CALC US Equity☆

Item 7. 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 financial statements and related notes included elsewhere in this Annual Report. In addition to historical financial information, the following discussion contains 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 our actual results to differ materially from those expressed or implied in any forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on developing transformative medicines for the treatment of diseases of the eye, including the retina and optic nerve. Our novel proprietary technologies are designed to release drugs in ocular tissue at a controlled rate for up to 12 months in order to improve patient compliance, reduce healthcare burdens and, ultimately, deliver better clinical outcomes. Our lead product candidate, GB-102, is an intravitreal injection of a microparticle depot formulation of sunitinib, a potent inhibitor of neovascular growth and permeability, which are leading causes of retinal disease. We are developing GB-102 as a once-every-six month intravitreal injection for the treatment of wet age-related macular degeneration, or wet AMD. In our Phase 1/2a clinical trial, GB-102 administered as a single 1 mg dose was well-tolerated in wet AMD patients and demonstrated durable clinical evidence of disease control of at least six months in approximately 88% of patients in this cohort. GB-102 has also completed a dose-ranging, standard-of-care controlled and masked safety and efficacy Phase 2b clinical trial in patients with wet AMD. We reported topline data from this trial in March of 2021 and we reported further data from an observational six-month extension trial in September 2021. We are evaluating the possibility to develop GB-102 in diabetic retinopathy, or DR. We are also using our proprietary technologies to develop GB-401, an intravitreally injected implant formulation of a beta-adrenergic blocking agent prodrug with a target dosing regimen of once-every-six months or longer for the treatment of primary open-angle glaucoma, or POAG. We believe that our product candidates could significantly improve clinical outcomes versus the respective standards of care for several 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 $35.8 million and $27.5 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $169.2 million and cash, cash equivalents and short-term investments of $63.7 million.

We expect to continue to incur net losses for the foreseeable future, and 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 as 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. 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

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 CROs, 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,

78

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 clinical trial. However, we are continuing to assess the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, our clinical trials, and our ability to hire and 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 clinical trial activities due to the inability of patients to come to their screening or monitoring visits, the closing of eye clinics, and/or diversion of resources that are necessary to conduct our future studies to care for COVID-19 patients.

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, patients 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, including maintaining key personnel in our laboratories.

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 include:

• costs related to sponsored research service agreements;

• the acquisition cost of in-licensed and purchased intellectual property; and

• facilities and equipment costs.

Most of our research and development expenses have been related to the preclinical and clinical development of GB-102. 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 use 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.

We expect our research and development expenditures to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as we advance our 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. We may never succeed in achieving regulatory approval for

79

our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:

• effectively competing with other therapies;

• protecting our rights in our intellectual property portfolio; and

We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify 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 and future preclinical and clinical 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 clinical trials, 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. We expect our general and administrative expenses to increase over the next several years to support our expanding headcount and operations, increased costs of operating as a public company, 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.

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.

Preferred Stock Tranche Obligation

We provided investors in our Series C preferred stock financing the option to buy additional shares of our Series C Preferred Stock upon our achievement of certain development milestones, or the Preferred Stock Tranche Obligation. The fair value of the Preferred

80

Stock Tranche Obligation was remeasured and adjusted to fair value each reporting period until its expiration using an option pricing valuation methodology. In September 2020, our board of directors and the Series C investors amended the Series C stock purchase agreement such that the option to purchase additional shares of our Series C preferred stock would no longer be exercisable and would expire upon the effectiveness of our IPO registration statement. As a result, the Preferred Stock Tranche Obligation expired on September 24, 2020.

Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

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

Year Ended December 31, Change

Operating expenses:

Research and Development Expenses

Research and development expenses comprised (dollars in thousands):

Year Ended December 31, Change

As of December 31, 2021 and 2020, we had 19 and 24 employees, respectively, engaged in research and development activities in our Baltimore, Maryland and Redwood City, California facilities.

Our research and development activities consist primarily of costs associated with the development of GB-102 for which we completed one U.S. Phase 2 clinical trial in patients with wet AMD during 2021, one U.S. Phase 2 clinical trial in patients with DME which was completed in 2020, and pre-clinical costs associated with the development of GB-401. Research and development expenses were $18.9 million in 2021 compared to $21.0 million in 2020. The decrease was primarily due to a reduction in clinical trial expenses due to the completion of the treatment phase of the GB-102 Phase 2b clinical trial in December 2020, offset in part by an increase in compensation costs. Based on our current plans to fund the advancement of GB-102 only through an additional open-label Phase 2a trial in wet AMD, the pre-clinical development of in-licensed and purchased pre-clinical programs, and our plans to commence a Phase 1 trial for GB-401 in glaucoma no earlier than the first half of 2023, we expect R&D expenses to increase in 2022 compared to 2021.

81

General and Administrative Expenses

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

Year Ended December 31, Change

Facility costs, travel and other expenses 3,917 1,431 2,486 *

Write-off deposits on fixed assets purchase commitments 1,352 — 1,352 *

Patent filing and portfolio costs 1,078 1,125 (47 ) (4 )%

* Percentage change is greater than 100%.

As of December 31, 2021 and 2020, we had eight and seven employees, respectively, engaged in general and administrative activities.

General and administrative expenses were $17.0 million in 2021 compared to $8.9 million in 2020. The increase was primarily due to a $2.8 million increase in stock-based compensation, a $1.8 million increase in the cost of directors and officers insurance as a result of becoming a public company and the $1.3 million write-off of deposits on fixed assets purchase commitments.

Interest Income

Interest income was $126,000 and $143,000 for the years ended December 31, 2021 and 2020, respectively. The decrease was primarily due to the decrease in short term investments.

Preferred Stock Tranche Obligation

The change in fair value of Preferred Stock Tranche Obligation for the year ended December 31, 2020 relates to the fair value adjustment that resulted in a $2.1 million gain in connection with our IPO. In September 2020, the Preferred Stock Tranche Obligation expired upon the effectiveness of the IPO registration statement, resulting in a corresponding elimination of the associated liability.

Liquidity and Capital Resources

Overview

To date, we have incurred losses and negative cash flows from operations. As of December 31, 2021, we had available cash, cash equivalents and short-term investments of $63.7 million and an accumulated deficit of $169.2 million. Prior to our IPO, our operations had been financed primarily by gross proceeds of approximately $134.0 million from the sale of convertible promissory notes and our convertible preferred stock. In connection with our IPO, we issued and sold an aggregate of 6,468,750 shares of common stock (inclusive of 843,750 shares of common stock issued and sold pursuant to the exercise of the underwriters’ option to purchase additional shares) at a price of $16.00 per share for net proceeds of $92.0 million, after deducting underwriters’ discounts and commissions and offering costs.

We have incurred significant net losses of $35.8 million and $27.5 million for the years ended December 31, 2021 and 2020, respectively. We expect to continue to incur significant operational expenses and net losses in the upcoming 12 months and beyond. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our R&D studies and related expenditures, the receipt of additional payments on the licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into.

We believe our cash, cash equivalents and short-term investments of $63.7 million at December 31, 2021 will fund our projected operations into the second half of 2023.

Commitments and Other Obligations

For a detailed description of our commitments and obligations, see Note 5 – Commitments and Contingencies, to the financial statements included in Item 8 of this Annual Report on Form 10-K.

82

Leases

We have lease arrangements for certain equipment and facilities, including, corporate, manufacturing and data center space. As of December 31, 2021, we had fixed lease payment obligations of $732,000, with $527,000 payable within 12 months.

License Agreements

We are party to agreements pursuant to which we have in-licensed and purchased various intellectual property rights. These agreements obligate us to make certain milestone payments related to achievement of specified events, as well as royalties in the low-single digits based on sales of certain products. None of these events had occurred as of December 31, 2021, and no royalties were due from the sales of licensed products.

