glyc_Current_Folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q


 

(Mark one)

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

 

For the quarterly period ended September 30, 2015

 

OR

 

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

 

For the transition period from                      to                       

 

Commission File Number 001-36177

 


 

GlycoMimetics, Inc.

(Exact name of registrant as specified in its charter)

 


 

Delaware

06-1686563

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

 

9708 Medical Center Drive

Rockville, Maryland

20850

(Address of principal executive offices)

(Zip Code)

 

(240) 243-1201

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 


 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No   

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).    Yes      No    

 

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of the close of business on November 10, 2015 was 19,038,167.  

 

 

 


 

Table of Contents

GLYCOMIMETICS, INC.

 

INDEX TO FORM 10-Q

 

 

 

 

 

 

PAGE

 

 

 

PART I. FINANCIAL INFORMATION 

 

 

 

 

 

Item 1. Financial Statements 

 

 

 

 

Balance Sheets as of September 30, 2015 (unaudited) and December 31, 2014 

 

 

 

 

Unaudited Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2015 and 2014 

 

 

 

 

Unaudited Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 

 

 

 

 

Notes to Unaudited Financial Statements 

 

 

 

 

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

 

16 

 

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk 

 

26 

 

 

 

Item 4. Controls and Procedures 

 

26 

 

 

 

PART II. OTHER INFORMATION 

 

 

 

 

 

Item 1. Legal Proceedings 

 

26 

 

 

 

Item 1A. Risk Factors 

 

27 

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

 

27 

 

 

 

Item 6. Exhibits 

 

28 

 

 

 

Signatures 

 

29 

 

 

 

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Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GLYCOMIMETICS, INC.

Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

 

2015

 

2014

 

Assets

    

(Unaudited)

    

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

53,759,839

 

$

55,198,923

 

Prepaid expenses and other current assets

 

 

718,234

 

 

916,249

 

Total current assets

 

 

54,478,073

 

 

56,115,172

 

Property and equipment, net

 

 

567,219

 

 

452,270

 

Prepaid research and development expenses

 

 

696,531

 

 

696,531

 

Total assets

 

$

55,741,823

 

$

57,263,973

 

Liabilities & stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

633,093

 

$

874,028

 

Accrued bonuses

 

 

695,507

 

 

753,786

 

Accrued expenses

 

 

5,521,699

 

 

4,735,719

 

Current portion of deferred rent

 

 

 —

 

 

97,012

 

Total current liabilities

 

 

6,850,299

 

 

6,460,545

 

Deferred rent

 

 

186,526

 

 

 

Total liabilities

 

 

7,036,825

 

 

6,460,545

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred Stock; $0.001 par value; 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2015 and December 31, 2014

 

 

 

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized, 19,037,133 shares issued and outstanding at September 30, 2015; 18,939,838 shares issued and outstanding at December 31, 2014

 

 

19,038

 

 

18,940

 

Additional paid-in capital

 

 

126,970,730

 

 

125,181,463

 

Accumulated deficit

 

 

(78,284,770)

 

 

(74,396,975)

 

Total stockholders' equity

 

 

48,704,998

 

 

50,803,428

 

Total liabilities and stockholders’ equity

 

$

55,741,823

 

$

57,263,973

 

 

The accompanying notes are an integral part of the unaudited financial statements.

 

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GLYCOMIMETICS, INC.

Unaudited Statements of Operations and Comprehensive Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

    

$

 —

    

$

 —

    

$

20,035,375

    

$

15,027,004

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

 

5,038,380

 

 

5,050,666

 

 

18,088,994

 

 

14,290,083

 

General and administrative expense

 

 

2,132,993

 

 

1,648,496

 

 

5,843,680

 

 

4,478,491

 

Total costs and expenses

 

 

7,171,373

 

 

6,699,162

 

 

23,932,674

 

 

18,768,574

 

Loss from operations

 

 

(7,171,373)

 

 

(6,699,162)

 

 

(3,897,299)

 

 

(3,741,570)

 

Other income

 

 

3,302

 

 

4,827

 

 

9,504

 

 

13,863

 

Loss and comprehensive loss before income taxes

 

 

(7,168,071)

 

 

(6,694,335)

 

 

(3,887,795)

 

 

(3,727,707)

 

Income tax (benefit)

 

 

 —

 

 

(76,758)

 

 

 —

 

 

 —

 

Net loss and comprehensive loss  

 

$

(7,168,071)

 

$

(6,617,577)

 

$

(3,887,795)

 

$

(3,727,707)

 

Net loss per share—basic

 

$

(0.38)

 

$

(0.35)

 

$

(0.20)

 

$

(0.20)

 

Net loss per share—diluted

 

$

(0.38)

 

$

(0.35)

 

$

(0.20)

 

$

(0.20)

 

Weighted average shares outstanding—basic

 

 

19,025,623

 

 

18,893,834

 

 

18,999,705

 

 

18,311,358

 

Weighted average shares outstanding—diluted

 

 

19,025,623

 

 

18,893,834

 

 

18,999,705

 

 

18,311,358

 

 

The accompanying notes are an integral part of the unaudited financial statements.

 

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GLYCOMIMETICS, INC.

Unaudited Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

 

 

2015

 

2014

 

Operating activities

    

 

 

    

 

 

    

Net loss

 

$

(3,887,795)

 

$

(3,727,707)

 

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

 

Depreciation

 

 

142,417

 

 

114,261

 

Loss on disposal of property and equipment

 

 

8,001

 

 

1,424

 

Stock-based compensation expense

 

 

1,678,668

 

 

1,152,420

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

198,015

 

 

1,985,251

 

Accounts payable

 

 

(240,935)

 

 

(561,176)

 

Accrued expenses

 

 

727,701

 

 

2,984,607

 

Deferred rent

 

 

89,514

 

 

(76,188)

 

Net cash (used in) provided by operating activities

 

 

(1,284,414)

 

 

1,872,892

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(265,367)

 

 

(197,738)

 

Net cash used in investing activities

 

 

(265,367)

 

 

(197,738)

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 —

 

 

57,248,219

 

Proceeds from exercise of stock options and warrants

 

 

110,697

 

 

128,127

 

Net cash provided by financing activities

 

 

110,697

 

 

57,376,346

 

Net change in cash and cash equivalents

 

 

(1,439,084)

 

 

59,051,500

 

Cash and cash equivalents, beginning of period

 

 

55,198,923

 

 

2,310,603

 

Cash and cash equivalents, end of period

 

$

53,759,839

 

$

61,362,103

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash financing activities:

 

 

 

 

 

 

 

Conversion of Series A convertible preferred stock to common stock

 

$

 —

 

$

38,805,055

 

 

The accompanying notes are an integral part of the unaudited financial statements. 

 

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GLYCOMIMETICS, INC.

