gray-10q_20200930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 September 30, 2020

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 001-39538

 

GRAYBUG VISION, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

452120079

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

275 Shoreline Drive, Suite 450

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:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

GRAY

 

The 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  

The number of shares of the Registrant’s Common Stock outstanding as of November 6, 2020 was 20,979,265.

 

 

 


 

 

Table of Contents

 

 

 

 

Page

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.

 

Condensed Financial Statements (unaudited)

 

 

 

Condensed Balance Sheets as of September 30, 2020 and December 31, 2019

4

 

 

Condensed Statements of Operations for the three and nine months ended September 30, 2020 and 2019

5

 

 

Condensed Statements of Comprehensive Loss for the three and nine months ended September 30, 2020 and 2019

6

 

 

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019

7

 

 

Condensed Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

9

 

 

Notes to the Condensed Financial Statements

10

Item 2.

 

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

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

 

Controls and Procedures

27

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

28

Item 1A.

 

Risk Factors

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

 

Defaults Upon Senior Securities

68

Item 4.

 

Mine Safety Disclosures

68

Item 5.

 

Other Information

68

Item 6.

 

Exhibits

68

EXHIBIT INDEX

69

SIGNATURES

70

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Graybug” and the “Company” refer to Graybug Vision, Inc. Graybug, Graybug Vision, Inc., the Graybug logo and other trade names, trademarks or service marks of Graybug are the property of Graybug Vision, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this report 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.

 

 

 

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of present and historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, prospective products, planned preclinical studies and clinical trials, regulatory approvals, research and development costs, and timing and likelihood of success, as well as plans and objectives of management for future operations, may be forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words.

Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such statements are subject to a number of known and unknown risks, uncertainties and assumptions, and actual results may differ materially from those expressed or implied in the forward-looking statements due to various factors, including, but not limited to, those identified in Part I. Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II. Item 1A “Risk Factors.” These risks and uncertainties include, but are not limited to:

 

our ongoing and planned clinical trials of GB-102 and our planned clinical trials of GB-103 and GB-401;

 

the success, cost and timing of our development activities, preclinical studies and clinical trials;

 

the translation of our preclinical results and data and early clinical trial results into future clinical trials in humans;

 

the effects of the ongoing COVID-19 pandemic, and the corresponding responses of businesses and governments, on our business and financial results;

 

the timing or likelihood of regulatory filings and approvals;

 

our ability to receive the required regulatory approvals to market and sell our products in the United States and other countries;

 

our ability to develop sales and marketing capabilities;

 

the rate and degree of market acceptance of any products we are able to commercialize;

 

the effects of increased competition as well as innovations by new and existing competitors in our market;

 

our ability to obtain funding for our operations;

 

our ability to establish and maintain collaborations;

 

our ability to effectively manage our anticipated growth;

 

our ability to maintain, protect and enhance our intellectual property rights and proprietary technologies;

 

our ability to operate our business without infringing the intellectual property rights and proprietary technology of third parties;

 

costs associated with defending intellectual property infringement, product liability and other claims;

 

regulatory developments in the United States and other foreign countries;

 

our ability to attract and retain qualified employees;

 

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act; and

 

statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and stock performance.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

3


GRAYBUG VISION, INC.

Condensed Balance Sheets

(in thousands)

(Unaudited)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

 

 

 

 

 

 

(See Note 1)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,968

 

 

$

15,870

 

Short-term investments

 

 

 

 

 

20,086

 

Prepaid expenses and other current assets

 

 

138

 

 

 

315

 

Total current assets

 

 

95,106

 

 

 

36,271

 

Property and equipment, net

 

 

1,788

 

 

 

1,975

 

Prepaid expenses and other non-current assets

 

 

1,491

 

 

 

2,414

 

Total assets

 

$

98,385

 

 

$

40,660

 

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,562

 

 

$

4,636

 

Accrued research and development

 

 

1,023

 

 

 

2,333

 

Other current liabilities

 

 

2,156

 

 

 

3,124

 

Preferred stock tranche obligation

 

 

 

 

 

2,158

 

Total current liabilities

 

 

7,741

 

 

 

12,251

 

Deferred rent, long term portion

 

 

10

 

 

 

 

Total liabilities

 

 

7,751

 

 

 

12,251

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Convertible preferred stock

 

 

 

 

 

131,363

 

Stockholders’ Equity (Deficit):

 

 

 

 

 

 

 

 

Common stock

 

 

2

 

 

 

 

Additional paid-in capital

 

 

214,847

 

 

 

2,879

 

Accumulated deficit

 

 

(124,215

)

 

 

(105,836

)

Accumulated other comprehensive income

 

 

 

 

 

3

 

Total stockholders’ equity (deficit)

 

 

90,634

 

 

 

(102,954

)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

 

$

98,385

 

 

$

40,660

 

 

See accompanying notes to unaudited condensed financial statements.