Other Commitments

We enter into contracts in the normal course of business with CROs for clinical trials and 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 December 31, 2021, these commitments were approximately $0.8 million due within 3 to 15 months. These contracts generally provide for termination on notice of 60 to 90 days, and therefore we believe that our non-cancelable obligations under these agreements are not material.

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

Funding Requirements

Any product candidates we may develop may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research, manufacturing and development services, costs relating to the build-out of our headquarters, laboratories and manufacturing facility, license payments or milestone obligations that may arise, laboratory and related supplies, clinical costs, manufacturing costs, legal and other regulatory expenses and general overhead costs.

Based on our current operating plan, which no longer includes the cost of Phase 3 clinical trials for GB-102, we believe our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements in excess of 12 months from the issuance date of these financial statements. We base this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We base the sufficiency of our existing cash, cash equivalents and short-term investments to fund our operations on the current period re-forecast of our projected cash burn rate following our decision to only proceed with further Phase 3 clinical trials for GB-102 if fully or partially funded by a partner. While we believe that our current cash, cash equivalents and short-term investments are adequate to meet our needs for the next 12 months from issuance, we will seek to raise additional funds in order to further advance our research and development programs, operate our business and meet our obligations as they come due.

We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, potentially including collaborations, licenses and other similar arrangements. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

83

• the expenses needed to attract and retain skilled personnel;

• the costs associated with being a public company;

Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital and operating expenditures associated with our current and anticipated product development programs.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Year Ended December 31,

(in thousands)

Net cash (used in) provided by:

Net (decrease) increase in cash and cash equivalents $ (20,054 ) $ 17,548

Operating Activities

Cash used in operating activities of $31.5 million during the year ended December 31, 2021 was primarily attributable to our net loss of $35.8 million and an increase of $1.6 million in our working capital, partially offset by non-cash stock-based compensation expense of $5.4 million.

Cash used in operating activities of $32.1 million during the year ended December 31, 2020 was attributable to our net loss of $27.5 million and an increase of $4.6 million in our working capital.

Investing Activities

Cash provided by investing activities of $10.8 million during the year ended December 31, 2021 consisted of $105.8 million provided upon maturity of short-term investments, partially offset by $94.6 million of purchases of short-term investments and $0.5 million of purchases of property and equipment.

Cash used in investing activities of $42.6 million during the year ended December 31, 2020 consisted of $61.6 million of purchases of short-term investments and $1.0 million of purchases of property and equipment, partially offset by $20.0 million provided upon maturity of short-term investments.

Financing Activities

Cash provided by financing activities of $0.7 million for the year ended December 31, 2021 was related to proceeds received from the exercise of stock options.

Cash provided by financing activities of $92.2 million for the year ended December 31, 2020 consisted of $96.3 million of proceeds, net of the underwriters’ discounts and commissions, from the issuance of common stock in connection with our IPO and $0.1 million received from the exercise of stock options, partially offset by $4.2 million related to the payments of offering costs.

84

Critical Accounting Policies and Significant Judgments and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Research and Development Expense and Accruals

We record research and development expenses to operations as incurred. Research and development expenses represent costs incurred by us for the discovery and development of our product candidates and the development of our technology and include: employee-related expenses, including salaries, benefits, travel and non-cash stock-based compensation expense; external research and development expenses incurred under arrangements with third parties, such as CROs, preclinical testing organizations, CMOs, academic and non-profit institutions and consultants; license fees; and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs.

As part of the process of preparing financial statements, we are required to estimate and accrue expenses. We estimate costs of research and development activities conducted by service providers, which include the conduct of sponsored research, preclinical studies and contract manufacturing activities. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. If the costs have been prepaid, this expense reduces the prepaid expenses on the balance sheet, and if not yet invoiced, the costs are included in accrued liabilities on the balance sheet. We classify such prepaid assets as current or non-current assets based on our estimates of the timing of when the goods or services will be realized or consumed. These costs are a significant component of our research and development expenses.

We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers. We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from external CROs and other third-party service providers. Amounts ultimately incurred in relation to amounts accrued for these services at a reporting date may be substantially higher or lower than our estimates.

Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services provided and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that may be used to conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.

We have and may continue to enter into purchase and license agreements to access and utilize certain technologies. We evaluate if such agreements are an acquisition of an asset or a business. To date none of these agreements have been considered to be an acquisition of a business. For asset acquisitions, the upfront payments to acquire such assets, or licenses to such assets, as well as any future milestone payments made before product approval, will be immediately recognized as research and development expenses when due, provided there is no alternative future use of the rights in other research and development projects. These agreements may also include contingent consideration in the form of cash. We assess whether such contingent consideration meets the definition of a derivative.

Preferred Stock Tranche Obligation

Convertible preferred stock that includes features we have determined are not clearly and closely related to the equity host are bifurcated and accounted for separately as freestanding derivative assets or liabilities on the balance sheet at their estimated fair value.

85

We recognized a derivative liability as a result of certain investors’ having rights to purchase from us, on the same terms as the Series C Preferred Stock Purchase Agreement executed in July 2019, additional shares of our Series C preferred stock in subsequent tranches based on the achievement of certain development milestones, or the Preferred Stock Tranche Obligation. At initial recognition, we recorded the liability for the Preferred Stock Tranche Obligation on the balance sheet at its estimated fair value. This liability was subject to remeasurement at each balance sheet date until the expiration of the Preferred Stock Tranche Obligation in September 2020, with changes in fair value recognized in our statements of operations.

The liability for the Preferred Stock Tranche Obligation was measured at fair value using an option pricing valuation methodology that included inputs not observable in the market and thus represents a Level 3 measurement. The option pricing valuation methodology utilized requires inputs based on certain subjective assumptions, including (a) expected stock price volatility, (b) calculation of an expected term, (c) a risk-free interest rate and (d) expected dividends. Significant judgment was used in determining these assumptions at initial recognition and at each subsequent reporting period.

Stock-based Compensation

We recognize compensation costs related to stock-based awards to employees and non-employees based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting stock-based compensation, using the Black-Scholes option-pricing model, or Black-Scholes. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.

Black-Scholes requires the use of subjective assumptions to determine the fair value of stock-based awards including:

We will continue to use judgment in evaluating the assumptions utilized for our stock-based compensation expense calculations on a prospective basis. In addition to the assumptions used in Black-Scholes, the amount of stock-based compensation expense we recognize in our financial statements includes stock option forfeitures as they occur. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Common Stock Valuations

Historically, for all periods prior to our IPO, the fair value of the shares of common stock underlying our stock-based awards was estimated on each grant date by our board of directors. In the absence of a public trading market for our common stock, our board of directors exercised their judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including contemporaneous valuations, our stage of development, important developments in our operations, the prices at which we sold shares of our preferred stock, the rights, preferences and privileges of our preferred stock relative to those of our common stock, actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of our common stock, among other factors.

In determining the fair value of our common stock, the methodologies used to estimate our enterprise value were performed using methodologies, approaches and assumptions consistent with the guidance outlined in the American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately Held Company Equity Securities Issued as Compensation. The grant date fair value of our common stock was determined using valuation methodologies incorporating a number of assumptions including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of

86

marketability (Level 3 inputs). The methodology to determine the fair value of our common stock included estimating the fair value of the enterprise using a hybrid-method market approach, which estimates the fair value of the company by including an estimation of the value of the business based on scenarios in a probability-weighted expected return method, or PWERM, framework. Under the hybrid-method market approach, the per share value calculated under the scenarios are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share value of the common stock before a discount for lack of marketability is applied.

Following the closing of our IPO, our board of directors determines the fair market value of our common stock based on its closing price as reported on The Nasdaq Global Market on the date of grant.

