CalciMedica, Inc. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2022

OR

For the transition period from              to             

Commission File Number 001-39538

GRAYBUG VISION, INC.

(Exact name of Registrant as specified in its Charter)

203 Redwood Shores Parkway, Suite 620

Redwood City, CA 94065

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (650) 487-2800

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

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.

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  ☒

The number of shares of the Registrant’s common stock outstanding as of November 7, 2022 was 21,562,523.

Table of Contents

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Graybug” and the “Company” refer to Graybug Vision, Inc. This report contains references to trademarks belonging to other entities, which are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements, other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. You should not rely upon forward-looking statements as predictions of future events. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risks and uncertainties.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, after the date of this report, we are under no duty to update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise.

We obtained industry, market and competitive position data in this report from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information or estimates.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

GRAYBUG VISION, INC.

Condensed Consolidated Balance Sheets

(in thousands)

See accompanying notes to unaudited condensed consolidated financial statements.

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GRAYBUG VISION, INC.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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GRAYBUG VISION, INC.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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GRAYBUG VISION, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements

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GRAYBUG VISION, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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GRAYBUG VISION, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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GRAYBUG VISION, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization

Graybug Vision, Inc., the Company or Graybug, has historically been a clinical-stage biopharmaceutical company developing medicines for the treatment of diseases of the retina and optic nerve. On June 28, 2022, the Company announced that it would conduct a comprehensive review of strategic alternatives focused on maximizing shareholder value. As part of this review of strategic alternatives, the Company is exploring the potential for an acquisition, company sale, merger, divestiture of assets, private placement of equity securities, or other strategic transactions. Prior to this announcement, the Company had devoted substantially all of its resources to conducting research and development and raising capital. On August 18, 2022, the Company’s board of directors approved the restructuring plan which is described further in the Restructuring section below. The Company was founded in May 2011 and maintains facilities in Redwood City, California and Baltimore, Maryland.

The Company has historically been subject to risks common to clinical stage companies in the biopharmaceutical industry, including dependence on the clinical success of its product candidates, ability to obtain regulatory approvals of its product candidates, compliance with regulatory requirements, the need for substantial additional financing and protection of its proprietary technology.

Restructuring

On August 18, 2022, the Company’s board of directors approved certain strategic, operational and organizational steps for the Company to undertake in connection with its announcement on June 28, 2022 that the Company would conduct a comprehensive review of strategic alternatives focused on maximizing shareholder value. These steps include both the termination of all activities relating to the Company’s GB-102 and GB-401 programs and certain cost-reduction initiatives, including a reduction in its workforce by 71%. While clinical development of GB-501 remains on hold, preclinical work is still proceeding.

In connection with these actions, the Company recorded a restructuring charge of $2.4 million during the three months ended September 30, 2022. The restructuring charge includes: (i) the majority of severance and termination benefit expense for 20 employees terminated with separation dates between August 31, 2022 and October 31, 2022, (ii) a charge related to the impairment of research and development equipment in its Baltimore, Maryland facility, and (iii) costs to wind-down the GB-102 and GB-401 clinical development programs. Refer to Note 6 for additional information on the restructuring.

Going Concern Considerations

The Company incurred losses from operations and had negative cash flows from operating activities for the nine months ended September 30, 2022, and 2021, and the Company’s accumulated deficit at September 30, 2022 was $197.4 million. The Company’s current operating plan, which is subject to change based on the ongoing strategic review, indicates it will continue to incur losses from operations and generate negative cash flows from operating activities, given ongoing expenditures related to anticipated research and development and the Company’s lack of revenue-generating activities at this point in the Company’s life cycle. Even if the Company’s remaining product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

In March 2021, the Company decided not to proceed with the significant investment required to initiate two Phase 3 clinical trials for GB-102 in late 2021 and, in August 2022, terminated all activities relating to GB-102 and GB-401, and reduced its workforce by 71%. As a result, anticipated operating expenses have been significantly reduced and management continues to believe that the Company’s current cash, cash equivalents and short-term investments are adequate to meet its cash needs for at least 12 months from the issuance date of this Quarterly Report on Form 10-Q.

