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GLYCOMIMETICS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[October 31, 2014]

GLYCOMIMETICS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Edgar Glimpses Via Acquire Media NewsEdge) 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, particularly in Part II - 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, 2013, which are included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014.

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 referred to 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 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, or SPA, for the Phase 3 trial. However, in September 2014, we were informed by Pfizer that initiation of the Phase 3 clinical trial with rivipansel will be significantly delayed due to a manufacturing development issue impacting formulated drug supply. Pfizer advised us that the issue is under review and noted that upon identifying the specific cause and associated remedy of the manufacturing issue, we will be advised of a more specific timeframe regarding the commencement of the Phase 3 study.

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. The single-site Phase 1 trial of GMI-1271 is a randomized, double-blind, placebo-controlled, single ascending intravenous dose study of GMI-1271 in 28 healthy adult subjects. Three dose levels of GMI-1271 were tested. The dosing was completed in July, and we anticipate the final data being available by the end of 2014. We plan to initiate a Phase 1/2 trial of GMI-1271 as an adjunct to standard chemotherapy in patients with AML.

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, or VTE, a serious blood-clotting disorder. We expect the University of Michigan to commence a Phase 1 clinical trial of GMI-1271 in the fourth quarter of 2014. The trial is being funded by a grant from the National Institutes of Health's National Heart Lung and Blood Institute. The trial will be a randomized, partially blinded, active placebo-controlled trial expected to last approximately 10 months and to enroll 12 17 -------------------------------------------------------------------------------- Table of Contents volunteers, male and female, between the ages of 18 and 75. The primary objective of the trial is to evaluate the safety and pharmacokinetic profile of a single ascending dose of GMI-1271 in healthy volunteers. The secondary objectives of the trial include evaluating the incidence of bleeding and other adverse events and the effects of GMI-1271 on biomarkers of coagulation, cell adhesion and leukocyte and platelet activation.

We are also developing a pipeline of other preclinical drug candidates based on our expertise in carbohydrate chemistry. 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, beginning in 2008, conducting clinical trials of rivipansel. 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 products 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 partial non-refundable milestone payment from Pfizer in May 2014 of $15.0 million.

Since inception, we have incurred significant operating losses. Although we have generated cumulative revenue of $38.6 million since our inception through September 30, 2014, primarily consisting of the $22.5 million upfront payment from Pfizer in 2011 and the $15.0 million milestone payment in May 2014, we had an accumulated deficit of $67.0 million as of September 30, 2014 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: • prepare and initiate our planned Phase 1/2 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 • 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 for at least the next 12 months. 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 18 -------------------------------------------------------------------------------- Table of Contents 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 trial of rivipansel by Pfizer. Under the collaboration, Pfizer made a $15.0 million non-refundable payment to us in May 2014, and the dosing of the first patient in the Phase 3 clinical trial will trigger the remaining $20.0 million milestone payment to us.

In September 2014, we were informed by Pfizer that initiation of the Phase 3 clinical trial with rivipansel will be significantly delayed due to a manufacturing development issue impacting formulated drug supply. Pfizer advised us that the issue is under review and noted that upon identifying the specific cause and associated remedy of the manufacturing issue, we will be advised of a more specific timeframe regarding the commencement of the Phase 3 study.

Although Pfizer has taken and is taking a number of steps to prepare for Phase 3 initiation, there can be no assurance that the conditions to its obligation to make the remaining $20.0 million milestone payment to us under the agreement will be satisfied.

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 2013 and 2014, we paid the University approximately $150,000. For the research term ending in February 2015, we are obligated to pay $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. As of September 30, 2014, we have recorded an accrued expense of $1.5 million to the University, which is equal to 10% of the $15.0 million non-refundable milestone payment we received from Pfizer in May 2014. Amounts paid to the University are recorded as research and development expense on our statements of operations.

Critical Accounting Policies and Significant Judgments and Estimates Our 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 generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances at the time such estimates are made. Actual results may differ materially from our estimates and judgments under different assumptions or conditions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in our financial statements prospectively from the date of the change in estimate.

We define our critical accounting policies as those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Quarterly Report, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments.

19 -------------------------------------------------------------------------------- Table of Contents Revenue Recognition Research Grant Contracts From time to time, we are awarded reimbursement contracts for services and development grant contracts with government and non-government entities and philanthropic organizations. Under these contracts, we are typically reimbursed for our costs in connection with specific research or development activities. We recognize revenue as and to the extent we incur costs in connection with performance under these arrangements.