Emerging Growth Company and Smaller Reporting Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We are also a “smaller reporting company,” as defined by Rule 12b-2 of the Securities Exchange Act of 1934, because both the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Recently Adopted Accounting Pronouncements

For a full discussion of recently adopted accounting pronouncements, see Note 2 to the financial statements included elsewhere in this Annual Report on Form 10-K for more information.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company, as defined by Rule 12b-2 under the Securities and Exchange Act of 1934 and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

87

Item 8. Financial Statements and Supplementary Data.

GRAYBUG VISION, INC.

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 89

Financial Statements:

Balance Sheets 90

Statements of Operations 91

Statements of Comprehensive Loss 92

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) 93

Statements of Cash Flows 94

Notes to Financial Statements 95

88

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Graybug Vision, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Graybug Vision, Inc. (the Company) as of December 31, 2021 and 2020, the related statements of operations, comprehensive loss, convertible preferred stock and stockholders’ equity (deficit) and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

Redwood City, California

March 10, 2022

89

GRAYBUG VISION, INC.

Balance Sheets

(In thousands, except share and per share amounts)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 3,408 4,207

Prepaid expenses and other non-current assets 29 608

Liabilities and Stockholders’ Equity

Current liabilities:

Accrued research and development 304 1,356

Deferred rent, long term portion 8 11

Commitments and contingencies (Note 5)

Stockholders’ Equity:

Accumulated other comprehensive loss (16 ) (4 )

Total liabilities and stockholders’ equity $ 69,088 $ 101,794

The accompanying notes are an integral part of these financial statements.

90

GRAYBUG VISION, INC.

Statements of Operations

(In thousands, except share and per share amounts)

Year Ended December 31,

Operating expenses:

Change in fair value of preferred stock tranche obligation — 2,158

Cumulative dividends on convertible preferred stock — (7,189 )

Net loss attributable to common stockholders $ (35,821 ) $ (34,720 )

Net loss per common share—basic and diluted $ (1.69 ) $ (5.25 )

The accompanying notes are an integral part of these financial statements.

91

GRAYBUG VISION, INC.

Statements of Comprehensive Loss

(In thousands)

Year Ended December 31,

Unrealized loss on available-for-sale securities, net of tax (12 ) (7 )

The accompanying notes are an integral part of these financial statements.

92

GRAYBUG VISION, INC.

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

(In thousands, except share amounts)

Shares Amount Shares Amount Capital Deficit Income (loss) (Deficit)

Stock issued on exercise of stock options — — 53,135 — 77 — — 77

Stock-based compensation expense — — — — 1,788 — 1,788

Stock issued on exercise of stock options — — 353,508 — 695 — — 695

Stock-based compensation expense — — — — 5,375 — — 5,375

The accompanying notes are an integral part of these financial statements.

93

GRAYBUG VISION, INC.

Statements of Cash Flows

(In thousands)

Year Ended December 31,

Operating activities:

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

Stock-based compensation expense 5,375 1,788

Change in fair value of preferred stock tranche obligation — (2,158 )

Accretion of premium and discounts on short-term investments 58 1

Changes in operating assets and liabilities:

Prepaid expenses and other current and non-current assets 1,378 (2,400 )

Accrued research and development (1,052 ) (977 )

Other current and non-current liabilities 95 280

Net cash used in operating activities (31,500 ) (32,064 )

Investing activities:

Purchases of property and equipment (488 ) (1,023 )

Net cash provided by (used in) investing activities 10,751 (42,560 )

Financing activities:

Proceeds from exercise of stock options 695 77

Payment of offering costs — (4,160 )

Net cash provided by financing activities 695 92,172

Net (decrease) increase in cash and cash equivalents (20,054 ) 17,548

Cash and cash equivalents at beginning of period 33,418 15,870

Cash and cash equivalents at end of period $ 13,364 $ 33,418

Supplemental disclosure of noncash items:

Property and equipment purchases included in accounts payable $ 115 $ 49

The accompanying notes are an integral part of these financial statements.

94

GRAYBUG VISION, INC.

Notes to Financial Statements

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.

Going Concern Considerations

The Company incurred losses from operations and had negative cash flows from operating activities for the years ended December 31, 2021, and 2020, and the Company’s accumulated deficit at December 31, 2021 is $169.2 million. 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.

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. As a result, 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 Form 10-K. The Company will seek to raise additional funds in order to further advance its research and development programs other than GB-102, operate its business, secure research and development collaborations, and meet its obligations as they come due. The Company is pursuing financing alternatives, similar to what the Company has previously executed, which include debt and equity financing. Such sources of capital may not, however, 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, which may materially harm its business, financial position and results of operations.

COVID-19 Pandemic

The impact of the worldwide spread of a novel strain of coronavirus (“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

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP, and stated in U.S. dollars. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Updates, or ASUs, of the Financial Accounting Standards Board, or FASB.

Use of Estimates

The preparation of 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. On an ongoing basis, the Company evaluates its estimates, including those related to accrued research and development expenses, contingent

95

milestone payments, other long-lived assets,stock-based compensation,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.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents are stated at fair value and may includemoney market funds, corporate debt securities and commercial paper. The Company’s cash equivalents consist of money market fund investments, corporate debt securities, and commercial paper.

Investments

The Company invests its excess cash balances in marketable government agency bonds, corporate debt securities and commercial paper. The Company classifies its investments as available-for-sale, reports available-for-sale investments at their fair value at each balance sheet date, and includes any unrealized holding gains and losses (the adjustment to fair value) in accumulated other comprehensive loss, a component of stockholders’ equity. Should there be any realized gains or losses, they will be determined using the specific-identification method and included as other income or expense in the statements of operations.

The Company periodically evaluates whether declines in fair values of its marketable securities below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the marketable security until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any marketable securities before recovery of its amortized cost basis. Impairment assessments are made at the individual security level each reporting period. When the fair value of an available-for-sale security is less than its cost at the balance sheet date, a determination is made as to whether the impairment is other-than-temporary and, if it is other-than-temporary, an impairment loss is recognized in the statements of operations, equal to the difference between the investment’s amortized cost and fair value at such date. The Company did not record any impairment charges related to its marketable securities during the years ended December 31, 2021 and 2020.

The Company classifies its available-for-sale marketable securities as non-current if such instrument’s underlying effective maturity date exceeds 12 months and for which the Company has the intent and ability to hold the investment for a period of greater than 12 months. The Company’s marketable securities at December 31, 2021 and 2020 mature in less than 12 months and are included in short-term investments in the balance sheets.

Concentrations of Credit Risk and Off-balance Sheet Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents and available-for-sale marketable securities. The Company’s investment policy includes guidelines regarding the quality of the financial institutions and financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentration of credit risk. The Company may invest in money market funds, U.S. Treasury securities, corporate debt, U.S. government-related agency securities, commercial paper and certificates of deposit. At December 31, 2021 and 2020, the Company’s cash and cash equivalents were held in financial institutions that management believes are creditworthy. These deposits may exceed federally insured limits. The Company has not experienced any losses historically in these accounts and believes it is not exposed to significant credit risk in its cash and cash equivalents. The Company has no significant off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts, or other hedging arrangements.

96

Property and Equipment

Property and equipment are stated at cost, subject to adjustments for impairments, less accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the useful lives of the assets as follows:

Asset Estimated useful life

Manufacturing and laboratory equipment Three to five years

Computer hardware Three to five years

Office furniture and equipment Three to five years

Leasehold improvements are amortized over the shorter of their useful lives or the related lease term. Maintenance and repairs that do not improve or extend the life of the respective asset are expensed to operations as incurred. Manufacturing and laboratory equipment received is classified as construction in progress until placed into service, at which time depreciation commences. Upon disposal of an asset, the related cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

Impairment of Long-lived Assets

The Company evaluates whether current facts or circumstances indicate that the carrying values of its long-lived assets may not be recoverable. If such facts or circumstances are determined to exist, an estimate of the sum of the undiscounted future cash flows of these assets is compared to the carrying value the assets to determine whether impairment exists. If the assets are determined to be impaired, the loss is measured based on the difference between the sum of the undiscounted future cash flows and the carrying value of the assets. No impairment losses were recorded during the years ended December 31, 2021 or 2020.