As part of the Company’s review of strategic alternatives, it is exploring the potential for an acquisition, company sale, merger, divestiture of assets, private placement of equity securities, or other strategic transactions. As part of this process the Company is exploring an outright sale or merger as well as a process to raise additional funds in order to further advance its remaining research and development programs, operate its business, secure research and development collaborations, and meet its obligations as they come due. The Company may pursue financing alternatives, similar to what it has previously executed, which include debt and equity financing. There are no assurances that this process will result in any such transaction and such sources of capital may not be available to the Company in the necessary time frame, in the amounts that the Company requires, on terms that are acceptable to the Company, or at all. If the Company is unable to consummate an acquisition, company sale, merger, divestiture of assets or other strategic transaction or raise the necessary funds when needed or reduce spending on currently planned activities, it may not be able to continue the preclinical development of its remaining products or it could be required to delay, scale back, or eliminate some or all of its research and development programs and other operations, including personnel, any of which may materially harm its business, financial position and results of operations.

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COVID-19 Pandemic

The impact of the worldwide spread of a novel strain of coronavirus, or COVID-19, has been unprecedented and unpredictable, including the emergence of new variants of the coronavirus, such as the Delta and Omicron variants, and resurgences in number and rates of infections, but based on the Company’s current assessment, the Company does not expect any material impact on its long-term strategic plans, operations, or its liquidity due to the worldwide spread of COVID-19. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus and new variants thereof throughout the world and its assessment of the impact of COVID-19 may change.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission, or SEC, and, therefore, certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP, have been omitted.

In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature, except expenses related to restructuring and impairment, as discussed in Note 1. Interim results are not necessarily indicative of results for the full year. The condensed balance sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 11, 2022.

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, RainBio, Inc., or RainBio, which was acquired in March 2022 (see Note 5). All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates  

The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company 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 expenses during the reporting periods. Actual results could differ from those estimates. Significant items subject to estimates include estimates related to accrued research and development expenses, contingent milestone payments, other long-lived assets, assets held for sale, stock-based compensation, incremental borrowing rates for leases and the valuation of deferred tax assets. The Company bases its estimates using historical experience, Company forecasts and future plans, current economic conditions, and information from third-party professionals that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and recorded amounts of expenses that are not readily apparent from other sources, and adjusts those estimates and assumptions when facts and circumstances dictate.

The Company’s results can also be affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest, changes in regulatory laws and monetary exchange rates, and government fiscal policies, can have a significant effect on operations. While the Company maintains reserves for anticipated liabilities, the Company could be adversely affected by civil, criminal, regulatory or administrative actions, claims, or related proceedings.

Leases

The Company adopted Accounting Standards Codification (ASC) Topic 842, Leases (ASC 842) on January 1, 2022, as discussed below in the section titled Recently Adopted Accounting Pronouncements. Under ASC 842, the Company determines if an arrangement is or contains a lease at contract inception.

Operating lease right-of-use assets represent the Company’s right and ability to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized based on the present value of lease payments over the lease term at the commencement date of the lease. Right-of-use assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less any lease incentive received. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate reflects the rate of interest that a lessee would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease expense for an operating lease is recognized on a straight-line basis over the lease term.

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The Company elected the practical expedient to not separate lease and non-lease components for all classes of assets. Additionally, the Company has elected an accounting policy to not recognize short-term leases, which have a lease term of twelve months or less, on the condensed consolidated balance sheet. Variable lease payments are primarily related to property taxes, insurance and common area maintenance, and are recognized as lease cost when incurred.

Restructuring, Impairment and Other Costs of Terminated Programs

Restructuring, impairment and other costs of terminated programs primarily consists of severance and termination benefit expense and non-cash impairment of capital equipment. These charges are included in restructuring, impairment and other costs of terminated programs in the condensed consolidated statement of operations.