Notes to Unaudited Financial Statements

 

1. Description of the Business

 

GlycoMimetics, Inc. (the Company), a Delaware corporation headquartered in Gaithersburg, Maryland, was incorporated on April 4, 2003 and commenced operations on May 21, 2003. The company is a clinical stage biotechnology company focused on the discovery and development of novel glycomimetic drugs to address unmet medical needs resulting from diseases in which carbohydrate biology plays a key role. Glycomimetics are molecules that mimic the structure of carbohydrates involved in important biological processes. Using its expertise in carbohydrate chemistry and knowledge of carbohydrate biology, the Company is developing a pipeline of proprietary glycomimetics that inhibit disease-related functions of carbohydrates, such as the roles they play in inflammation, cancer and infection.

 

The Company’s executive personnel have devoted substantially all of their time to date to the planning and organization of the Company, the process of hiring scientists, initiating research and development programs and securing adequate capital for anticipated growth and operations. The Company has not commercialized any of its drug candidates or commenced commercial operations. The Company is subject to a number of risks similar to those of other companies in similar development stages, including dependence on key individuals, the need to develop commercially viable drugs, competition from other companies, many of whom are larger and better capitalized, and the need to obtain adequate additional financing to fund the development of its drug candidates. The Company has incurred significant operating losses since inception and has relied on its ability to fund its operations through private and public equity financings, and management expects operating losses and negative operating cash flows to continue for the foreseeable future. As the Company continues to incur losses, profitability will be dependent upon the successful development, approval, and commercialization of its drug candidates and achieving a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Management intends to fund future operations through additional public or private equity or debt offerings and may seek additional capital through arrangements with strategic partners or from other sources.

 

2. Significant Accounting Policies

 

Basis of Accounting

 

The accompanying financial statements were prepared based on the accrual method of accounting in accordance with U.S. generally accepted accounting principles (GAAP).

 

Unaudited Financial Statements

 

The accompanying balance sheet as of September 30, 2015 and statements of operations and comprehensive loss for the three and nine months ended September 30, 2015 and 2014 and cash flows for the nine months ended September 30, 2015 and 2014 are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations for the United States Securities and Exchange Commission for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete annual financial statements. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2014 contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2015. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of September 30, 2015, the results of operations for the three and nine months ended September 30, 2015 and 2014 and cash flows for the nine months ended September 30, 2015 and 2014. The December 31, 2014 balance sheet included herein was derived from audited financial statements, but does not include all disclosures including notes required by GAAP for complete annual financial statements. The financial data and other information disclosed in these notes to the financial statements related to the three and nine months ended September 30, 2015 and 2014 are unaudited. Interim results are not necessarily indicative of results for an entire year.

 

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Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Although actual results could differ from those estimates, management does not believe that such differences would be material.

 

Fair Value Measurements

 

The Company had no assets or liabilities that were measured using quoted prices for similar assets and liabilities or significant unobservable inputs (Level 2 and Level 3 assets and liabilities, respectively) as of September 30, 2015 and December 31, 2014. The carrying value of cash held in money market funds of approximately $52.5 million and $55.0 million as of September 30, 2015 and December 31, 2014, respectively, is included in cash and cash equivalents and approximates market values based on quoted market prices (Level 1 inputs).

 

Concentration of Credit Risk

 

Credit risk represents the risk that the Company would incur a loss if counterparties failed to perform pursuant to the terms of their agreements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents consist of certificates of deposit and money market funds with major financial institutions in the United States. These deposits and funds may be redeemed upon demand and, therefore, bear minimal risk. The Company does not anticipate any losses on such balances.

 

Revenue Recognition

 

From time to time, the Company is awarded reimbursement contracts for services and development grant contracts with government and non-government entities and philanthropic organizations. Under these contracts, the Company typically is reimbursed for the costs in connection with specific development activities. The Company recognizes revenue to the extent of costs incurred in connection with performance under such grant arrangements.

 

The Company has entered into a collaborative research and development agreement with Pfizer. The agreement is in the form of a license agreement. The agreement called for a nonrefundable up-front payment and milestone payments upon achieving significant milestone events. The agreement also contemplates royalty payments on future sales of an approved product. There are no performance, cancellation, termination, or refund provisions in the arrangement that contain material financial consequences to the Company.

 

The primary deliverable under this arrangement is an exclusive worldwide license to the Company’s rivipansel compound, but the arrangement also includes deliverables related to research and preclinical development activities to be performed by the Company on Pfizer’s behalf.

 

Collaborative research and development agreements can provide for one or more of up-front license fees, research payments, and milestone payments. Agreements with multiple components (deliverables or items) are evaluated according to the provisions of Accounting Standards Codification (ASC) 605-25, Revenue Recognition—Multiple-Element Arrangements, to determine whether the deliverables can be separated into more than one unit of accounting. An item can generally be considered a separate unit of accounting if all of the following criteria are met: (1) the delivered item(s) has value to the customer on a stand-alone basis and (2) if the arrangement includes a general right of return relative to the delivered item(s) then delivery or performance of the undelivered item(s) is considered probable and substantially in control of the Company. Items that cannot be divided into separate units are combined with other units of accounting, as appropriate. Consideration received is allocated among the separate units based on selling price hierarchy. The selling price hierarchy for each deliverable is based on (i) vendor-specific objective evidence (VSOE), if available; (ii) third-party evidence (TPE) of selling price if VSOE is not available; or (iii) an estimated selling price, if neither VSOE nor third-party evidence is available. Management was not able to establish VSOE or TPE for separate unit deliverables, as the Company does not have a history of entering such arrangements or selling the individual deliverables within such arrangements separately. In addition, there may be significant differentiation in these

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arrangements, which indicates that comparable third-party pricing may not be available. Management determined that the selling price for the deliverables within the Pfizer collaboration agreement should be determined using its best estimate of selling price. The process of determining the best estimate of selling price involved significant judgment on the Company’s part and included consideration of multiple factors such as estimated direct expenses, other costs, and available clinical development data.

 

Pursuant to ASC 605-25, each required deliverable under the Pfizer collaboration agreement is evaluated to determine whether it qualifies as a separate unit of accounting. Factors considered in this determination include the research capabilities of Pfizer, the proprietary nature of the license and know-how, and the availability of the Company’s glycomimetics technology research expertise in the general marketplace. Based on all relevant facts and circumstances and, most significantly, on the proprietary nature of the Company’s technology and the related proprietary nature of the Company’s research services, management concluded that stand-alone value does not exist for the license, and therefore, the license is not a separate unit of accounting under the contract and will be combined with the research and development services (including participation on a joint steering committee).

 

As such, the up-front payment received of $22.5 million was recognized as revenue over the expected development period through March 2013. The determination of the length of the period over which to defer revenue and the methodology by which to recognize the related revenues is subject to judgment and estimation. Consistent with the research plan developed by and agreed to by both parties, management estimated that the research activities and participation on the joint steering committees would occur over a 1.5-year period. Revenues associated with the up-front license fee are recognized over this period using a straight-line method, which is consistent with expected completion of the research services. The research services were completed in March 2013, consistent with the expected development period.

 

Pursuant to ASC 605-28, Revenue Recognition—Milestone Method, at the inception of agreements that include milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. In making this assessment, the Company evaluates factors such as scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the agreement.