Research and Development Expenses

Research and development costs are expensed as incurred. The Company’s research and development expenses consist primarily of costs incurred for the development of its product candidates and include expenses incurred under agreements with contract manufacturing organizations, or CMOs, contract research organizations, or CROs, investigative sites and consultants to conduct clinical trials and preclinical and non-clinical studies, costs to acquire, develop and manufacture supplies for clinical trials and other studies, salaries and related costs, including stock-based compensation, depreciation and other allocated facility-related and overhead expenses.

Accrued Research and Development Costs

The Company records accruals for estimated costs of preclinical and clinical studies and manufacturing development. The Company’s clinical and manufacturing development activities are conducted by third-party service providers, including CROs and CMOs. The financial terms of these contracts are subject to negotiation, which vary by contract and may result in payments that do not match the periods over which materials or services are provided. The Company accrues the costs incurred under the agreements based on an estimate of actual work completed in accordance with the agreements. In the event the Company makes advance payments for goods or services that will be used or rendered for future research and development activities, the payments are deferred and capitalized as a prepaid expense and recognized as expense as the goods are received or the related services are rendered. Such payments are evaluated for current or non-current classification based on when they are expected to be realized. If the Company does not identify costs that have begun to be incurred or if the Company underestimates or overestimates the level of services performed or the costs of these services, actual expenses could differ from the Company’s estimates. To date, the Company has not experienced significant changes in its estimates of preclinical studies, clinical trial and manufacturing accruals.

Patent Costs

Costs to secure and maintain patents covering the Company’s technology and product candidates are expensed as incurred and are classified as general and administrative expenses in the statements of operations.

Convertible Preferred Stock

The Company classified convertible preferred stock outside of stockholders’ equity (deficit) on its balance sheet as of December 31, 2019, as the requirements of triggering a deemed liquidation event were not within the Company’s control. In the event of a deemed liquidation event, the proceeds from the event would have been distributed in accordance with liquidation preferences of such securities.

97

The Company would have adjusted the carrying value of the convertible preferred stock to their redemption values when it became probable a redemption event would occur. Prior to the completion of the IPO on September 24, 2020, all of the outstanding shares of convertible preferred stock automatically converted into 13,085,913 shares of common stock. Subsequent to the closing of the IPO on September 29, 2020, there were no shares of convertible preferred stock outstanding.

Preferred Stock Tranche Obligation

The Company’s Series C convertible preferred stock included features the Company determined were not clearly and closely related to the equity host. These features were therefore bifurcated and accounted for separately as a freestanding derivative liability on the balance sheet at its estimated fair value. This derivative liability was a result of certain investors’ rights to purchase from the Company, on the same terms as the Series C Preferred Stock Purchase Agreement executed in July 2019, additional shares of Series C convertible preferred stock in subsequent tranches based on the achievement of certain development milestones, or the Preferred Stock Tranche Obligation. At initial recognition, the Company recorded this derivative as a liability on the balance sheet at its estimated fair value. The derivative was subject to remeasurement at each balance sheet date until its expiration in September 2020, with changes in fair value recognized in change in fair value of Preferred Stock Tranche Obligation on the Company’s statements of operations.

Stock-based Compensation

Stock-based compensation expense related to stock options and warrants granted to employees, directors and non-employees is recognized based on the grant-date estimated fair values of the awards using the Black-Scholes option pricing model, or Black-Scholes. The valuation of restricted stock units, or RSUs, is determined at the date of grant using the Company’s closing stock price. The value is recognized as expense ratably over the requisite service period, which is generally the vesting term of the award. The Company adjusts the expense for actual forfeitures as they occur.

Income Taxes

The Company uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on temporary differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company assesses the likelihood of deferred tax assets being realized. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. For the Company, the ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences representing net future deductible amounts become deductible. Based on the Company’s operations to date and the uncertainty as to the timing and amount of future taxable income, the Company has recorded a full valuation allowance in all periods and for all jurisdictions.

Financial statement effects of uncertain tax positions are recognized when it is more likely than not, based on the technical merits of the position, that it will be sustained upon examination. The Company evaluates uncertain tax positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of an audit, and effective settlement of audit issues. Interest and penalties related to unrecognized tax benefits would be included within the income tax provision.

Net Loss Per Share

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. While it was outstanding, the Company considered its convertible preferred stock to be participating securities as, in the event a dividend was paid on common stock, the holders of convertible preferred stock and unvested shares of common stock would have been entitled to receive dividends on a basis consistent with the common stockholders. The net loss attributable to common stockholders was not allocated to the convertible preferred stock as the holders of those securities did not have a contractual obligation to share in losses. Cumulative dividends on preferred stock were added to net loss to arrive at net loss available to common stockholders.

Under the two-class method, basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of potential dilutive securities. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of shares of common stock and potential dilutive common stock equivalents outstanding during the period if the effect is dilutive. Potentially dilutive securities include warrants, stock options, RSUs and convertible preferred stock. Likewise, adjustments to the denominator are required to reflect the related dilutive shares. In all periods presented, the Company’s outstanding stock options, RSUs, convertible preferred stock, common stock warrants, and the potential issuance of additional preferred shares from the Preferred Stock Tranche Obligation were excluded from the calculation of diluted net loss per share because their effects were antidilutive and the

98

development milestones for the issuance of additional shares from the Preferred Stock Tranche Obligation were not achieved prior to its expiration in September 2020.

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 finance and other administrative functions. For the year ended December 31, 2020, the costs incurred under this arrangement totaled $657,000 and were recorded as general and administrative expense in the accompanying statement of operations. The Company terminated its relationship with this entity in September 2020.

Segments

Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the chief operating decision maker, or CODM, in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s CODM is its chief executive officer. The Company has determined it operates in one segment.

Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period arising from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss is comprised of changes in unrealized (loss) gain on available-for-sale securities.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as amended, with guidance regarding the accounting for and disclosure of leases. The update requires lessees to recognize the liabilities related to all leases, including operating leases, with a term greater than 12 months on the balance sheet. 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. Early adoption is permitted. The Company adopted this standard on January 1, 2022 and has performed an analysis on the impact of this standard and does not expect that this standard will have a material impact on its results of operations or cash flows, but that it will have a material impact on the Company’s assets and liabilities as a result of the recognition of right-of-use asset and lease liabilities. The Company also expects to elect 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 expects to elect the short-term lease recognition exemption for all leases that qualify.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losseson Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASBissued a clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815,Derivatives and Hedging, and Topic 825, Financial Instruments, which modified the accounting for available-for-sale securities. As an emerging growth company, ASU 2016-13 is effective for the Company for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is currently assessing the potential impact of adopting ASU 2016-13 on its financial statements and financial statement disclosures.

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 is currently evaluating the impact of this new guidance on its financial statements and financial statement disclosures but does not expect this new guidance to have a material impact on its financial statements and financial statement disclosures.

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

99

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 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):

Level 1 Level 2 Level 3 Total

Current assets:

Cash equivalents:

Money market funds $ 8,920 $ — $ — $ 8,920

Corporate debt securities — 1,480 — 1,480

Short-term investments:

Corporate debt securities — 1,117 — 1,117

Level 1 Level 2 Level 3 Total

Current assets:

Cash equivalents:

Corporate debt securities — 2,500 — 2,500

Short-term investments:

100

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):

Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value

Current assets:

Cash equivalents:

Money market funds $ 8,920 $ — $ — $ 8,920

Corporate debt securities 1,480 — — 1,480

Short-term investments:

Amortized Cost Unrealized Gains Unrealized Losses Aggregate Fair Value

Current assets:

Cash equivalents:

Short-term investments:

Total assets measured at fair value $ 93,295 $ 4 $ (8 ) $ 93,291

Money market funds are highly liquid investments which are actively traded. The pricing information on the Company’s money market funds is 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 short-term 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.