The Company recognizes severance and termination benefits when it is probable that employees will be entitled to such benefits and the amount can be reasonably estimated and recorded at fair value. The timing of the recognition of expense for severance and termination benefits depends on whether employees are required to render service until they are terminated in order to receive the termination benefits. If employees are required to render service until they are terminated in order to receive the severance and termination benefits, a liability is recognized ratably over the future service period. Otherwise, a liability is recognized when management has committed to a restructuring plan and has communicated those actions to affected employees.

Refer to Note 6 for additional information on the severance expense that the Company recognized for employees terminated in connection with the August 2022 reduction-in-force.

Assets Held for Sale

The Company classifies assets as held for sale when management has approved to sell the assets, the sale is probable to occur during the next 12 months at a price that is reasonable in relation to its current estimated fair value and certain other specified criteria are met. The assets classified as held for sale is recorded at the lower of the carrying value and estimated fair value, less cost to sell. If the carrying value of the assets exceeds its estimated fair value, less cost to sell, a loss is recognized and reported in the condensed consolidated statement of operations.

Refer to Note 6 for additional information on the assets held for sale in connection with restructuring.

Long-lived Asset Impairment

The Company assesses long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the asset or group of assets may not be recoverable. During the three months ended September 30, 2022, the Company commenced restructuring activities which indicated that the carrying amount of the long-lived assets might not be recoverable. The Company evaluated the long-lived assets, consisting primarily of capital equipment, for impairment. If the carrying amount of an asset group exceeds its estimated undiscounted net future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset group exceeds its fair value. To the extent available, the Company will also consider third-party valuations of an asset group that were prepared for other business purposes. An impairment charge is recognized for the amount by which the carrying value exceeds its estimated fair value. When an impairment loss is recognized for equipment to be held and used, the adjusted carrying amounts are depreciated over their remaining useful life.

All of the Company’s equipment in its Maryland facility was either sold during the three months ended September 30, 2022 or sold shortly thereafter. As such, the Company recorded impairment charges which reflect the net selling prices for each of those assets.  The assets are classified as “assets held for sale” on the condensed consolidated balance sheet as of September 30, 2022. Refer to Note 6 for additional information regarding the impairment charge recorded in connection with the Company’s restructuring.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), as amended, with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize on the balance sheet the liabilities related to all leases, including operating leases, with a term greater than 12 months. This update also requires lessees and lessors to disclose key information about their leasing transactions. As an emerging growth company, this standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. The Company adopted this standard on January 1, 2022, using the modified retrospective method by applying the new standard to all leases existing as of the effective date and not restating comparative periods. The Company elected the “package of practical expedients”, which permits the Company to not reassess under this standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected the short-term lease recognition exemption for all leases that qualify. The impact of adoption and additional disclosures required by the standard have been included in “Summary of Significant Accounting Policies – Leases” above and in Note 5. As a result of the adoption of the new lease accounting guidance, the Company recognized, on January 1, 2022, operating lease right-of-use asset of $0.6 million and operating lease liability of $0.6 million in the unaudited condensed consolidated balance sheet. Prior period amounts before January 1, 2022

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have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under previous lease guidance, ASC Topic 840, Leases (ASC 840).

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions and amends certain requirements in the existing income tax guidance to ease accounting requirements. As an emerging growth company, this standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022, and must be applied on a retrospective basis. The Company adopted ASU 2019-12 on January 1, 2022, and the adoption did not have a material impact on its condensed consolidated financial statements.

3. Fair Value Measurements

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines fair value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following three levels:

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

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Money market funds are highly liquid investments which are actively traded. The pricing information on the Company’s money market funds are based on quoted prices in active markets for identical securities. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

The fair value of investments is determined from market pricing and other observable market inputs for similar securities obtained from various third-party data providers. The pricing services utilize industry-standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.