4


GRAYBUG VISION, INC.

Condensed Statements of Operations

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

4,757

 

 

$

8,403

 

 

$

15,474

 

 

$

22,570

 

General and administrative

 

 

2,064

 

 

 

1,962

 

 

 

5,183

 

 

 

4,404

 

Total operating expenses

 

 

6,821

 

 

 

10,365

 

 

 

20,657

 

 

 

26,974

 

Loss from operations

 

 

(6,821

)

 

 

(10,365

)

 

 

(20,657

)

 

 

(26,974

)

Interest income

 

3

 

 

160

 

 

120

 

 

 

211

 

Change in fair value of preferred stock tranche obligation

 

 

2,102

 

 

 

 

 

 

2,158

 

 

 

 

Net loss

 

 

(4,716

)

 

 

(10,205

)

 

 

(18,379

)

 

 

(26,763

)

Cumulative dividends on convertible preferred stock

 

 

(2,396

)

 

 

(2,048

)

 

 

(7,189

)

 

 

(4,633

)

Net loss attributable to common stockholders

 

$

(7,112

)

 

$

(12,253

)

 

$

(25,568

)

 

$

(31,396

)

Net loss per common share—basic and diluted

 

$

(2.52

)

 

$

(9.30

)

 

$

(13.74

)

 

$

(24.10

)

Weighted-average number of shares outstanding used in

   computing net loss per common share—basic and diluted

 

 

2,818,349

 

 

 

1,317,497

 

 

 

1,861,229

 

 

 

1,302,687

 

 

 

See accompanying notes to unaudited condensed financial statements.

 

5


GRAYBUG VISION, INC.

Condensed Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(4,716

)

 

$

(10,205

)

 

$

(18,379

)

 

$

(26,763

)

Unrealized gain (loss) on available-for-sale securities, net of tax

 

 

 

 

7

 

 

 

(3

)

 

 

7

 

Comprehensive loss

 

$

(4,716

)

 

$

(10,198

)

 

$

(18,382

)

 

$

(26,756

)

 

See accompanying notes to unaudited condensed financial statements.

 

 

 

6


 

GRAYBUG VISION, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(Unaudited)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

(Deficit)

 

Balance—December 31, 2019

 

 

117,809,883

 

 

$

131,363

 

 

 

 

1,371,467

 

 

$

 

 

$

2,879

 

 

$

(105,836

)

 

$

3

 

 

$

(102,954

)

Stock issued on exercise of stock options

 

 

 

 

 

 

 

 

 

5,446

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

226

 

 

 

 

 

 

 

 

 

226

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,794

)

 

 

 

 

 

(7,794

)

Change in unrealized gains on available-for-sale

   securities, net of income tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

(3

)

Balance—March 31, 2020

 

 

117,809,883

 

 

$

131,363

 

 

 

 

1,376,913

 

 

$

 

 

$

3,116

 

 

$

(113,630

)

 

$

 

 

$

(110,514

)

Stock issued on exercise of stock options

 

 

 

 

 

 

 

 

 

5,287

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

214

 

 

 

 

 

 

 

 

 

214

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,869

)

 

 

 

 

 

(5,869

)

Balance—June 30, 2020

 

 

117,809,883

 

 

$

131,363

 

 

 

 

1,382,200

 

 

$

 

 

$

3,342

 

 

$

(119,499

)

 

$

 

 

$

(116,157

)

Issuance of common stock upon the initial public

   offering, net

 

 

 

 

 

 

 

 

 

5,625,000

 

 

 

1

 

 

 

79,528

 

 

 

 

 

 

 

 

 

79,529

 

Conversion of convertible preferred stock into

   common stock upon the initial public offering

 

 

(117,809,883

)

 

 

(131,363

)

 

 

 

13,085,913

 

 

 

1

 

 

 

131,362

 

 

 

 

 

 

 

 

 

131,363

 

Stock issued on exercise of stock options

 

 

 

 

 

 

 

 

 

42,402

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

54

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

561

 

 

 

 

 

 

 

 

 

561

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,716

)

 

 

 

 

 

(4,716

)

Balance—September 30, 2020

 

 

 

 

$

 

 

 

 

20,135,515

 

 

$

2

 

 

$

214,847

 

 

$

(124,215

)

 

$

 

 

$

90,634

 

 

See accompanying notes to unaudited condensed financial statements.