As of December 31, 2021 and 2020, 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. All investments with unrealized losses have been in a loss position for less than 12 months. As a result, the Company did not recognize any other-than-temporary impairment losses as of December 31, 2021 and 2020.

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

101

4. Balance Sheet Components

Property and Equipment, net

Property and equipment, net, consisted of the following (in thousands):

December 31,

Manufacturing and laboratory equipment $ 2,511 $ 2,179

Computer hardware 28 28

Office furniture and equipment 28 28

Construction in progress 833 611

Total property and equipment, at cost 3,634 3,080

Less: accumulated depreciation (1,653 ) (1,134 )

Property and equipment, net $ 1,981 $ 1,946

Depreciation expense for the years ended December 31, 2021 and 2020 was $519,000 and $395,000, respectively.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):

December 31,

Prepaid clinical and research expenses 168 6

Interest and other receivables 21 598

Total prepaid expenses and other current assets $ 3,408 $ 4,207

Other Current Liabilities

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

December 31,

Deferred rent 8 27

Total other current liabilities $ 3,226 $ 3,128

5. Commitments and Contingencies

The Company enters into contracts in the normal course of business with CROs for clinical trials and 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 December 31, 2021, these commitments were approximately $0.8 million due within 3 to 15 months. These contracts generally provide for termination on notice of 60 to 90 days. During the year ended December 31, 2021, the Company terminated several contracts with its equipment vendors and CMOs. The termination of these contracts resulted in the cancellation of commitments totaling $3.7 million as of December 31, 2020. From this amount, the Company recognized $2.2 million in general and administrative expenses in the Company’s statement of operations for the write-off of $1.3 million in equipment deposits and $0.9 million in other commitments and cancellation fees. As of December 31, 2021, there were no unpaid cancellation or other related costs and none are anticipated.

Operating Lease Agreements

The Company leases a facility in Baltimore, Maryland under an operating lease with a term through June 2023.

102

On July 29, 2021, the Company entered into a lease agreement for approximately 2,560 rentable square feet of office space in Redwood City, California. The lease commenced on August 18, 2021 with a 12-month initial term expiring on August 31, 2022. This new facility replaced the Company’s existing Redwood City lease when it expired on August 31, 2021. Upon execution of the lease, the Company delivered to the lessor a sum of $31,000, consisting of a security deposit and one month's rent. The total lease obligation over the term of the lease will be approximately $0.2 million.

Rent expense for the Company’s facility leases was $0.7 million for each of the years ended December 31, 2021 and 2020.

Future minimum lease payments under the Company’s non–cancelable operating leases as of December 31, 2021 were as follows (in thousands):

Year ended December 31:

Total future minimum lease payments $ 732

License Agreements

Johns Hopkins University

In June 2011, the Company entered into an Exclusive License Agreement with Johns Hopkins University, or JHU, which has been amended from time to time, such agreement as amended is referred to as the JHU Agreement. Pursuant to the JHU Agreement, JHU granted the Company an exclusive, worldwide, sublicensable license to three patent families to research, develop, make, use and sell products and provide services in any field, and a non-exclusive license to use specified know-how and materials with a provision that JHU will not grant a license to know how and materials to any other commercial entity. The JHU first patent family describes microparticles with a hydrophobic polymeric core (such as poly(lactic-co-glycolic acid), or PLGA, poly-lactic acid, or PLA, or a combination of both PLGA and PLA) and a hydrophilic coating (such as PLGA permanently linked to polyethylene glycol) to reduce inflammation for intraocular injections and their methods of use, which technology is incorporated into the Company’s GB-102 and GB-401 product candidates. The JHU licensed fourth and fifth patent families cover potential future technologies.

In September 2015, the JHU Agreement was amended to include the JHU second patent family which covers sunitinib-encapsulated polymeric microparticles, including GB-102, and their use as therapeutic compositions to treat disorders of the eye. Under the terms of the amended JHU Agreement, the Company paid a one-time, non-refundable upfront fee, with a remaining amount to be paid upon the occurrence of certain events. The Company also agreed to pay an additional one-time, non-refundable fee of $100,000 on the occurrence of the first commercial sale of a product falling under the claims of a patent in the second patent family.

In April 2016, the JHU Agreement was further amended to include a third patent family which discloses a method for reducing neuronal damage in the eye that includes administration of a sustained release formulation of a dual leucine kinase inhibitor in a polymeric particle, and wherein the dual leucine kinase inhibitor may be sunitinib, and thus is relevant to both the Company’s GB-102 and GB-103 product candidates. Under the terms of the amended JHU Agreement, the Company paid a one-time, non-refundable upfront fee, and a milestone payment for the grant of the first patent. The Company also agreed to use its best efforts to develop a licensed product under the third patent family and enter into a Phase I clinical trial on or before April 2019, and to have cumulatively spent several million dollars on research and development within six years of execution of the amendment.

Upon execution of the JHU Agreement in 2011, the Company paid JHU an upfront license fee in the low tens of thousands of dollars and issued to JHU a low single digit percentage of the Company’s equity interests as of such date. The Company also reimbursed JHU for the prosecution and maintenance costs incurred by JHU for the licensed patent rights prior to the Company entering into the JHU Agreement, and the Company is responsible for all of the ongoing costs relating to the prosecution and maintenance of the JHU patent rights licensed to the Company. The Company also agreed to pay minimum annual royalties in the tens of thousands of dollars per year until the first commercial sale of a licensed product or service.

The JHU Agreement further requires single-digit running royalties on the Company’s annual net sales, which may be reduced by 50% of any payments the Company makes to third parties for freedom to operate, up to a maximum credit of 50% of the running royalty rate otherwise due to JHU. Royalties must be paid on products that fall within a patent claim of an issued and unexpired patent or a pending patent application that has not been finally rejected or is pending for less than seven years. The Company also must pay developmental milestones for achieving certain clinical progression events, ranging from tens of thousands to hundreds of thousands dollars per event, which in the aggregate, total less than $2.0 million per product. Under the JHU Agreement, prior to the Kala Agreement renegotiation described below, the Company was responsible for paying each developmental milestone payment for the first three products to achieve such milestone, and milestones for the second and third products are reduced by 50%. The Company further agreed to pay a percentage of any sublicense consideration the Company receives.

103

The JHU Agreement will remain effective until (i) the later of the expiration date of the last-to-expire patents covered under the JHU Agreement or 20 years from the effective date; (ii) the termination by either party upon the bankruptcy or uncured breach of the other party or (iii) if the Company terminates the JHU Agreement, with a 90-day notification period. The Company may terminate the entire agreement or on a patent by patent basis if desired, subject to the 90-day notification period.

Milestone and royalty expenses under the JHU Agreement are classified as research and development expense and reimbursement of patent-related expenditures are classified as general and administrative expense in the statements of operations. Expense under the JHU Agreement is as follows (in thousands):

Year Ended December 31,

Research and development $ 38 $ 38

General and administrative 160 165

Total JHU Agreement expense $ 198 $ 203

Kala Pharmaceuticals, Inc.

A dispute arose between the Company, JHU and Kala Pharmaceuticals, Inc., or Kala, over rights licensed to the Company and Kala by JHU. In October 2014, the Company entered into a Settlement and License Agreement, or the Kala Agreement, with Kala and JHU, which settled all pending disputes and amended the Company’s and Kala’s existing license agreements with JHU and created new rights and obligations among the parties.