 

Non-refundable development and regulatory milestones that are expected to be achieved as a result of the Company’s efforts during the period of substantial involvement are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive because the Company does not contribute effort to the achievement of such milestones are generally achieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elements remaining and no continuing performance obligation, assuming all other revenue recognition criteria are met. In May 2014, the Company recognized $15.0 million in revenue as a result of the first non-refundable milestone payment received from Pfizer. In June 2015, the Company recognized $20.0 million in revenue as a result of Pfizer dosing the first patient in the Phase 3 clinical trial of rivipansel, which triggered the second non-refundable milestone payment.

 

Accrued Liabilities

 

The Company is required to estimate accrued liabilities as part of the process of preparing its financial statements. The estimation of accrued liabilities involves identifying services that have been performed on the Company’s behalf, and then estimating the level of service performed and the associated cost incurred for such services as of each balance sheet date. Accrued liabilities include professional service fees, such as for lawyers and accountants, contract service fees, such as those under contracts with clinical monitors, data management organizations and investigators in conjunction with clinical trials, and fees to contract manufacturers in conjunction with the production of clinical

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materials. Pursuant to the Company’s assessment of the services that have been performed, the Company recognizes these expenses as the services are provided. Such assessments include: (i) an evaluation by the project manager of the work that has been completed during the period; (ii) measurement of progress prepared internally and/or provided by the third-party service provider; (iii) analyses of data that justify the progress; and (iv) the Company’s judgment.

 

Research and Development Costs

 

Except for payments made in advance of services, research and development costs are expensed as incurred. For payments made in advance, the Company recognizes research and development expense as the services are rendered. Research and development costs primarily consist of salaries and related expenses for personnel, laboratory supplies and raw materials, sponsored research, depreciation of laboratory facilities and leasehold improvements, and utilities costs related to research space. Other research and development expenses include fees paid to consultants and outside service providers.

 

Stock-Based Compensation

 

Stock-based payments are accounted for in accordance with the provisions of ASC 718, Compensation—Stock Compensation. The fair value of stock-based payments is estimated, on the date of grant, using the Black-Scholes-Merton model. The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option.

 

The Company has elected to use the Black-Scholes-Merton option pricing model to value any options granted. The Company will reconsider use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that prevent their value from being reasonably estimated using this model.

 

A discussion of management’s methodology for developing some of the assumptions used in the valuation model follows:

 

Expected Dividend Yield—The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

 

Expected Volatility—Volatility is a measure of the amount by which a financial variable such as share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company does not maintain an internal market for its shares, and prior to its initial public offering the shares were not traded publicly. The Company utilizes the historical volatilities of a peer group (e.g., several public entities of similar size, complexity, and stage of development) to determine its expected volatility.

 

Risk-Free Interest Rate—This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely resembles the expected life of the option.

 

Expected Term—This is a period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of 10 years. The Company estimates the expected life of the option term to be 6.25 years. The Company uses a simplified method to calculate the average expected term.

 

Expected Forfeiture Rate—The forfeiture rate is the estimated percentage of options granted that is expected to be forfeited or canceled on an annual basis before becoming fully vested. The Company estimates the forfeiture rate based on turnover data with further consideration given to the class of the employees to whom the options were granted.

 

Equity instruments issued to nonemployees are accounted for under the provisions of ASC 718, Compensation—Stock Compensation, and ASC 505-50, Equity—Equity-Based Payments to Non-Employees. Accordingly, the estimated fair value of the equity instrument is recorded on the earlier of the performance commitment date or the date the services are completed and are marked to market during the service period.

 

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Net Loss Per Common Share

 

Basic net loss per common share is determined by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s stock options, restricted stock units and warrants.

 

Basic and diluted net loss per common share is computed as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2015

 

2014

    

2015

 

2014

    

Net loss

 

$

(7,168,071)

 

$

(6,617,577)

 

$

(3,887,795)

 

$

(3,727,707)

 

Basic and diluted net loss per common share

 

$

(0.38)

 

$

(0.35)

 

$

(0.20)

 

$

(0.20)

 

Basic and diluted weighted average common shares outstanding

 

 

19,025,623

 

 

18,893,834

 

 

18,999,705

 

 

18,311,358

 

 

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2015

    

2014

    

2015

    

2014

    

Warrants

 

590,595

 

634,227

 

590,595

 

634,227

 

Stock options and restricted stock units

 

2,250,008

 

1,803,652

 

2,250,008

 

1,803,652

 

 

Comprehensive Loss 

 

Comprehensive loss comprises net loss and other changes in equity that are excluded from net loss. For the three and nine months ended September 30, 2015 and 2014, the Company’s net loss equals comprehensive loss and, accordingly, no additional disclosure is presented. 

 

3. Prepaid Expenses and Other Current Assets

 

The following is a summary of the Company’s prepaid expenses and other current assets:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2015

    

2014

 

Prepaid expenses

 

$

648,644

 

$

819,922

 

Restricted deposits

 

 

57,700

 

 

57,700

 

Other receivables

 

 

1,264

 

 

22,334

 

Deposits

 

 

10,626

 

 

16,293

 

Prepaid expenses and other current assets

 

$

718,234

 

$

916,249

 

 

 

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4. Property and Equipment

 

Property and equipment, net consists of the following:

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

December 31, 

 

 

    

2015

    

2014

 

Furniture and fixtures

 

$

230,987

 

$

122,653

 

Laboratory equipment

 

 

965,586

 

 

992,232

 

Office equipment

 

 

8,358

 

 

10,467

 

Computer equipment

 

 

179,192

 

 

190,554

 

Leasehold improvements

 

 

36,128

 

 

41,843

 

Property and equipment

 

 

1,420,251

 

 

1,357,749

 

Less accumulated depreciation

 

 

(853,032)

 

 

(905,479)

 

Property and equipment, net

 

$

567,219

 

$

452,270

 

 

Depreciation expense was $51,882 and $40,789 for the three months ended September 30, 2015 and 2014, respectively, and $142,417 and $114,261 for the nine months ended September 30, 2015 and 2014, respectively. 

 

5. Accrued Expenses

 

The following is a summary of the Company’s accrued expenses:

 

 

 

 

 

 

 

 

 

    

September 30, 

    

December 31, 

 

 

 

2015

 

2014

 

Accrued research and development expenses

 

$

2,559,451

 

$

2,726,511

 

Accrued license and milestone fees

 

 

2,000,000

 

 

1,500,000

 

Accrued consulting and other professional fees

 

 

353,748

 

 

77,273

 

Other accrued expenses

 

 

313,775

 

 

151,415

 

Accrued employee benefits

 

 

294,725

 

 

168,009

 

Accrued franchise and other taxes

 

 

 —

 

 

112,511

 

Accrued expenses

 

$

5,521,699

 

$

4,735,719

 

 

 

 

 

6. Operating Leases

 

The Company leases office and research space in Rockville, Maryland under an eight-year operating lease (the Lease) that is subject to escalation clauses. The Company will also have the right to sublease or assign all or a portion of the premises, subject to the conditions set forth in the Lease. The Lease may be terminated early by either the landlord or the Company in certain circumstances. In connection with this lease arrangement, the Company received rent abatement as a lease incentive. The rent abatement has been recognized as deferred rent that is being adjusted on a straight-line basis over the term of the lease. Deferred rent related to the Lease was $186,526 at September 30, 2015.