There were no transfers between Levels 1, 2 or 3 for the periods presented.  

The following tables present information as to cost, unrealized gains and losses and fair value determination of the Company’s financial assets measured at fair value on a recurring basis (in thousands):

 As of September 30, 2022 and December 31, 2021, the contractual maturities of all available-for-sale investments were less than 12 months. The Company periodically reviews the available-for-sale investments for other-than-temporary impairment loss. As of September 30, 2022, the Company had $33.5 million short term investments in an unrealized loss position for less than 12 months. The Company’s unrealized losses from short-term investments as of September 30, 2022 were caused by interest rate increases and not by unfavorable changes in the credit quality associated with these securities. The Company does not intend to sell short term investments that are in an unrealized loss position, and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. Therefore, the Company believes these losses to be temporary and as a result, did not recognize any other-than-temporary impairment losses as of September 30, 2022 and December 31, 2021.

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4. Balance Sheet Components

Other Current Liabilities

Other current liabilities consisted of the following (in thousands):

5. Commitments and Contingencies

The Company enters into contracts in the normal course of business with contract research organizations, or CROs, for clinical trials and contract manufacturing organizations, or CMOs, for clinical supply manufacturing and with vendors for equipment, preclinical research studies, research supplies and other services and products for operating purposes. As of September 30, 2022, these commitments were approximately $1.7 million due within 3 to 6 months. These contracts generally provide for termination on notice of 60 to 90 days. As of September 30, 2022, there was only one such contract still in effect, and there were no unpaid cancellation or other related costs.

Operating Lease Agreements

The Company leases a facility in Baltimore, Maryland under an operating lease with a term through June 2023. The Company also has a short-term lease for approximately 2,560 rentable square feet of office space in Redwood City, California, which was amended in July 2022 to extend the term from August 31, 2022 to December 31, 2022.  

On January 1, 2022, the Company adopted ASC 842 and the following disclosures as of and for the nine months ended September 30, 2022 are presented under ASC 842. The operating cash outflow for the Baltimore lease liability was $0.3 million for the nine months ended September 30, 2022. As of September 30, 2022, the Company continued to occupy and utilize the Baltimore facility. The remaining term of the Company’s Baltimore lease was 0.75 years, and the incremental borrowing rate used to determine the operating lease liability was 6.0%.

Lease expense recognized for the operating leases, including short-term leases not included in the measurement of the lease liability, was $0.4 million for the nine months ended September 30, 2022. Under the terms of the lease agreements, the Company is also responsible for certain variable lease payments that are not included in the measurement of the lease liability. Variable lease payments for the operating leases were immaterial for the nine months ended September 30, 2022. Rent expense recognized under ASC 840 for the nine months ended September 30, 2021 was $0.6 million.

As of September 30, 2022, future minimum commitments under the Company’s non-cancelable operating leases, in accordance with ASC 842, are as follows (in thousands): 

As of December 31, 2021, future minimum commitments under the Company’s non-cancelable operating leases, in accordance with ASC 840, are as follows (in thousands):

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Asset Acquisition

In March 2022, the Company acquired RainBio, a private company in the United States whose primary assets are certain gene therapy technology and preclinical data. RainBio was purchased at a cost of approximately $2.2 million, including transaction costs and a contingent holdback, and the Company may be required to make additional contingent payments of up to $17.5 million in the aggregate upon the achievement of certain milestones. Other than the contingent holdback release, no further payments are required until U.S Food and Drug Administration, or FDA, approval of a product based upon the acquired assets and the sale or utilization of any priority review voucher that may be granted in connection with such approval.

The acquisition was accounted for as an asset acquisition, as substantially all of the fair value of the assets acquired was concentrated in a single in-process research and development, or IPR&D, intangible asset. As the acquired IPR&D did not have an alternative future use to the Company, the purchase price of $2.2 million was recorded as research and development expense in the accompanying condensed consolidated statement of operations for the nine months ended September 30, 2022. As of September 30, 2022, none of the milestones were probable of achievement and, accordingly, no amounts have been recognized in the accompanying condensed consolidated financial statements with respect to these contingent payments.