Under the Kala Agreement, each of Kala and the Company provided the other with a royalty-free, exclusive sublicense with respect to certain intellectual property rights granted by JHU in limited fields of use. Specifically, the Company provided Kala with an exclusive sublicense for the use of a particle with specific characteristics for delivery of a biologically active material through mucus, mucin, or a mucosal barrier (provided that such delivery does not involve administration via injection to the eye), or the Kala Field of Use, and Kala provided the Company with an exclusive sublicense to the use of a particle with specific characteristics for delivery of a biologically active material to the eye via injection (excluding such use of any particle comprising or consisting of loteprednol etabonate). Kala also agreed not to use a particle with those specific characteristics that include sunitinib in any technology licensed the Kala Field of Use under the license from the Company or JHU. Neither the Company nor Kala owe JHU any payments under its existing JHU agreement with respect to the sublicenses granted to the other. Both the Company and Kala hold rights to sublicense the Company’s respective rights in connection with a future collaboration arrangement and subject to any such sublicensee being bound by the applicable terms of the Kala Agreement.

Under the Kala Agreement, JHU agreed to a number of financial concessions to both the Company and Kala. The payments under the existing JHU agreements were modified by reducing all milestones and minimum annual royalties by 25%, including the development milestone payments due for the first licensed product; the development milestone payments due for the first license product were each extended by one year; development milestone payments for the second and third licensed products were eliminated; and the commercial milestone payments for the first commercial sale of a licensed product were reduced by 50% in the United States. New sales-based milestones were added for the second and third licensed products. Upon the second licensed product under the JHU Agreement reaching a certain level of sales or receiving sublicense royalty income, the Company is required to pay $100,000 plus the amounts of the eliminated development milestones and reduced first commercial sale milestone. For the third licensed product, on reaching the same level of sales or receiving sublicense royalty income, the Company is required to pay $150,000 plus the amounts of the eliminated development milestones and reduced first commercial sale milestone. In addition, the Company, Kala and JHU released each other from any liability or claims known to Kala and the Company as of the Kala Agreement and arising out of the actions leading to, and related to the subject of, the Kala Agreement.

The Kala Agreement will expire upon the expiration of all the patent rights that are the subject of the agreement. The Company may terminate one or more of the licenses or sublicenses granted to the Company in the Kala Agreement on a country-by-country basis for convenience upon 30 days’ prior written notice to Kala. The Company or Kala may terminate one or more of the sublicenses granted to the other party under the JHU patent rights if the other party, or its employees, officers, directors, agents or representatives, takes certain steps to oppose, attempt to invalidate or prevent the issuance of any of the patent rights directly licensed to the terminating party by JHU.

There have been no expenses under the Kala Agreement in the years ended December 31, 2021 or 2020 and no amounts payable at December 31, 2021 or 2020.

104

AffaMed Project Limited

In July 2019, the Company entered into a letter agreement with AffaMed Project Limited, or AffaMed, in connection with their purchase of the Company’s Series C convertible preferred stock, or the AffaMed Letter. Under the AffaMed Letter, the Company granted AffaMed a right of first negotiation, or the Option, to exclusively develop, register and commercialize GB-102 solely in the territories of China, Hong Kong, Taiwan, Macau and South Korea. The Option expires upon the earlier of (i) July 31, 2021 and (ii) 60 days after the Company provides top line data from the Phase 2b ALTISSIMO trial for GB-102. AffaMed did not exercise the Option, and the Company has no further obligation to AffaMed to license rights to GB-102.

There have been no expenses under the Affamed Letter in the years ended December 31, 2021 or 2020 and no amounts payable at December 31, 2021 or 2020.

Asset Acquisition

In December 2021, the Company entered into an Assignment and Licensing Agreement with a private company, pursuant to which the Company acquired certain intellectual property rights, including patents and know-how, related to new cyclic monophosphate (cGMP) compounds for the treatment of ocular disorders.

As consideration for the intellectual property rights acquired, the Company made an upfront cash payment of $0.5 million and may be required to make additional contingent payments of up to $27.0 million in the aggregate upon achievement of certain development and regulatory milestones. Additionally, upon commercialization, the Company may be required to make tiered single-digit royalty payments based on net product sales.

As the acquired rights relate to in-process research and development activities that have no alternative future use to the Company, the upfront payment of $0.5 million was recorded as research and development expense in the accompanying statements of operations for the year ended December 31, 2021. As of December 31, 2021, no development or regulatory milestones were deemed probable of achievement and, accordingly, no amounts have been recognized in the accompanying financial statements with respect to these contingent payments.

In March 2022, the Company acquired a private company in the United States with certain gene therapy technology and preclinical data. The private company was purchased at a cost of approximately $2.0 million, including estimated transaction costs and a contingent holdback, and the Company may be required to make additional contingent payments of up to $20.0 million in the aggregate upon the achievement of certain milestones. Other than the contingent holdback release, no further payments are required until 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.

Indemnification

The Company, as permitted under Delaware law and in accordance with its certification of incorporation and bylaws and pursuant to indemnification agreements with certain of its officers and directors, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, which the officer or director is or was serving at the Company’s request in such capacity.

The Company enters into certain types of contracts that contingently require the Company to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company’s bylaws, under which the Company must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers and consultants for liabilities arising out of their relationship, and (iii) procurement, service or license agreements under which the Company may be required to indemnify vendors, service providers or licensees for certain claims, including claims that may be brought against them arising from the Company’s acts or omissions with respect to the Company’s products, technology, intellectual property or services.

From time to time, the Company may receive indemnification claims under these contracts in the normal course of business. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results or financial condition. It is not possible to determine the maximum potential amount potentially payable under these contracts since the Company has no history of prior indemnification claims and the unique facts and circumstances involved in each particular claim will be determinative.

105

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. Convertible Preferred Stock and Preferred Stock Tranche Obligation

The following table summarizes outstanding convertible preferred stock as of December 31, 2019 (in thousands, except share amounts):

Shares Authorized Shares Outstanding Net Carrying Value Liquidation Preference

In July 2019, the Company authorized the sale of up to 61,773,000 shares of its Series C Convertible Preferred Stock, or Series C, at a price of $1.4693 per share, or Series C Financing. In July and August 2019, the Company issued 37,432,787 shares of Series C for aggregate gross proceeds of $55.0 million. In connection with this financing, certain purchasers of the Series C had the option to purchase up to an additional 17,014,902 shares of Series C at a price per share of $1.4693 for a period of up to 30 days after the Company notified them of the three-month readout from the Phase 2a clinical trial of GB-102 in patients with macular edema secondary to diabetic macular edema and retinal vein occlusion, or the Preferred Stock Tranche Obligation. The Company concluded that the Preferred Stock Tranche Obligation met the definition of a freestanding financial instrument, as the rights were legally detachable and separately exercisable from the Series C. Therefore, the Company allocated the proceeds received from the issuance of shares under the Series C Preferred Stock Purchase Agreement between the Preferred Stock Tranche Obligation and the Series C. The fair value of the Preferred Stock Tranche Obligation of $2.2 million on issuance was allocated from the $55.0 million proceeds of the Series C Financing and classified as a current liability on the balance sheet as the Series C would become redeemable upon a deemed liquidation event, the occurrence of which was not within the Company’s control.The Preferred Stock Tranche Obligation was remeasured at fair value at each reporting period using an option pricing valuation methodology. For the year ended December 31, 2020, the Company recognized a gain on change in fair value of preferred stock tranche obligation of $2.2 million.

In September 2020, the board of directors and the Series C investors amended the Series C stock purchase agreement such that the Preferred Stock Tranche Obligation was no longer exercisable and expired upon the effectiveness of the Company’s IPO registration statement. As a result, the liability for the Preferred Stock Tranche Obligation was permanently eliminated as of September 24, 2020. Due to the low probability of the Preferred Stock Tranche Obligation being settled, the fair value immediately prior to the IPO was immaterial.

Prior to the completion of the IPO on September 24, 2020, all of the outstanding shares of convertible preferred stock automatically converted into 13,085,913 shares of common stock. Subsequent to the closing of the IPO on September 29, 2020, there were no shares of convertible preferred stock outstanding.