 

The Company’s lease for office and research space in Gaithersburg, Maryland expired in October 2015.

 

Total rent expense under the Company’s operating leases was $216,765 and $96,317 for the three months ended September 30, 2015 and 2014, respectively, and $437,125 and $289,188 for the nine months ended September 30, 2015 and 2014, respectively.

 

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7. Equity Incentive Plans

 

 2003 Stock Incentive Plan

 

The 2003 Stock Incentive Plan (the 2003 Plan) provided for the grant of incentives and nonqualified stock options and restricted stock awards. The exercise price for incentive stock options must be at least equal to the fair value of the common stock on the grant date. Unless otherwise stated in a stock option agreement, 25% of the shares subject to an option grant will vest upon the first anniversary of the vesting start date and thereafter at the rate of one forty-eighth of the option shares per month as of the first day of each month after the first anniversary. Upon termination of employment by reasons other than death, cause, or disability, any vested options shall terminate 60 days after the termination date. Stock options terminate 10 years from the date of grant. The 2003 Plan expired on May 21, 2013.

 

A summary of the Company’s stock option activity under the 2003 Plan for the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

 

Weighted-

 

Remaining

 

Aggregate

 

 

 

Outstanding

 

Average

 

Contractual Term

 

Intrinsic Value

 

 

    

Options

    

Exercise Price

    

(Years)

    

(In Thousands)

 

Outstanding as of December 31, 2014

 

857,391

 

$

1.26

 

5.2

 

 

 

 

Options granted

 

 —

 

 

 —

 

 

 

 

 

 

Options exercised

 

(97,295)

 

 

1.14

 

 

 

 

 

 

Options forfeited

 

(177)

 

 

1.98

 

 

 

 

 

 

Outstanding as of September 30, 2015

 

759,919

 

 

1.27

 

4.5

 

$

3,289

 

Vested or expected to vest as of September 30, 2015

 

759,352

 

 

1.27

 

4.5

 

$

3,287

 

Exercisable as of September 30, 2015

 

743,107

 

 

1.25

 

4.4

 

$

3,235

 

 

As of September 30, 2015, there was $27,380 of total unrecognized compensation expense related to unvested options under the 2003 Plan that will be recognized over a weighted-average period less than one year. Total intrinsic value of the options exercised during the nine months ended September 30, 2015 and 2014 was $669,196 and $606,279, respectively. The total fair value of shares underlying options which vested in the nine months ended September 30, 2015 and 2014 was $38,223 and $49,573, respectively.

 

2013 Equity Incentive Plan

 

The Company’s board of directors adopted, and its stockholders approved, its 2013 Equity Incentive Plan (the 2013 Plan). The 2013 Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code to the Company’s employees and its parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of stock compensation to its employees, including officers, consultants and directors. The 2013 Plan also provides for the grant of performance cash awards to the Company’s employees, consultants and directors. Unless otherwise stated in a stock option agreement, 25% of the shares subject to an option grant will typically vest upon the first anniversary of the vesting start date and thereafter at the rate of one forty-eighth of the option shares per month as of the first day of each month after the first anniversary. Upon termination of employment by reasons other than death, cause, or disability, any vested options will terminate 90 days after the termination date, unless otherwise set forth in a stock option agreement. Stock options generally terminate 10 years from the date of grant.

 

Authorized Shares

 

The maximum number of shares of common stock that initially could be issued under the 2013 Plan was    1,000,000 shares, plus any shares subject to stock options or similar awards granted under the 2003 Plan that expire or terminate without having been exercised in full or are forfeited to or repurchased by the Company. The number of shares of common stock reserved for issuance under the 2013 Plan automatically increases on January 1 of each year until January 1, 2023, by 3% of the total number of shares of common stock outstanding on December 31 of the preceding

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calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. The maximum number of shares that may be issued pursuant to exercise of incentive stock options under the 2013 Plan is 20,000,000. As of January 1, 2015, the number of shares of common stock that may be issued under the 2013 Plan was automatically increased by 568,195 shares, representing 3% of the total number of shares of common stock outstanding on January 1, 2015, increasing the number of shares of common stock available for issuance under the 2013 Plan to 1,568,195 shares.

 

Shares issued under the 2013 Plan may be authorized but unissued or reacquired shares of common stock. Shares subject to stock awards granted under the 2013 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under the 2013 Plan. Additionally, shares issued pursuant to stock awards under the 2013 Plan that the Company repurchases or that are forfeited, as well as shares reacquired by the Company as consideration for the exercise or purchase price of a stock award or to satisfy tax withholding obligations related to a stock award, will become available for future grant under the 2013 Plan.

 

A summary of the Company’s stock option activity under the 2013 Plan for the nine months ended September 30, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

ccc

 

 

 

Weighted-

 

Remaining

 

Aggregate

 

 

 

Outstanding

 

Average

 

Contractual Term

 

Intrinsic Value

 

 

 

Options

    

Exercise Price

    

(Years)

    

(In Thousands)

 

Outstanding as of December 31, 2014

 

949,589

 

$

8.88

 

9.1

 

 

 

 

Options granted

 

576,000

 

 

7.23

 

 

 

 

 

 

Options exercised

 

 —

 

 

 

 

 

 

 

 

 

Options forfeited

 

(42,750)

 

 

7.86

 

 

 

 

 

 

Outstanding as of September 30, 2015

 

1,482,839

 

 

8.26

 

8.7

 

$

 

Vested or expected to vest as of September 30, 2015

 

1,475,733

 

 

8.26

 

8.7

 

$

 

Exercisable as of September 30, 2015

 

394,797

 

 

8.80

 

8.3

 

$

 

 

The weighted-average fair value of the options granted during the nine months ended September 30, 2015 and 2014 was $5.09 per share and $6.71 per share, respectively, applying the Black-Scholes-Merton option pricing model utilizing the following weighted-average assumptions:

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

Nine Months Ended

 

 

    

September 30, 2015

 

September 30, 2014

 

Expected term (years)

 

6.25

 

6.25

 

Expected volatility

 

80.83%

 

90.32%

 

Risk-free interest rate

 

1.70%

 

2.14%

 

Expected dividend yield

 

0%

 

0%

 

 

As of September 30, 2015, there was $5,793,294 of total unrecognized compensation expense related to unvested options under the 2013 Plan that will be recognized over a weighted-average period of approximately 3.0 years. The total fair value of shares underlying options which vested in the nine months ended September 30, 2015 and 2014 was $2,314,557 and $0, respectively.

