November 30, 2019, reflecting financing and preferred-stock conversion.

Outlook, risks and unusual items

Management expects existing cash, cash equivalents and investments to fund operations for at least 12 months after issuance of the financial statements, but says substantial additional capital will be needed for longer-term development. It expects expenses to increase as candidates advance and as the company expands research, manufacturing preparation and public-company operations. No product-sales revenue is expected until candidates are developed and approved, if ever.

• Management expected to submit an IND for NX-2127 in late Q4 2020 or Q1 2021, and for NX-1607 in Q3 2021; INDs for NX-5948 and DeTIL-0255 were anticipated in the second half of 2021. These were forward-looking plans, not completed milestones.
• Sanofi paid a $55 million upfront fee; Gilead provided a $45 million upfront payment plus $3 million in fees and later milestone and target-reservation payments. As of August 31, deferred revenue was $50.8 million for Sanofi and $41.9 million for Gilead. Potential future milestones and royalties are contingent and not assured.
• All product candidates were preclinical, with no clinical trials initiated. Key risks include clinical and regulatory failure, competition, intellectual-property challenges, reliance on single-source or limited third-party manufacturers, collaboration termination, and COVID-19-related operational or supply disruption. Management reported no material financial-statement impact from COVID-19 through the period, while noting future effects were uncertain.
• Disclosure controls were deemed ineffective as of August 31 because of a previously identified material weakness involving documented controls, IT general controls, segregation of duties, and review of reconciliations and journal entries. Remediation was ongoing; management performed additional procedures and concluded the statements fairly presented the reported periods.
• The company received $16.3 million, including interest, on its first tax refund claim and reported $3.9 million of income tax receivable for anticipated refunds. A September 2020 IRS settlement reduced R&D credit carryforwards by $1.1 million, with no tax-provision adjustment.
• Operating lease commitments totaled $16.0 million. The company reported no pending or threatened litigation and no off-balance-sheet arrangements.

Most important facts for investors to verify

• Whether the planned IND submissions and Phase 1 trial starts occurred on schedule, and what subsequent safety or efficacy evidence shows.
• How much of operating cash flow reflects collaboration prepayments rather than recurring operating economics, and whether the stated cash runway remains adequate as spending rises.
• Progress, terms and termination risks under the Sanofi and Gilead collaborations, including whether contingent milestones are achieved and how deferred revenue is recognized.
• Whether the material weakness in internal controls has been fully remediated and independently validated.
• The timing and collection of remaining tax refunds, and any effects of the IRS settlement or other tax examinations.
• Share-count changes, option and equity-plan dilution, and the impact of IPO-related lockup expirations.