The rights and preferences and privileges of convertible preferred stock are described below:

Dividend Rights

The holders of Series C Preferred, in preference to holders of Series B Preferred, Series A-2 Preferred, Series A Preferred and common stock, are entitled to receive cumulative dividends on each outstanding share payable when declared by the board of directors of $0.117544 per share. After payment of such dividends on the Series C Preferred, the holders of Series B Preferred, in preference to holders of Series A-2 Preferred, Series A Preferred and common stock, are entitled to receive cumulative dividends on each outstanding share payable when declared by the board of directors of $0.06937 per share. After payment of such dividends on the Series B Preferred, the holders of Series A-2 Preferred, in preference to the holders of Series A Preferred and common stock, are entitled to receive non-cumulative dividends on each outstanding share payable when declared by the board of directors of $0.06034 per share. After payment of such dividends on the Series A-2 Preferred, the holders of Series A Preferred, in preference to the holders of common stock, are entitled to receive non-cumulative dividends on each outstanding share payable when declared by the board of directors of $0.08 per share. The board of directors has not declared any dividends to-date.

Conversion Rights

106

Each share of convertible preferred stock is convertible at the option of the holder, at any time after the date of issuance, into a fully paid and non-assessable share of common stock. Each share of convertible preferred stock is convertible into that number of common shares as is determined by dividing the applicable original purchase price of such share by the applicable conversion price. The conversion rate is subject to adjustment upon the occurrence of certain events. The conversion rates for the Series C Preferred, Series B Preferred and Series A-2 Preferred is 9.0058:1 and for the Series A Preferred is 8.8527:1.

All shares of the convertible preferred stock automatically convert upon the closing of a firm commitment underwritten initial public offering of common stock, in which the price per share is at least $14.56 per share, subject to adjustment, resulting in gross proceeds of at least $40.0 million. The conversion price for each series of convertible preferred stock is subject to adjustment in the event of stock split, combination, common stock dividend or distribution, reclassification, exchange, substitution, reorganization, and certain antidilution adjustments.

Liquidation Rights

In the event of any liquidation, dissolution, or winding up of the Company or a deemed liquidation event, the holders of Series C Preferred are entitled to receive, prior to any distribution made to any other class of security, an amount equal to $1.4693 per share, plus any dividends accrued and declared but unpaid. Upon distribution to holders of Series C Preferred, the holders of Series B Preferred are entitled to receive, prior to distribution to holders of Series A-2 Preferred, Series A Preferred and common stock, an amount equal to $0.991 per share, plus any dividends accrued and declared but unpaid. Upon distribution to holders of Series C Preferred and Series B Preferred, the holders of Series A-2 Preferred are entitled to receive, prior to distribution to holders of Series A Preferred and common stock, an amount equal to $0.862 per share, plus any dividends declared but unpaid. Upon distributions to the holders of Series C Preferred, Series B Preferred and Series A-2 Preferred, the holders of Series A Preferred are entitled to receive, prior to any distribution or payment to the holders of common stock, an amount equal to $1.00 per share, plus any dividends declared but unpaid. Upon the completion of the distribution to the holders of Series C Preferred, Series B Preferred, Series A-2 Preferred and Series A Preferred, any remaining assets available for distribution will be distributed among the holders of the shares of Series C Preferred, Series B Preferred, Series A-2 Preferred, Series A Preferred and common stock, on a pro rata basis on the number of shares held by each such holder, treating each share as if they had been converted to common stock immediately prior to such liquidation, dissolution or winding up of the Company.

Voting Rights

Each share of Series A Preferred has voting rights equal to the number of common shares into which the Series A Preferred can be converted. Shares of Series A-2 Preferred, Series B Preferred and Series C Preferred do not have voting rights.

The holders of Series C Preferred are entitled to elect one director of the Company; the holders of Series B Preferred are entitled to elect three directors of the Company; the holders of Series A-2 Preferred, are entitled to elect one director; the holders of common stock are entitled to elect one director; and holders of common stock and any other class or series of voting stock, exclusively and voting together as a single class on an as-converted basis, are entitled to elect one director. Holders of Series A Preferred are not entitled to a director of the Company.

Redemption Rights

Shares of Series C Preferred, Series B Preferred and Series A-2 Preferred may be redeemed at the greater of the fair market value or the original issue price for the applicable series of convertible preferred stock plus any dividends accrued but unpaid with respect to the Series C Preferred and the Series B Preferred and any dividend declared by unpaid with respect to the Series A-2 Preferred. A redemption will occur upon a written request from the holders of a majority of the then outstanding shares of Series C Preferred, voting exclusively as a separate series, and the holders of a majority of the Series B Preferred and Series A-2 Preferred, voting together on an as-converted basis, which request can be made at any time after July 2024.

Cumulative dividends and accretion of discount on Series A-2 Preferred, Series B Preferred and Series C Preferred, together the Contingently Redeemable Preferred, is not recorded until the Contingently Redeemable Preferred is probable of becoming redeemable. As of December 31, 2019, the Company has determined that the Contingently Redeemable Preferred are not currently probable of becoming redeemable and, as such, the cumulative dividend and accretion of discount on the Contingently Redeemable Preferred has not been recorded.

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 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. The Company initially reserved 1,850,000 shares of its common stock, plus any reserved shares not issued or subject to outstanding grants under the 2015 Plan on the effective date of the 2020 Plan, for issuance pursuant to awards granted under the 2020 Plan.The aggregate number of shares reserved

107

for sale under the 2020 Plan will increase automatically on each January 1st of 2021 through 2030 by the number of shares equal to 5% of the aggregate number of outstanding shares of the Company’s common stock as of the immediately preceding December 31, or a lesser number as may be determined by the Company’s board of directors.

In conjunction with adopting the 2020 Plan, the Company may not grant any additional stock-based awards under the 2015 Plan, and any shares available for issuance under the 2015 Plan were added to the shares reserved under the 2020 Plan. The 2015 Plan will continue to govern outstanding stock-based awards granted thereunder. On January 1, 2021, the aggregate number of shares reserved for issuance was increased by an additional 1,048,963 shares pursuant to the automatic share reserve increase provision of the 2020 Plan. As of December 31, 2021, there were 445,617 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. The Company’s ESPP is intended to qualify under Section 423 of the Internal Revenue Code. The Company has initially reserved 210,000 shares of its common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the Company’s ESPP will increase automatically on January 1st of each of the first ten calendar years after the first offering date under the ESPP by the number of shares equal to the lesser of 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31, or a number of shares as may be determined by the Company’s board of directors in any particular year. The aggregate number of shares issued over the term of the ESPP, subject to stock-splits, recapitalizations or similar events, may not exceed 2,100,000 shares of the Company’s common stock.

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).One-fourth of the options will vest on the one-year anniversary of the vesting commencement date and the remainder will vest in equal monthly installments over the next three years, in each case subject to the new employee’s continued service with the Company. The stock options have a ten-year term and are subject to the terms and conditions of a stock option agreement covering the grant.

Stock Option Activity

The following summarizes stock option activity:

Weighted

Weighted Average

Average Remaining Aggregate

Number of Exercise Contractual Intrinsic

Options Price Term Value

(In years) (In thousands)

At December 31, 2021, the aggregate intrinsic value of options granted is calculated as the difference between the exercise price and the closing price on the same date. The aggregate intrinsic value of options exercised in the years ended December 31, 2021 and 2020 was $2.5 million and $113,000, respectively.

The aggregate fair value of options that vested during the years ended December 31, 2021 and 2020 was $4.0 million and $1.4 million, respectively. The weighted-average grant-date fair value per share of options that vested during the years ended December 31, 2021 and 2020 was $6.06 and $2.43, respectively.