 

A restricted stock unit (RSU) is a stock award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair value of each RSU is based on the closing price of the Company’s stock on the date of grant. The Company has granted RSUs with service conditions (service RSUs) that vest in three equal annual installments provided that the employee remains employed with the Company. As of September 30, 2015, there was $37,809 of unrecognized compensation costs related to unvested service RSUs.

 

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The following is a summary of RSU activity under the 2013 Plan for the nine months ended September 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

Grant Date Fair

 

 

    

Number of Shares

 

 

Value

 

Unvested at December 31, 2014

 

 

7,250

 

$

7.62

 

Granted

 

 

 —

 

 

 —

 

Forfeited

 

 

 —

 

 

 —

 

Vested

 

 

 —

 

 

 —

 

Unvested at September 30, 2015

 

 

7,250

 

 

7.62

 

 

Stock-based compensation expense was classified on the statement of operations as follows for the three and nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Nine Months Ended September 30, 

 

 

    

2015

 

2014

   

2015

 

2014

    

Research and development expense

 

$

209,359

 

$

140,227

 

$

590,633

 

$

359,351

 

General and administrative expense

 

 

423,565

 

 

301,549

 

 

1,088,035

 

 

793,069

 

Total stock-based compensation expense

 

$

632,924

 

$

441,776

 

$

1,678,668

 

$

1,152,420

 

 

 

8. Income Taxes

 

The Company has not recorded any tax provision or benefit for the three or nine months ended September 30, 2015. The Company recorded an income tax benefit of $76,758 and $0 for the  three months and nine months ended September 30, 2014, respectively. The Company has provided a valuation allowance for the full amount of its net deferred tax assets since realization of any future benefit from deductible temporary differences, net operating loss carryforwards and research and development credits is not more-likely-than-not to be realized at September 30, 2015 and December 31, 2014.  

 

9.  Research and License Agreements

 

In October 2011, the Company and Pfizer entered into a licensing agreement (the Pfizer Agreement) that provides Pfizer an exclusive worldwide license to rivipansel for vaso-occlusive crisis associated with sickle cell disease and for other diseases for which the drug candidate may be developed. The Company was responsible for completion of the Phase 2 clinical trial, after which Pfizer assumed all further development and commercialization responsibilities. Upon execution of the Pfizer Agreement, the Company received an up-front payment of $22.5 million. The Pfizer Agreement also provides for potential milestone payments of up to $115.0 million upon the achievement of specified development milestones, including the dosing of the first patients in Phase 3 clinical trials for up to two indications and the first commercial sale of a licensed product in the United States and selected European countries for up to two indications; potential milestone payments of up to $70.0 million upon the achievement of specified regulatory milestones, including the acceptance of our filings for regulatory approval by regulatory authorities in the United States and Europe for up to two indications; and potential milestone payments of up to $135.0 million upon the achievement of specified levels of annual net sales of licensed products. Pfizer has the right to terminate the Agreement by giving prior written notice.

 

The Company has determined that each potential future clinical, development and regulatory milestone is substantive. Although sales-based milestones are not considered substantive, they are still recognized upon achievement of the milestone (assuming all other revenue recognition criteria have been met) because there are no undelivered elements that would preclude revenue recognition at that time. The Company is also eligible to receive royalties on future sales contingent upon annual net sales thresholds. In addition, the Company and Pfizer have formed a joint steering committee that will oversee and coordinate activities as set forth in the research program. The $22.5 million up-front payment was recognized over a period of 1.5 years. In May 2014, Pfizer made a $15.0 million non-refundable milestone payment to the Company, which was recognized as revenue by the Company in May 2014 when earned.  In June 2015, Pfizer dosed the first patient in the Phase 3 clinical trial of rivipansel, which triggered a non-refundable milestone payment to the Company of $20.0 million, which the Company recognized as revenue in June 2015.

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In February 2004, the Company entered into a research services agreement (the Research Agreement) with the University of Basel (the University) for biological evaluation of selectin antagonists. Certain patents covering the rivipansel compound are subject to provisions of the Research Agreement. Under the terms of the Research Agreement, the Company will owe to the University 10% of all future milestone and royalty payments received from Pfizer with respect to rivipansel.  As of December 31, 2014, a $1.5 million milestone license fee was recorded as an accrued liability representing 10% of the $15.0 million non-refundable milestone payment that the Company received from Pfizer in May 2014.  The accrued liability of $1.5 million was paid in February 2015. During the nine months ended September 30, 2015,  a  $2.0 million milestone license fee was recorded as an accrued liability representing 10% of the $20.0 million non-refundable milestone payment from Pfizer.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements contained in this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions, or the negative of such words or phrases, are intended to identify “forward-looking statements.” We have based these forward-looking statements on our current expectations and projections about future events. Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K, particularly in Part I – Item 1A, “Risk Factors,” and our other filings with the Securities and Exchange Commission. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim, any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, 2014, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 16, 2015.

 

Overview

 

We are a clinical stage biotechnology company focused on the discovery and development of novel glycomimetic drugs to address unmet medical needs resulting from diseases in which carbohydrate biology plays a key role. Glycomimetics are molecules that mimic the structure of carbohydrates involved in important biological processes. Using our expertise in carbohydrate chemistry and knowledge of carbohydrate biology, we are developing a pipeline of proprietary glycomimetics that inhibit disease-related functions of carbohydrates, such as the roles they play in inflammation, cancer and infection. We believe this represents an innovative approach to drug discovery to treat a wide range of diseases.

 

We are focusing our initial efforts on drug candidates for rare diseases that we believe will qualify for orphan drug designation. We are developing our lead drug candidate, rivipansel, previously known as GMI-1070, for the treatment of vaso-occlusive crisis, or VOC, one of the most severe complications of sickle cell disease. Rivipansel has received both orphan drug designation and fast track designation from the U.S. Food and Drug Administration, or FDA, for the treatment of VOC. In October 2011, we entered into a license agreement with Pfizer Inc., or Pfizer, under which we were responsible for the clinical development of rivipansel through the completion of a Phase 2 clinical trial. Following our completion of the Phase 2 clinical trial in April 2013, Pfizer is now responsible for all further clinical development, regulatory approval and potential commercialization of rivipansel for all indications and Pfizer has commercial rights to rivipansel worldwide. In July 2014, Pfizer reached an agreement with the FDA under a special protocol assessment for the Phase 3 clinical trial. In June 2015, Pfizer dosed the first patient in the Phase 3 clinical trial of rivipansel.

 

Building on our experience with rivipansel, we are developing a pipeline of other glycomimetic drug candidates. Our second most advanced drug candidate, GMI-1271, is a specific E-selectin inhibitor, which we are developing to be used in combination with chemotherapy to treat patients with acute myeloid leukemia, or AML, and potentially other hematologic cancers. In June 2014, we commenced a Phase 1 clinical trial to evaluate the safety, tolerability and pharmacokinetics of GMI-1271 for the treatment of AML. We have initiated preparations for a multinational, Phase 1/2, open-label clinical trial of GMI-1271 as an adjunct to standard chemotherapy in patients with AML, and enrolled the first patient in this trial in May 2015. GMI-1271 received orphan drug designation from the FDA in May 2015.