7


 

GRAYBUG VISION, INC.

Condensed Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(Unaudited)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income

 

 

Deficit

 

Balance—December 31, 2018

 

 

80,377,096

 

 

$

78,811

 

 

 

 

1,292,858

 

 

$

 

 

$

2,007

 

 

$

(68,799

)

 

$

 

 

$

(66,792

)

Stock issued on exercise of stock options

 

 

 

 

 

 

 

 

 

3,787

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

156

 

 

 

 

 

 

 

 

 

156

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,295

)

 

 

 

 

 

(6,295

)

Balance—March 31, 2019

 

 

80,377,096

 

 

$

78,811

 

 

 

 

1,296,645

 

 

$

 

 

$

2,172

 

 

$

(75,094

)

 

$

 

 

$

(72,922

)

Stock issued on exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

142

 

 

 

 

 

 

 

 

 

142

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,263

)

 

 

 

 

 

(10,263

)

Balance—June 30, 2019

 

 

80,377,096

 

 

$

78,811

 

 

 

 

1,296,645

 

 

$

 

 

$

2,314

 

 

$

(85,357

)

 

$

 

 

$

(83,043

)

Issuance of Series C convertible preferred

   stock, net of issuance costs of $217 and

   discount on allocation of proceeds to

   preferred stock tranche obligation of $2,230

 

 

37,432,787

 

 

 

52,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued on exercise of stock options

 

 

 

 

 

 

 

 

 

73,213

 

 

 

 

 

 

122

 

 

 

 

 

 

 

 

 

122

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

250

 

 

 

 

 

 

 

 

 

250

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,205

)

 

 

 

 

 

(10,205

)

Unrealized gain on available-for-sale securities,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

7

 

Balance—September 30, 2019

 

 

117,809,883

 

 

$

131,363

 

 

 

 

1,369,858

 

 

$

 

 

$

2,686

 

 

$

(95,562

)

 

$

7

 

 

$

(92,869

)

 

See accompanying notes to unaudited condensed financial statements.

 

 

8


 

GRAYBUG VISION, INC.

Condensed Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(18,379

)

 

$

(26,763

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,001

 

 

 

548

 

Depreciation

 

 

284

 

 

 

219

 

Change in fair value of preferred stock tranche obligation

 

 

(2,158

)

 

 

 

Accretion of premium and discounts on short-term investments

 

 

(17

)

 

 

(25

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current and noncurrent assets

 

 

227

 

 

 

1,505

 

Accounts payable

 

 

(1,204

)

 

 

2,581

 

Accrued research and development

 

 

(1,310

)

 

 

(20

)

Other current liabilities

 

 

(747

)

 

 

613

 

Deferred rent, long term portion

 

 

10

 

 

 

 

Net cash used in operating activities

 

 

(22,293

)

 

 

(21,342

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(197

)

 

 

(457

)

Purchases of short-term investments

 

 

 

 

 

(18,969

)

Maturity of short-term investments

 

 

20,100

 

 

 

 

Net cash provided by (used in) investing activities

 

 

19,903

 

 

 

(19,426

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial public offering, net of

   underwriting discounts and commissions

 

 

83,700

 

 

 

 

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 

 

 

54,787

 

Proceeds from exercise of stock options

 

 

77

 

 

 

131

 

Payment of offering costs

 

 

(2,289

)

 

 

 

Net cash provided by financing activities

 

 

81,488

 

 

 

54,918

 

Net increase in cash and cash equivalents

 

 

79,098

 

 

 

14,150

 

Cash and cash equivalents at beginning of period

 

 

15,870

 

 

 

12,834

 

Cash and cash equivalents at end of period

 

$

94,968

 

 

$

26,984

 

Supplemental disclosure of noncash items:

 

 

 

 

 

 

 

 

Deferred offering costs included in accounts payable and other current liabilities

 

$

1,837

 

 

$

13

 

Conversion of convertible preferred stock into common stock upon initial public

   offering

 

$

131,363

 

 

$

 

Property and equipment purchases included in accounts payable

 

$

60

 

 

$

6

 

 

See accompanying notes to unaudited condensed financial statements.

 

 

9


 

GRAYBUG VISION, INC.