108

Restricted Stock Units

The following table summarizes restricted stock units (RSUs) activity for the year ended December 31, 2021:

RSUs Outstanding

The fair value of RSUs is determined on the date of grant based on the market price of the Company’s common stock on that date. The aggregate fair value of RSUs vested during the year ended December 31, 2021 was $0.4 million. No RSUs vested during the year ended December 31, 2020.

Fair Value of Stock Option Awards

The Company estimates the fair value of stock option awards on the grant date using Black-Scholes. The weighted-average grant date fair value per option granted during the years ended December 31, 2021 and 2020 was $2.72 and $11.90, respectively. The fair value of each award is estimated using Black-Scholes based on the following assumptions:

Year Ended December 31,

Expected volatility 87% - 88% 85%

Expected dividend — —

Black-Scholes requires the use of subjective assumptions which determine the fair value of stock-based awards. These assumptions include:

Expected Term: The expected term represents the period that options are expected to be outstanding and is determined using thesimplified method, based on the mid-point between the vesting date and the end of the contractual term.

Expected Volatility: The expected volatility is estimated based on the average volatility for comparable publicly-traded biopharmaceutical companies over a period equal to the expected term of the stock option grants as the Company does not yet have sufficient historical trading history for its own stock. The comparable companies are chosen based on their similarities to the Company, including life cycle stage, therapeutic focus and size. The Company will continue to apply this method until a sufficient amount of historical information over a period equal to the expected term of the stock-based awards becomes available.

Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periodscorresponding with the expected term of the stock option grants.

Expected Dividend: The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

Stock-Based Compensation Expense

Stock-based compensation expense is classified as follows (in thousands):

Year Ended December 31,

Research and development $ 1,210 $ 390

Total stock-based compensation expense $ 5,375 $ 1,788

109

As of December 31, 2021, the total unrecognized stock-based compensation expense related to outstanding unvested stock awards that are expected to vest was $15.4 million, which the Company expects to recognize over an estimated weighted-average term of 2.8 years.

8. Income Taxes

The Company has incurred net operating losses for all the periods presented. The Company has not reflected the benefit of any such net operating loss carryforwards in the accompanying financial statements.

The effective tax rate for the years ended December 31, 2021 and 2020 is different from the federal statutory rate primarily due to the valuation allowance against deferred tax assets as a result of insufficient sources of income. The reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:

Year Ended December 31,

Income tax benefit at the federal statutory rate 21.0 % 21.0 %

State income taxes, net of federal benefit 0.6 3.2

Research and development tax credits 1.4 1.3

Mark to market gain/loss — 1.7

Change in valuation allowance (22.6 ) (26.6 )

Total — % — %

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The principal components of the Company’s net deferred tax assets consisted of the following (in thousands):

December 31,

Deferred tax assets

Federal and state net operating loss carryforwards $ 34,431 $ 27,567

Research and development tax credits 5,408 4,887

Total deferred tax assets 32 61

Deferred tax liabilities

Depreciation (32 ) (61 )

Total deferred tax liabilities (32 ) (61 )

Net deferred tax assets $ — $ —

The Company has incurred annual net operating losses in each year since inception. The Company has not reflected the benefit of any such net operating loss carryforwards in the financial statements. Due to the Company’s history of losses, and lack of other positive evidence, the Company has determined that it is more likely than not that its net deferred tax assets will not be realized and, therefore, the net deferred tax assets are fully offset by a valuation allowance at December 31, 2021 and 2020. The Company increased its valuation allowance by $8.1 million for the year ended December 31, 2021 in order to maintain a full valuation allowance against its deferred tax assets.

As of December 31, 2021, the Company had federal net operating loss carryforwards, or NOLs, of $157.4 million and federal tax credits of $6.1 million available to offset tax liabilities. The Company’s federal NOLs and federal tax credit carryforwards begin to expire in 2035 and 2036, respectively. Of the federal NOLs, $123.3 million have an indefinite life. The Company also had gross state NOLs of $23.3 million and state tax credits of $1.8 million which are available to offset state tax liabilities. The state NOLs expire in 2036 and the state tax credit carryforwards can be carried forward indefinitely. Federal and state NOLs and tax credit carryforwards are also subject to annual limitations in the event that cumulative changes in the ownership interests of significant stockholders exceed 50% over a three-year period, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986. The Company has not completed an analysis to determine if the NOLs and tax credits are limited due to a change in ownership. Should there be ownership changes that occurred, the Company’s ability to utilize existing carryforwards could be substantially restricted.

110

The Company determines its uncertain tax positions based on whether and how much of a tax benefit taken by the Company in its tax filings is more likely than not to be sustained upon examination by the relevant income tax authorities.

A reconciliation of the unrecognized tax benefit is as follows (in thousands):

Year Ended December 31,

Balance—beginning of year $ 1,981 $ 1,406

Addition based on tax position related to current year 257 406

(Reduction) addition based on tax position related to prior year (148 ) 169

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to maintain a full valuation allowance position. Based on prior year’s operations and experience, the Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next year for unexpected or unusual items for items that arise in the ordinary course of business. The Company has elected to include interest and penalties as a component of tax expense. During the years ended December 31, 2021 and 2020, the Company did not recognize accrued interest and penalties related to unrecognized tax benefits.

The Company files income tax returns in the U.S., California, and several other state jurisdictions. Due to net operating loss carryforwards, all years remain open for income tax examination, however, the Company is not currently under examination by any taxing authority for any open tax year.

9. Employee Retirement Plan

The Company maintains a 401(k) retirement savings plan, or 401(k) Plan. The 401(k) Plan allows employees to make contributions up to the maximum allowable by the IRS. The Company did not make any contributions to the 401(k) Plan on behalf of its employees in the years ended December 31, 2021 or 2020.

10. Net Loss Per Share Attributable to Common Stockholders

Basic and diluted net loss per common share is calculated as follows (in thousands except share and per share amounts):

Year Ended December 31,

Cumulative dividends on convertible preferred stock — (7,189 )

Net loss attributable to common stockholders $ (35,821 ) $ (34,720 )

Net loss per common share—basic and diluted $ (1.69 ) $ (5.25 )

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

As of December 31,

111

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures.

Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer (our Principal Executive Officer) and our Chief Financial Officer (our Principal Financial Officer and Principal Accounting Officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) as of December 31, 2021. Based on our management’s evaluation (with the participation of our Chief Executive Officer and our Chief Financial Officer), as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting(as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, including our Chief Executive Officer, assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control – 2013 Integrated Framework. Based on that assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.”

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

112

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021.

Item 11. Executive Compensation.

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021.

Item 14. Principal Accountant Fees and Services.

The information required by this item is incorporated by reference from our definitive Proxy Statement to be filed with the SEC in connection with our 2022 Annual Meeting of Stockholders within 120 days after the end of the fiscal year ended December 31, 2021.

113

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this report:

1. Financial Statements

Information in response to this Item is included in Part II, Item 8 of this Annual Report on Form 10-K.

2. Financial Statement Schedules

All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

3. Exhibits:

114

Exhibit Index

23.1 Consent of Independent Registered Public Accounting Firm. X

115

101.INS Inline XBRL Instance Document. X

101.SCH Inline XBRL Taxonomy Extension Schema Document. X

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. X

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. X

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. X

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. X

* Indicates a management contract or compensatory plan or arrangement.

116

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

GRAYBUG VISION, INC.

Date: March 10, 2022 By: /s/ Frederic Guerard

Frederic Guerard, Pharm.D.

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Frederic Guerard

/s/ Robert S. Breuil

/s/ Christina Ackermann Christina Ackermann Director March 10, 2022

/s/ Eric Bjerkholt Eric Bjerkholt Director March 10, 2022

/s/ Gerald Cagle Gerald Cagle, Ph.D. Director March 10, 2022

/s/ Julie Eastland Julie Eastland Director March 10, 2022

/s/ Christy Shaffer Christy Shaffer, Ph.D. Chairperson, Director March 10, 2022

117