 

We are also collaborating with the University of Michigan to evaluate GMI-1271 as a potential new class of anticoagulant to treat persons at risk for venous thromboembolic disease, a serious blood-clotting disorder. The

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University of Michigan began dosing healthy volunteers in a Phase 1 clinical trial of GMI-1271 in December 2014. The Phase 1 clinical trial is a randomized, partially blinded, active placebo-controlled trial for which we completed initial enrollment in October 2015. The trial design has subsequently been amended to include a multiple ascending dose portion, and we expect enrollment in this additional portion to be completed in the first half of 2016.

 

We are also developing a pipeline of other preclinical drug candidates based on our expertise in carbohydrate chemistry. We have designed a family of small molecule drug candidates that simultaneously inhibit both E-selectin and CXCR4. Since E-selectin and CXCR4 are both adhesion molecules that keep cancer cells in the bone marrow, we believe that targeting both E-selectin and CXCR4 with a single compound could improve efficacy in the treatment of cancers that affect the bone marrow, as compared to targeting CXCR4 alone. We are currently evaluating one of these compounds, GMI-1359, in preclinical studies. 

 

We have retained the worldwide development and commercialization rights to all of our drug candidates other than rivipansel.

 

We commenced operations in 2003, and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our glycomimetics platform, identifying potential drug candidates, undertaking preclinical studies and conducting clinical trials of rivipansel and GMI-1271. To date, we have financed our operations primarily through private placements of our securities, upfront and milestone payments under our collaboration with Pfizer and the net proceeds from our initial public offering, or IPO, in January 2014. We have no approved drugs currently available for sale, and substantially all of our revenue to date has been revenue from the upfront and milestone payments from Pfizer, although we have received nominal amounts of revenue under research grants. Prior to our IPO, we raised an aggregate of $86.6 million to fund our operations, of which $22.5 million was an upfront payment under our collaboration with Pfizer and $64.1 million was from the sale of our convertible promissory notes and convertible preferred stock. The IPO provided us with net proceeds of $57.2 million, and we received a non-refundable milestone payment from Pfizer in May 2014 of $15.0 million. In August 2015, we received another non-refundable milestone payment from Pfizer of $20.0 million following the dosing of the first patient in the Phase 3 clinical trial of rivipansel.

 

Since inception, we have incurred significant operating losses. Although we have generated cumulative revenue of $58.6 million since our inception through September 30, 2015, primarily consisting of the $22.5 million upfront payment from Pfizer in 2011, the $15.0 million non-refundable milestone payment in May 2014 and the $20.0 million non-refundable milestone payment in August 2015, we had an accumulated deficit of $78.3 million as of September 30, 2015, and we expect to continue to incur significant expenses and operating losses over at least the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials, the receipt of milestone payments, if any, under our collaboration with Pfizer, and our expenditures on other research and development activities. We anticipate that our expenses will increase substantially as we:

 

·

initiate and conduct our planned clinical trials of GMI-1271;

 

·

continue the research and development of our other drug candidates;

 

·

seek to discover and develop additional drug candidates;

 

·

seek regulatory approvals for any drug candidates other than rivipansel that successfully complete clinical trials;

 

·

ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any drug candidates other than rivipansel for which we may obtain regulatory approval;

 

·

maintain, expand and protect our intellectual property portfolio;

 

·

hire additional clinical, quality control and scientific personnel; and

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·

add operational, financial and management information systems and personnel, including personnel to support our drug development and potential future commercialization efforts.

 

To fund further operations, we will need to raise capital in addition to the net proceeds we received from our IPO and additional milestone payments we may receive under our collaboration with Pfizer. We may obtain additional financing in the future through the issuance of our common stock, through other equity or debt financings or through collaborations or partnerships with other companies. We may not be able to raise additional capital on terms acceptable to us, or at all, and any failure to raise capital as and when needed could compromise our ability to execute on our business plan. Although it is difficult to predict future liquidity requirements, we believe that our existing cash and cash equivalents, together with interest thereon, will be sufficient to fund our operations through the fourth quarter of 2016. However, our ability to successfully transition to profitability will be dependent upon achieving a level of revenues adequate to support our cost structure. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

 

Our Collaboration with Pfizer

 

In October 2011, we entered into the license agreement with Pfizer under which we granted Pfizer an exclusive worldwide license to develop and commercialize products containing rivipansel for all fields and uses. The license also covers specified back-up compounds along with modifications of and improvements to rivipansel that meet defined chemical properties. Pfizer is required to use commercially reasonable efforts, at its expense, to develop, obtain regulatory approval for and commercialize rivipansel for sickle cell disease in the United States. Under the terms of the agreement, we received a $22.5 million upfront payment. We are also eligible to earn potential milestone payments of up to $115.0 million upon the achievement of specified development milestones, including the dosing of the first patients in Phase 3 clinical trials for up to two indications and the first commercial sale of a licensed product in the United States and selected European countries for up to two indications, up to $70.0 million upon the achievement of specified regulatory milestones, including the acceptance of our filings for regulatory approval by regulatory authorities in the United States and Europe for up to two indications, and up to $135.0 million upon the achievement of specified levels of annual net sales of licensed products. We are also eligible to receive tiered royalties for each licensed product, with percentages ranging from the low double digits to the low teens, based on net sales worldwide, subject to reductions in specified circumstances.

 

The first potential milestone payment under the Pfizer agreement was $35.0 million upon the initiation of dosing of the first patient in a Phase 3 clinical trial of rivipansel by Pfizer. Under the collaboration, Pfizer made a $15.0 million non-refundable milestone payment to us in May 2014, which we recognized as revenue in May 2014, when earned, and the dosing of the first patient in the Phase 3 clinical trial in June 2015 triggered the remaining $20.0 million milestone payment to us.  We recorded the $20.0 million milestone payment as revenue in June 2015.

 

We have a research services agreement with the University of Basel, or the University, under which University personnel have performed research services for us on an as-requested basis since 2004. The agreement includes one-year research terms, and we have no affirmative obligation to purchase any minimum amount of services in any year beyond what we commit to at the beginning of each term, if any. For each of the research terms ended in February 2014 and 2015, we paid the University approximately $200,000. As part of the original consideration for entering into this agreement, we granted to the University the right to receive payments from us under specified circumstances. If we receive any future milestone payments or royalties from Pfizer with respect to rivipansel, we have agreed to pay 10% of those amounts to the University. During the three months ended September 30, 2015, we recorded a $2.0 million liability to the University based upon the $20.0 million non-refundable milestone payment due from Pfizer upon dosing of the first patient in the Phase 3 clinical trial of rivipansel. As of December 31, 2014, we recorded a liability for the $1.5 million payable to the University, which is equal to 10% of the $15.0 million non-refundable milestone payment we received from Pfizer in May 2014. In February 2015, we paid the $1.5 million accrued liability to the University. 