Indemnifications

In the normal course of business, the Company enters into agreements that contain a variety of representations and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. As of September 30, 2022, the Company did not have any material indemnification claims that were probable or reasonably possible and consequently has not recorded related liabilities.

Litigation

From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is not presently a party to any legal proceedings that it believes would have a material adverse effect on its business, operating results, financial condition or cash flows.

6. Restructuring, Impairment and Other Costs of Terminated Programs

As discussed in Note 1, based on the conclusions from the comprehensive review of strategic alternatives focused on maximizing shareholder value, the Company decided to terminate all activities relating to the GB-102 and GB-401 programs and to reduce its workforce as a part of cost-reduction initiatives. In connection with these events, impairment of capital equipment in its Baltimore, Maryland facility, severance and termination benefit costs for employees, and other costs were recorded under restructuring, impairment and other costs of terminated programs in the condensed consolidated statement of operations for the three months ended September 30, 2022.

The Company recorded the following under restructuring, impairment and other costs (in thousands):

Impairment of Capital Equipment

In connection with the restructuring, the Company either sold or disposed of all the equipment in its Baltimore, Maryland facility, including equipment that had been previously expensed. The fair value of the capital equipment was determined based on the net selling price at which such equipment was subsequently sold and is classified as assets held for sale in the condensed consolidated balance sheet as of September 30, 2022. The Company recorded an impairment charge as follows (in thousands):

Severance and Termination Benefit Expense

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Employees affected by the reduction-in-force are entitled to receive severance payments and certain Company-funded benefits. Severance and termination benefit expense is recorded in full for employees who were notified of their termination in August 2022 and had no requirements for future service after August 31, 2022. The Company is recognizing severance and termination benefit expense for employees who were required to render services after August 31, 2022 but will not receive their severance and termination benefits until the end of their service period, ratably over their service periods which all ended in October 2022. The Company recorded severance and termination benefit expense as follows (in thousands):

The liability as of September 30, 2022 for employees terminated on August 31, 2022 with no requirement for future service primarily relates to severance to be paid in October 2022. Adjustments to severance and termination benefit expense may be recorded in future periods as the estimates of the costs of benefits change. However, it is not expected that such adjustments will have a material effect on results of operations or financial condition. 

7. Stock-Based Compensation

2020 Equity Incentive Plan

In August 2020, the Company’s board of directors and stockholders adopted the Company’s 2020 Equity Incentive Plan, or the 2020 Plan, that became effective in connection with the initial public offering, or IPO, and serves as the successor to the Company’s 2015 Stock Incentive Plan, or the 2015 Plan. The Company’s 2020 Plan authorizes the award of stock options, restricted stock units, or RSUs, restricted stock awards, or RSAs, stock appreciation rights, or SARs, performance awards and stock bonus awards. In March 2022, the Company increased the aggregate number of shares reserved for issuance by an additional 1,067,888 shares pursuant to the automatic share reserve increase provision of the 2020 Plan and in June 2022 the Company reserved an additional 2,340,000 shares for future issuance under the 2020 Plan following approval by the Company’s stockholders. As of September 30, 2022, there were 399,875 shares available for issuance under the 2020 Plan.

2020 Employee Stock Purchase Plan

In August 2020 the Company’s board of directors and stockholders adopted the Company’s 2020 Employee Stock Purchase Plan, or the ESPP, that became effective in connection with the IPO, in order to enable eligible employees to purchase shares of the Company’s common stock with accumulated payroll deductions. As of September 30, 2022, there were 210,000 shares available for issuance under the ESPP. There have been no employee withholdings for the purchase of shares under the plan as of September 30, 2022.