Notes to Condensed Financial Statements

(Unaudited)

1. Organization

Graybug Vision, Inc., the Company or Graybug, is a clinical stage biopharmaceutical company developing medicines for the treatment of diseases of the retina and optic nerve. The Company presently devotes substantially all of its resources to conducting research and development and raising capital. The Company was founded in May 2011 and maintains facilities in Redwood City, California and Baltimore, Maryland.

The Company is 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.

Initial Public Offering

On September 24, 2020, the Company completed its initial public offering, or IPO, of 5,625,000 shares of its common stock at a public offering price of $16.00 per share, pursuant to the Company’s registration statement on Form S-1, which was declared effective by the Securities and Exchange Commission, or the SEC, on that date. The shares of the Company’s common stock began trading on the Nasdaq Global Market on September 25, 2020 and the IPO closed on September 29, 2020. As a result of the IPO, the Company received net proceeds of $79.5 million, after deducting underwriting discounts, commissions and offering expenses, but before giving effect to the underwriters’ subsequent exercise of their overallotment option in October 2020 (see Note 11). Prior to the completion of the IPO, all 117,809,883 shares of redeemable convertible preferred stock then outstanding were converted into 13,085,913 shares of common stock.  

Reverse Stock Split

On September 18, 2020, the Company effected a 9.0058:1 reverse stock split of its issued and outstanding common stock. Upon the effectiveness of the reverse stock split, (i) all shares of outstanding common stock were adjusted; (ii) the conversion prices of the convertible preferred stock were adjusted; (iii) the number of shares of common stock for which each outstanding option and warrant to purchase common stock is exercisable were adjusted; and (iv) the exercise price of each outstanding option and warrant to purchase common stock was adjusted. All of the outstanding common stock share numbers (including shares of common stock subject to the Company’s options, warrants and as converted for the outstanding convertible preferred stock), share prices, exercise prices and per share amounts contained in the condensed financial statements have been retroactively adjusted in the condensed financial statements to reflect this reverse stock split for all periods presented. The par value per share and the authorized number of shares of common stock were not adjusted as a result of the reverse stock split.

Going Concern Considerations

The Company incurred losses from operations and had negative cash flows from operating activities for the three and nine months ended September 30, 2020 and 2019, and the Company’s accumulated deficit at September 30, 2020 is $124.2 million. Prior to the IPO, the Company historically funded its operations through the issuance of shares of its convertible preferred stock. The Company’s current operating plan indicates it will continue to incur losses from operations and generate negative cash flows from operating activities, given ongoing expenditures related to extensive 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 product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

As of April 21, 2020, the issuance date of the Company’s audited financial statements for the year ended December 31, 2019, the Company concluded that there was substantial doubt about its ability to continue as a going concern for one year after the date that those financial statements were issued. Subsequent to the issuance of those financial statements, the Company received proceeds of $79.5 million, net of the underwriters’ discounts, from the IPO in September 2020. Additionally, in October 2020 the Company received additional proceeds of $12.6 million from the underwriters’ exercise of their option to purchase additional shares of the Company’s common stock (see Note 11). Accordingly, as of the issuance date of these unaudited condensed financial statements, the Company expects its cash and cash equivalents of $95.0 million as of September 30, 2020, will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months beyond the date of issuance of these unaudited condensed financial statements. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.

The Company may seek to raise additional funds in order to further advance its research and development programs, operate its business and meet its obligations as they come due. The Company is pursuing financing alternatives, similar to what the Company has previously executed, which include equity financing. However, financing 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 raise the necessary funds when needed or reduce spending on currently planned activities, it may not be able to continue the development of its products or the Company could be required to delay, scale back, or eliminate some or all of its research and development programs and other operations and will materially harm its business, financial position and results of operations.

10


GRAYBUG VISION, INC.

Notes to Condensed Financial Statements

(Unaudited)

 

Coronavirus Outbreak

In March 2020 the World Health Organization declared the global novel coronavirus disease 2019, or COVID-19, outbreak a pandemic. As of September 30, 2020, the Company’s operations have not been significantly impacted by the COVID-19 outbreak. However, the Company cannot at this time predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on its financial condition and operations, including ongoing and planned clinical trials. The impact of the COVID-19 outbreak on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions. These developments and the impact of COVID-19 on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be materially adversely affected.