 

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Critical Accounting Policies and Significant Judgments and Estimates

 

There have been no material changes in our critical accounting policies, estimates and judgments during the nine months ended September 30, 2015 compared to the disclosures in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2014.

 

Components of Operating Results

 

Revenue

 

To date, we have not generated any revenue from the sale of our drug candidates and do not expect to generate any revenue from the sale of drugs in the near future. Substantially all of our revenue recognized to date has consisted of the upfront and milestone payments under our agreement with Pfizer.

 

Since our inception, we have also recognized a nominal amount of revenue under research grant contracts, generally to the extent of our costs incurred in connection with specific research or development activities.

 

Research and Development

 

Research and development expenses consist of expenses incurred in performing research and development activities, including compensation and benefits for full-time research and development employees, facilities expenses, overhead expenses, cost of laboratory supplies, clinical trial and related clinical manufacturing expenses, fees paid to contract research organizations and other consultants and other outside expenses. Other preclinical research and platform programs include activities related to exploratory efforts, target validation, lead optimization for our earlier programs and our proprietary glycomimetics platform.

 

To date, our research and development expenses have related primarily to the development of rivipansel and our other drug candidates. In April 2013, when we completed our Phase 2 clinical trial of rivipansel, all further clinical development obligations associated with rivipansel shifted to Pfizer.

 

We do not currently utilize a formal time allocation system to capture expenses on a project-by-project basis because we are organized and record expense by functional department and our employees may allocate time to more than one development project. Accordingly, we only allocate a portion of our research and development expenses by functional area and by drug candidate.

 

Research and development costs are expensed as incurred. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.

 

Research and development activities are central to our business model. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. We expect our research and development expenses to increase over the next several years as we seek to progress GMI-1271 and our other drug candidates through clinical development. However, it is difficult to determine with certainty the duration and completion costs of our current or future preclinical studies and clinical trials of our drug candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our drug candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our drug candidates.

 

The duration, costs and timing of clinical trials and development of our drug candidates will depend on a variety of factors that include:

 

·

per patient trial costs;

 

·

the number of patients that participate in the trials;

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·

the number of sites included in the trials;

 

·

the countries in which the trial is conducted;

 

·

the length of time required to enroll eligible patients;

 

·

the number of doses that patients receive;

 

·

the drop-out or discontinuation rates of patients;

 

·

potential additional safety monitoring or other studies requested by regulatory agencies;

 

·

the duration of patient follow-up; and

 

·

the safety and efficacy profile of the drug candidate.

 

In addition, the probability of success for each drug candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.

 

General and Administrative

 

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, business development and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

 

We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities. In addition, if any of our other drug candidates other than rivipansel obtains regulatory approval, we expect to incur expenses associated with building a sales and marketing team to prepare for potential commercialization. However, we do not expect to receive any such regulatory approval for at least the next several years.

 

Other Income

 

Other income consists of interest income earned on our cash and cash equivalents.

 

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Results of Operations for the Three and Nine Months Ended September 30, 2015 and 2014

 

The following table sets forth our results of operations before income taxes for the three and nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

 

Revenue

    

$

 —

    

$

 —

    

$

 —

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

 

5,038

 

 

5,051

 

 

(13)

 

General and administrative expense

 

 

2,133

 

 

1,648

 

 

485

 

Total costs and expenses

 

 

7,171

 

 

6,699

 

 

472

 

Loss from operations

 

 

(7,171)

 

 

(6,699)

 

 

(472)

 

Other income

 

 

3

 

 

5

 

 

(2)

 

Loss and comprehensive loss before income taxes

 

$

(7,168)

 

$

(6,694)

 

$

(474)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

 

Revenue

    

$

20,035

    

$

15,027

    

$

5,008

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

Research and development expense

 

 

18,089

 

 

14,290

 

 

3,799

 

General and administrative expense

 

 

5,844

 

 

4,479

 

 

1,365

 

Total costs and expenses

 

 

23,933

 

 

18,769

 

 

5,164

 

Loss from operations

 

 

(3,898)

 

 

(3,742)

 

 

(156)

 

Other income

 

 

10

 

 

14

 

 

(4)

 

Loss and comprehensive loss before income taxes

 

$

(3,888)

 

$

(3,728)

 

$

(160)

 

 

Revenue

 

During the nine months ended September 30, 2015, our revenue increased by $5.0 million, or 33%, compared to the same period in 2014. The revenue recorded in the nine months ended September 30, 2015 was due to the $20.0 million non-refundable milestone payment from Pfizer triggered upon the dosing of the first patient in the Phase 3 clinical trial of rivipansel in June 2015. The revenue received for the nine months ended in September 30, 2014 was based on the $15.0 million non-refundable milestone payment received from Pfizer in May 2014. We did not record any revenue for the three months ended September 30, 2015 or 2014.

 

Research and Development Expense

 

The following table summarizes our research and development expenses by functional area for the three months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

 

Clinical development

    

$

629

    

$

567

    

$

62

 

Manufacturing and formulation

 

 

1,806

 

 

2,159

 

 

(353)

 

Contract research services, consulting and other costs

 

 

583

 

 

728

 

 

(145)

 

Laboratory costs

 

 

439

 

 

310

 

 

129

 

Personnel-related

 

 

1,372

 

 

1,147

 

 

225

 

Stock-based compensation

 

 

209

 

 

140

 

 

69

 

Research and development expense

 

$

5,038

 

$

5,051

 

$

(13)

 

 

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During the three months ended September 30, 2015, our research and development expense decreased by $13,000 compared to the same period in 2014. The change in research and development expense was primarily attributable to a decrease in expenses related to manufacturing and process development for the Phase 1/2 clinical trial of GMI-1271 offset by an increase in the related clinical trial costs associated with the Phase 1/2 clinical trial.  The first patient was dosed in the Phase 1/2 clinical trial of GMI-1271 in May 2015. Personnel related fees increased by $225,000 for the three months ended September 30, 2015 compared to September 30, 2014 primarily attributable to an increased number of research and development employees to support our current programs.

 

The following table summarizes our research and development expenses by functional area for the nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

   

Clinical development

    

$

1,965

    

$

1,585

    

$

380

 

Manufacturing and formulation

 

 

6,436

 

 

4,488

 

 

1,948

 

Contract research services, consulting and other costs

 

 

1,834

 

 

2,070

 

 

(236)

 

Laboratory costs

 

 

1,098

 

 

932

 

 

166

 

Personnel-related

 

 

4,163

 

 

3,355

 

 

808

 

Stock-based compensation

 

 

591

 

 

360

 

 

231

 

Milestone license fee

 

 

2,002

 

 

1,500

 

 

502

 

Research and development expense

 

$

18,089

 

$

14,290

 

$

3,799

 

 

During the nine months ended September 30, 2015, our research and development expense increased by $3.8 million compared to the same period in 2014, reflecting an increase of 27%. The increase in research and development expense was primarily attributable to an increase in the manufacturing and process development in preparation for the Phase 1/2 clinical trial in GMI-1271 and the related clinical trial costs.  In addition, the preclinical development of GMI-1359, our next drug candidate, has resulted in increased expenses in manufacturing and for the toxicology studies required to support a potential IND filing. Personnel-related fees increased by $808,000 for the nine months ended September 30, 2015 compared to September 30, 2014 primarily attributable to an increased number of research and development employees to support our current programs.