Inducement Grants

On January 14, 2022, six newly-hired employees were granted inducement options to purchase an aggregate of 234,200 shares of the Company’s common stock at an exercise price of $1.55 per share. These inducement grants were made outside of the 2020 Equity Incentive Plan in accordance with the Nasdaq Listing Rule 5635(c)(4). All six employees have since been terminated in connection with the Company’s August 2022 reduction-in-force, which was prior to the first vesting date, resulting in the forfeiture of all such inducement grants.

Stock-Based Compensation Expense

Stock-based compensation expense recognized for options and RSUs granted was as follows (in thousands):

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As of September 30, 2022, the total unrecognized stock-based compensation expense related to outstanding unvested stock awards that are expected to vest was $13.5 million, which the Company expects to recognize over an estimated weighted-average term of 2.4 years.

8. Income Taxes

The Company did not record a provision or benefit for income taxes during the nine months ended September 30, 2022 and 2021. As of both September 30, 2022 and December 31, 2021, the Company continues to maintain a full valuation allowance against all of its deferred tax assets in light of its history of cumulative net losses.

9. Net Loss Per Share

The Company calculates basic net loss per share based on the weighted-average number of common shares outstanding during the periods presented and calculates diluted net loss per share based on the weighted-average number of shares of common stock outstanding, including potentially dilutive securities.

For the nine months ended September 30, 2022 and 2021, basic and diluted net loss per share are the same due to the Company’s net losses and requirement to exclude potentially dilutive securities which would have an antidilutive effect on net loss per share. During the nine months ended September 30, 2022 and 2021, potentially dilutive securities consisted of the common shares underlying outstanding stock options, RSUs and warrants.

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

10. Subsequent Event

On October 3, 2022, the Company provided written notification to Johns Hopkins University, or JHU, of complete termination of the exclusive license agreement to all licensed patent rights owned by JHU that are relevant to the GB-102 and GB-401 programs. On November 10, 2022, the Company entered into an agreement with Mireca Medicines GmbH (“Mireca”) to assign certain intellectual property and revert all rights to GB-601 back to Mireca.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission, or SEC, on March 11, 2022. In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties. You should carefully read the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.

Overview

On June 28, 2022 we announced that we would conduct a comprehensive review of strategic alternatives focused on maximizing shareholder value. As part of our review, we are exploring the potential for an acquisition, company sale, merger, divestiture of assets, private placement of equity securities, or other strategic transactions. On August 11, 2022, we announced that all clinical development of GB-102, GB-401, and GB-501 had been put on hold to conserve capital pending the outcome of our strategic review. On August 18, 2022, our board of directors approved certain strategic, operational and organizational steps for the Company including both the termination of all activities relating to our GB-102 and GB-401 programs and certain cost-reduction initiatives, including a reduction in our workforce by 71%.  While clinical development of GB-501 remains on hold, preclinical work is still proceeding.

We have historically been a clinical-stage biopharmaceutical company focused on developing transformative medicines for the treatment of ocular diseases. Our diversified portfolio was designed to treat vision-threatening diseases of the retina, optic nerve, and cornea, by either maintaining effective drug levels in ocular tissues for long periods of time, using innovative technologies, such as injectable sustained-release formulations, or by restoring vision with gene therapies. Our novel proprietary technologies are designed to improve patient compliance, reduce healthcare burdens and, ultimately, deliver better clinical outcomes. As a result of our review of strategic alternatives, our board of directors decided in August 2022 to terminate further development of what had been our lead product candidate, GB-102, an intravitreal injection of a microparticle depot formulation of sunitinib, a potent pan-VEGF inhibitor that reduces neovascular growth and permeability, which are leading causes of wet age-related macular degeneration or wet AMD. We had also used our proprietary implant technology to develop GB-401, a first-in-class implant formulation containing a novel prodrug of timolol, a beta-adrenergic blocking agent, for the treatment of primary open-angle glaucoma. GB-401 had been designed for a twice-per-year intravitreal injection with a proprietary applicator, but our board of directors also decided to terminate further development of GB-401 in August 2022.