License and Collaboration Agreements We have entered into a license agreement with Pfizer. Under the agreement, Pfizer made a nonrefundable $22.5 million upfront payment to us in 2011 and a $15.0 million milestone payment in 2014. In addition, Pfizer may become obligated to make potential milestone payments to us upon the achievement of significant clinical development milestones, regulatory approvals and sales-based events. The agreement also contemplates royalty payments to us on any future net sales of rivipansel worldwide.

Collaborative research and development agreements can provide for one or more of upfront license fees, research payments and milestone payments. Agreements with multiple components, such as deliverables or similar items, are referred to as multi-element revenue arrangements and are evaluated according to the provisions of Accounting Standards Codification, or ASC, Topic 605-25, Revenue Recognition-Multiple-Element Arrangements, which we adopted effective as of January 1, 2011, to determine whether the deliverables can be separated into more than one unit of accounting. An item can generally be considered to be a separate unit of accounting if both of the following criteria are met: • the delivered item(s) has value to our customer on a standalone basis; and • the arrangement includes a general right of return relative to the delivered item(s), and delivery or performance of the undelivered item(s) is considered probable and substantially in our control.

Items that cannot be divided into separate units are combined with other units of accounting, as appropriate. Consideration received is then allocated among the separate units based on a selling price hierarchy. The selling price hierarchy for each deliverable is based on vendor-specific objective evidence, or VSOE, if it is available; third-party evidence of selling price, or TPE, if VSOE is not available; or an estimated selling price, if neither VSOE nor TPE is available.

Our license agreement with Pfizer represents a multiple-element revenue arrangement. To account for this transaction, we determined the elements, or deliverables, included in the arrangement and allocated arrangement consideration to the various elements based on each element's relative selling price. The identification of individual elements in a multiple-element arrangement and the estimation of the selling price of each element involve significant judgment, including consideration as to whether each delivered element has standalone value to our collaborator.

The primary deliverable under our license arrangement with Pfizer is an exclusive worldwide license to rivipansel, which is currently being developed to treat people experiencing VOC. The arrangement also includes deliverables related to research and preclinical development activities to be performed by us on Pfizer's behalf and our participation on a joint steering committee. We concluded that these deliverables should be accounted for as a single unit of accounting, and we therefore determined to recognize the upfront payment of $22.5 million as revenue over the expected development period of 1.5 years, which was the period over which we expected to provide our research and development services and participate on the joint steering committee under the arrangement. Our determination of the appropriate length of the period over which to recognize revenue was consistent with the research plan agreed to with Pfizer.

In reaching this conclusion, we evaluated whether the license to rivipansel has standalone value to Pfizer. Factors we considered in determining whether the license has standalone value included whether or not Pfizer can use the license for its intended purpose without the receipt of the remaining deliverables, the value of the license without the undelivered items, Pfizer's or other vendors' ability to provide the undelivered items, the proprietary nature of the license and know-how, and the availability of our glycomimetics expertise in the general marketplace. Based on all relevant facts and circumstances and, most significantly, on the proprietary nature of our platform and the related proprietary nature of our research services, we concluded that standalone value does not exist for the license and, therefore, the license is not a separate unit of accounting under the collaboration and should be combined with the research and development services we are obligated to provide, including our participation on the joint steering committee.

We also evaluated whether our participation on the joint steering committee is a substantive obligation and therefore a separate unit of accounting. The joint steering committee is responsible for overseeing the general working relationships, 20 -------------------------------------------------------------------------------- Table of Contents determining the protocols to be followed in the research and development performed and evaluating the results from the continued development of the drug candidate. The factors we considered in determining if our participation on the joint steering committee is a substantive obligation included: • which party negotiated or requested the steering committee; • how frequently the steering committee meets; • whether or not there are any penalties or other recourse if we do not attend the steering committee meetings; • which party has decision-making authority on the steering committee; and • whether or not Pfizer has the requisite experience and expertise associated with the research and development of rivipansel.

We considered that we may terminate our participation on the joint steering committee at any point during the agreement. Further, the estimated selling price of our obligation was not material to the overall license agreement. Based on all relevant facts and circumstances, we concluded that our participation on the joint steering committee is not a substantive obligation and, therefore, is not a separate unit of accounting under the collaboration.