 

The milestone license fees increased by $500,000 for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014 based on the fee due to the University of Basel for the payment related to the Pfizer milestone. As part of the original consideration for entering into an agreement with the University, we granted to the University the right to receive 10% of payments related to rivipansel under specified circumstances including any future milestone payments or royalties from Pfizer with respect to rivipansel. 

 

The following table summarizes our research and development expenses by drug candidate for the three and nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

 

GMI-1271

    

$

1,634

    

$

2,721

    

$

(1,087)

 

GMI-1359

 

 

1,128

 

 

62

 

 

1,066

 

Rivipansel

 

 

3

 

 

20

 

 

(17)

 

GMI-1051

 

 

16

 

 

7

 

 

9

 

Other research and development

 

 

675

 

 

954

 

 

(279)

 

Personnel-related and stock-based compensation

 

 

1,582

 

 

1,287

 

 

295

 

Research and development expense

 

$

5,038

 

$

5,051

 

$

(13)

 

 

 

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Nine Months Ended  September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

 

GMI-1271

    

$

7,499

    

$

6,201

    

$

1,298

 

GMI-1359

 

 

1,745

 

 

200

 

 

1,545

 

Rivipansel

 

 

2,017

 

 

1,554

 

 

463

 

GMI-1051

 

 

67

 

 

7

 

 

60

 

Other research and development

 

 

2,008

 

 

2,616

 

 

(608)

 

Personnel-related and stock-based compensation

 

 

4,753

 

 

3,712

 

 

1,041

 

Research and development expense

 

$

18,089

 

$

14,290

 

$

3,799

 

 

General and Administrative Expense

 

The following table summarizes the components of our general and administrative expenses for the three and nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended  September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

 

Personnel-related

    

$

571

    

$

591

    

$

(20)

 

Stock-based compensation

 

 

424

 

 

302

 

 

122

 

Legal, consulting and other professional expenses

 

 

968

 

 

616

 

 

352

 

Other

 

 

170

 

 

139

 

 

31

 

General and administrative expense

 

$

2,133

 

$

1,648

 

$

485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended  September 30, 

 

Period-to-Period

 

(in thousands)

 

2015

 

2014

 

Change

 

Personnel-related

    

$

1,756

    

$

1,539

    

$

217

 

Stock-based compensation

 

 

1,088

 

 

793

 

 

295

 

Legal, consulting and other professional expenses

 

 

2,575

 

 

1,801

 

 

774

 

Other

 

 

425

 

 

346

 

 

79

 

General and administrative expense

 

$

5,844

 

$

4,479

 

$

1,365

 

 

During the three months ended September 30, 2015, our general and administrative expense increased by $485,000 compared to the same period in 2014, reflecting an increase of 29%. During the nine months ended September 30, 2015, our general and administrative expense increased by $1.4 million compared to the same period in 2014, reflecting an increase of 30%. These increases in general and administrative expense were primarily attributable to additional professional fees, including patent costs, market research studies, insurance and other costs associated with supporting public company operations, as well as increased stock-based compensation expense, which increased due to new awards granted to employees and directors in 2015.

 

Liquidity and Capital Resources

 

Sources of Liquidity

 

We have financed our operations primarily through the private placements of our capital stock, our IPO and upfront and milestone payments from Pfizer. As of September 30, 2015, we had $53.8 million in cash and cash equivalents.

 

We are potentially eligible to earn a significant amount of milestone payments and royalties under our agreement with Pfizer. Our ability to earn these payments and their timing is dependent upon the outcome of Pfizer’s activities and is uncertain at this time.

 

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Funding Requirements

 

Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs.

 

The successful development of any of our drug candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of GMI-1271 or our other drug candidates. We are also unable to predict when, if ever, material net cash inflows will commence from rivipansel or GMI-1271. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

 

·

successful enrollment in, and completion of, clinical trials;

 

·

receipt of marketing approvals from applicable regulatory authorities;

 

·

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

·

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for drug candidates; and

 

·

launching commercial sales of drugs, if and when approved, whether alone or in collaboration with others.

 

A change in the outcome of any of these variables with respect to the development of any of our drug candidates would significantly change the costs and timing associated with the development of that drug candidate. Because our drug candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our drug candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements, including our existing collaboration with Pfizer. Except for Pfizer’s obligation to make milestone payments under our agreement with them, we will not have any committed external source of liquidity.

 

To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of convertible debt securities, these securities could contain covenants that would restrict our operations.

 

We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.

 

Outlook

 

Based on our research and development plans and our timing expectations related to the progress of our programs, we expect that our existing cash and cash equivalents as of September 30, 2015 will enable us to fund our operating expenses and capital expenditure requirements through the first quarter of 2017. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain.

 

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Cash Flows

 

The following is a summary of cash flows for the nine months ended September 30, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

September 30, 

 

(in thousands) 

 

2015

 

2014

 

Net cash provided by (used in):

    

 

 

    

 

 

 

Operating activities

 

$

(1,284)

 

$

1,873

 

Investing activities

 

 

(265)

 

 

(198)

 

Financing activities

 

 

111

 

 

57,376

 

Net change in cash and cash equivalents

 

$

(1,439)

 

$

59,052

 

 

Operating Activities

 

Net cash used in operating activities for the nine months ended September 30, 2015 includes the costs associated with the advancement of the GMI-1271 development program, including the manufacturing of supplies and clinical expenses for the initiation of the Phase 1/2 clinical trial, offset in part by the $20.0 million received from Pfizer, which was recorded as revenue in June 2015.  In addition, the $1.5 million milestone license fee due to the University of Basel and accrued as a liability as of December 31, 2014 was paid during this period.  Net cash provided by operating activities for the nine months ended September 30, 2014 reflects the receipt of the $15.0 million non-refundable milestone payment from Pfizer offset by the amounts used to conduct our preclinical studies and to support the manufacturing development of GMI-1271.

 

Investing Activities

 

Net cash used in investing activities for the nine months ended September 30, 2015 included capital expenses related to moving into our new office headquarters in June 2015, including the acquisition of new furniture and lab equipment. Net cash used in investing activities for the nine months ended September 30, 2014 primarily included the acquisition of additional lab equipment needed to further our research and development activities.

 

Financing Activities

 

Net cash provided by financing activities during the nine months ended September 30, 2015 is comprised solely of employee stock option exercises.  Net cash provided by financing activities of $57.4 million during the nine months ended September 30, 2014 reflects net proceeds received from our IPO of $57.2 million with the remaining cash inflows provided from the exercise of employee stock options.

 

Off-Balance Sheet Arrangements

 

During the nine months ended September 30, 2015, we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

 

JOBS Act

 

In April 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107(b) of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse ch