In March 2022, we acquired a novel adeno-associated virus (AAV) gene therapy program to treat corneal clouding caused by mucopolysaccharidosis type 1 (MPS1), a lysosomal storage disorder. This program was granted both Orphan Drug Designation (ODD) and Rare Pediatric Disease Designation (RPDD) by the U.S Food and Drug Administration (FDA) and is therefore eligible for a Priority Review Voucher (PRV) if approved. This single-injection treatment is designed to both prevent and reverse severe visual impairment in MPS1 patients. Preclinical development of this program, which we refer to as GB-501, is ongoing.

In December 2021, we acquired patents and certain exclusive license rights to a portfolio of novel cyclic guanosine mono-phosphate (cGMP) analogs to address hereditary retinal diseases, such as retinitis pigmentosa (PR), comprising a group of genetic disorders that involve a loss of cells in the retina. In November 2022, we negotiated a divestiture of this program back to the company from which we acquired the patents and exclusive license rights in exchange for a release of any future obligation or liability.

We also formed a strategic partnership with a clinical-stage, end-to-end artificial intelligence (AI)-drug discovery company to develop novel and potent small-molecule complement factor B inhibitors targeting the complement pathway as a potential treatment for geographic atrophy. Preclinical development of this program, which we refer to as GB-701, is ongoing.

We believe that our remaining product candidates have the potential to significantly improve clinical outcomes versus the respective standards of care for their targeted ocular diseases.  

We were incorporated in May 2011 and our operations to date have been financed primarily by gross proceeds of approximately $134.0 million from the issuance of convertible promissory notes and convertible preferred stock, and $92.0 million in net proceeds from our initial public offering of our common stock, or IPO, after deducting underwriters’ discounts and commissions of $7.2 million and offering costs of $4.2 million.

Since inception, we have had significant operating losses. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures and, to a lesser extent, general and administrative expenditures. Our net loss was $9.8 million and $8.0 million for the three months ended September 30, 2022 and 2021, respectively, and $28.2 million and

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$27.1 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $197.4 million and cash, cash equivalents and short-term investments of $43.6 million.

We expect to continue to incur net losses for the foreseeable future, and, subject to our strategic review, if we continue to operate our business as we have historically, we expect our research and development expenses, general and administrative expenses, and capital expenditures to continue to increase. In particular, we expect our expenses to increase if we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products, as well as hire additional personnel, develop commercial infrastructure, pay fees to outside consultants, lawyers and accountants, and incur increased costs associated with being a public company, such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC reporting requirements, insurance and investor relations. If we continue to operate our business as we have historically, our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending upon the timing of our clinical trials and our expenditures on other research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued research and development and other current liabilities.

Recent Developments

Minimum Bid Price

On June 16, 2022, we received a written notification (the “Notice Letter”) from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1), as the closing bid price for our common stock was below the $1.00 per share requirement for the 30 prior consecutive business days which is the minimum closing price required to maintain continued listing on the Nasdaq Stock Market under Nasdaq Listing Rule 5450(a)(1) (the “Minimum Bid Requirement”). The Notice Letter stated that we had 180 calendar days, or until December 13, 2022, to regain compliance with the Minimum Bid Requirement.

On July 21, 2022, we received a written notification from Nasdaq indicating that we had regained compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price of our common stock during the preceding ten consecutive business days, July 7, 2022 to July 20, 2022, had been at $1.00 per share or greater. Our continued compliance with the Minimum Bid Requirement is dependent on our share price and there can be no assurance that we will continue to satisfy Nasdaq’s minimum financial and other requirements in future periods.