In March 2020, the Families First Coronavirus Response Act, or FFCR Act, and the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, were signed into law in response to the COVID-19 pandemic. The FFCR Act and CARES Act include provisions related to refundable payroll tax credits, deferment of employer side social security payments, and retroactively and temporarily (for taxable years beginning before January 1, 2021) suspending the application of the 80%-of-income limitation on the use of net operating losses, which was enacted as part of the Tax Cuts and Jobs Act of 2017. The CARES Act also provides that net operating losses arising in any taxable year beginning after December 31, 2017, and before January 1, 2021 are generally eligible to be carried back up to five years.

In June 2020, Assembly Bill 85, or A.B. 85, was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

The enactment of the FFCR Act, CARES Act and A.B. 85 did not result in any material adjustments to the Company’s income tax provision for the nine months ended September 30, 2020 or to the Company’s net deferred tax assets as of September 30, 2020. Given the Company’s history of losses, the Company does not expect the provisions of the FFCR Act, CARES Act and A.B. 85 to have a material impact on the Company’s annual effective tax rate or condensed financial statements in 2020; however, the Company will continue to evaluate the impact of tax legislation and will update its disclosures as additional information and interpretive guidance becomes available.

2. Summary of Significant Accounting Policies

Other than with respect to the adoption of ASU 2018-13 discussed below, there have been no changes to the significant accounting policies as disclosed in Note 2 to the Company’s audited financial statements and related footnotes included in the Registration Statement on Form S-1 (File No. 333-248611), as amended, and related Prospectus filed with the SEC on September 25, 2020, or the Prospectus.

In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. ASU 2018-13 removed the following disclosure requirements: (1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; (2) the policy for timing of transfers between levels; and (3) the valuation processes for Level 3 fair value measurements. Additionally, this update added the following disclosure requirements: (1) the changes in unrealized gains and losses for the period included in other comprehensive income and loss for recurring Level 3 fair value measurements held at the end of the reporting period; and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information, such as the median or arithmetic average, in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 became effective for the Company beginning January 1, 2020 and the adoption of ASU 2018-13 did not have a material impact on the Company’s condensed financial statements. For the disclosures regarding the Company’s Level 3 fair value measurements, see Note 3, Fair Value Measurements, to these condensed financial statements.

In December 2019, the FASB issued ASU No. 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. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and must be applied on a retrospective basis. The Company is currently evaluating the impact of this new guidance on its financial statements and disclosures.

11


GRAYBUG VISION, INC.

Notes to Condensed Financial Statements

(Unaudited)

 

Basis of Presentation

The accompanying unaudited condensed financial statements contained in this Quarterly Report on Form 10-Q have been prepared in accordance with the rules and regulations of the 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. Interim results are not necessarily indicative of results for the full year. The condensed balance sheet at December 31, 2019 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 financial statements should be read in conjunction with the Company’s audited financial statements included in the Prospectus.

Related Party Transactions

In August 2019, the Company engaged a consulting firm managed by the then acting chief financial officer of the Company for professional services related to accounting, finance and other administrative functions. For the three months ended September 30, 2020 and 2019, the costs incurred under this arrangement totaled $212,000 and $82,000 and for the nine months ended September 30, 2020 and 2019, the costs totaled $657,000 and $82,000, respectively. These costs were recorded as general and administrative expense in the accompanying condensed statements of operations. As of September 30, 2020, amounts owed under this arrangement totaled $56,000 and are included in accounts payable in the accompanying condensed balance sheet. As of December 31, 2019 and September 30, 2020, amounts owed under this arrangement totaled $104,000 and $56,000, respectively, and are included in accounts payable in the accompanying condensed balance sheets.

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 levels:

 

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

 

Level 2: Inputs (other than quoted prices included in Level 1) that are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

 

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following tables present information about the Company’s financial assets and liabilities 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):

 

 

 

September 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

94,355

 

 

$

 

 

$

 

 

$

94,355

 

Total assets measured at fair value

 

$

94,355

 

 

$

 

 

$

 

 

$

94,355

 

12


GRAYBUG VISION, INC.

Notes to Condensed Financial Statements

(Unaudited)

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

12,859

 

 

$

 

 

$

 

 

$

12,859

 

Corporate debt securities

 

 

 

 

 

500

 

 

 

 

 

 

500

 

Total cash equivalents

 

 

12,859

 

 

 

500

 

 

 

 

 

 

13,359

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government agency bonds

 

 

 

 

 

2,750

 

 

 

 

 

 

2,750

 

Corporate debt securities

 

 

 

 

 

11,349

 

 

 

 

 

 

11,349

 

Commercial paper

 

 

 

 

 

5,987