Business Effects of the COVID-19 Pandemic

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, communities and business operations, as well as the U.S. economy and financial markets. To date, our financial condition and operations have not been significantly impacted by the COVID-19 outbreak; however, the ongoing challenges associated with the pandemic, including the emergence of new variants of the coronavirus, such as the Delta and Omicron variants, and resurgences in the number and rates of infections, make it difficult to assess the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, liquidity and financial condition, all of which will depend on future developments, which are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

To date, our contract manufacturing organizations, or CMOs, and other vendors have been able to continue to provide services and supply reagents, materials, and products and currently do not anticipate any disruption in services or interruptions in supply. Our CMOs continue to operate their manufacturing facilities at or near normal levels. While we currently do not anticipate any interruptions in our manufacturing process, it is possible that the COVID-19 pandemic and response efforts may have an impact in the future on our third-party suppliers and contract manufacturing partners’ ability to manufacture reagents, materials or products that we need to use in our research and preclinical development. However, we are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, and our ability to retain employees.

Given the persistent uncertainty of the evolving pandemic, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our future development activities.

The COVID-19 pandemic has caused us to modify our business practices including, but not limited to, curtailing or modifying employee travel, moving to partial remote work, and cancelling physical participation in meetings, events and conferences. We may take further actions as may be required by government authorities or that we determine are in the best interests of our employees and business partners.

The majority of our office-based employees have been working from home since March 2020, while ensuring essential staffing levels in our operations remain in place.

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For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors.

Components of Operating Results

Research and Development Expenses

Our research and development expenses have included:

Most of our historical research and development expenses have been related to the preclinical and clinical development of GB-102, further development of which was terminated in August 2022. We have not reported program costs since inception because we have not tracked or recorded our research and development expenses on a program-by-program basis historically. We have historically used our personnel and infrastructure resources across the breadth of our research and development activities, which are directed toward identifying and developing product candidates.

We expense all research and development costs in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.

Based on our current operating plan, which is subject to change pursuant to our strategic review, we expect our research and development expenditures would increase substantially if we continue to invest in research and development activities related to developing our GB-501 product candidate, and if we continue to advance any of our remaining programs and conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.

Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates or if we even continue to pursue such product development, commercialization or sales. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our remaining product candidates, to the extent we continue to pursue such activities, will depend on a variety of factors, including:

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We may never succeed in achieving regulatory approval for any of our remaining product candidates. We may obtain unexpected results from our preclinical studies and subsequent clinical trials, if any. We may elect to discontinue, delay or modify future clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current preclinical product candidates. For example, if the FDA, or another regulatory authority, were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or future clinical trials, if any, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.

General and Administrative Expenses

Our general and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation expense. If our strategic review results in one or more transactions that involves an expansion of our current headcount or operations, we would expect our general and administrative expenses to increase over the next several years to support such an expansion, increased costs of operating as a public company, retaining and motivating our employees, the development of a commercial infrastructure to support the potential commercialization of our product candidates, and the use of outside service providers such as insurers, consultants, lawyers, and accountants.

Restructuring, Impairment and Other Costs of Terminated Programs

Restructuring, impairment and other costs of terminated programs primarily consists of severance and termination benefit expense for 20 terminated employees and non-cash impairment of capital equipment.

Interest Income

Our interest income principally reflects interest earned on our investments. Our investments include U.S. government-backed money-market funds, corporate debt securities, commercial paper and government bonds. We place cash in excess of immediate requirements into a custodial account and invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.

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Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following sets forth our results of operations (in thousands):

* Percentage change is greater than 100%.

Research and Development Expenses

Research and development expenses comprised (in thousands):

As of September 30, 2022 and 2021, we had 5 and 17 employees, respectively, engaged in research and development activities in our Baltimore, Maryland and Redwood City, California facilities.

Research and development expenses were $3.2 million and $4.0 million for the three months ended September 30, 2022 and 2021, respectively. The decrease was primarily due to the termination of employees and the wind-down of the GB-102 and GB-401 research and development programs. Pending the outcome of our strategic review, we expect research and development expenses to decrease in 2022 compared to 2021.

General and Administrative Expenses

General and administrative expenses to support our business activities comprised (in thousands):