We were not able to establish VSOE or TPE for the separate unit deliverables under the arrangement with Pfizer, as we do not have a history of entering into such arrangements or selling the individual deliverables within such arrangements separately. Accordingly, we determined that the selling price for the deliverables under the Pfizer license agreement should be determined using the best estimate of selling price. The process of determining the best estimate of selling price involved significant judgment on our part and included consideration of multiple factors, including market conditions and company-specific factors, such as those factors contemplated in negotiating the agreement and internally developed models that included assumptions related to market opportunity, discounted cash flows, estimated development costs, probability of success and the time needed to commercialize a drug candidate pursuant to the license. In validating the best estimate of selling price, we considered whether changes in key assumptions used to determine the best estimate of selling price would have a significant effect on the allocation of the arrangement consideration between the multiple deliverables.

Our license agreement with Pfizer also includes contingent milestone payments related to specified development, regulatory and commercial milestones. We adopted ASC Topic 605-28, Revenue Recognition-Milestone Method, effective as of January 1, 2011. Under this guidance, we may recognize revenue contingent upon the achievement of a substantive milestone in its entirety in the period the milestone is achieved. Milestones are considered substantive if all of the following conditions are met: • the milestone is nonrefundable; • achievement of the milestone was not reasonably assured at the inception of the arrangement; • substantive effort is involved to achieve the milestone; • the amount of the milestone appears reasonable in relation to the effort expended or the risk associated with achievement of the milestone; and • a reasonable amount of time passes between the upfront license payment and the first milestone payment, as well as between each subsequent milestone payment.

Our determination as to whether a payment meets these five conditions involves management's judgment. If any of these conditions are not met, the resulting payment would not be considered a substantive milestone and would instead be considered part of the consideration for the single unit of accounting. In addition, if we determine that one milestone is not substantive, it could prevent us from concluding that subsequent milestones are substantive and, as a result, any additional milestone payments could also be considered part of the consideration for the single unit of accounting and would be recognized as revenue as those performance obligations are performed under either the proportional performance method or the straight-line method.

We have evaluated whether each milestone under the Pfizer arrangement is substantive and at risk to both parties on the basis of the contingent nature of that milestone. This evaluation included an assessment of whether: • the consideration is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from our performance to achieve the milestone; • the consideration relates solely to past performance; and • the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.

21 -------------------------------------------------------------------------------- Table of Contents Based on this evaluation, we concluded that the milestones under the Pfizer collaboration are substantive, due to the uncertainty of future clinical development success and the additional effort and time that is expected before the milestones could be achieved. Accordingly, each milestone will be recognized as revenue upon its achievement, assuming all other revenue recognition criteria are met. The $15.0 million non-refundable milestone payment received in May 2014 was recorded as revenue upon receipt.

Stock-Based Compensation We issue stock-based compensation awards to our employees and non-employee directors, including stock options. We measure stock-based compensation expense related to these awards based on the fair value of the award on the date of grant and recognize stock-based compensation expense, less estimated forfeitures, on a straight-line basis over the requisite service period of the awards, which generally equals the vesting period. We grant stock options with exercise prices equal to the estimated fair value of our common stock on the date of grant. We have selected the Black-Scholes-Merton option pricing model to determine the fair value of stock option awards, which requires the input of various assumptions that require management to apply judgment and make assumptions and estimates, including: • the expected life of the stock option award; • the expected volatility of the underlying common stock; and • the fair value of our common stock determined on the date of grant.

The following table summarizes the assumptions we used for estimating the fair value of stock options granted for the periods indicated: Nine Months Ended September 30, 2014 2013 Risk-free interest rate 1.89%-2.16% 0.56 % Expected life of option term 6.25 years 6.25 years Volatility 83.39-91.91% 78.07 % Estimated dividend yield 0% 0 % Weighted average grant date fair value $6.71 $ 2.51 We have assumed no dividend yield because we do not expect to pay dividends in the future, which is consistent with our history of not paying dividends. The risk-free interest rate assumption is based on observed interest rates for constant maturity U.S. Treasury securities consistent with the expected life of our employee stock options. The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method. Under the simplified method, the expected life of an option is presumed to be the midpoint between the vesting date and the end of the contractual term.

We used the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options. Expected volatility is based on the historical volatilities of a peer group of comparable publicly traded companies with drug candidates in similar stages of development.

The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Our estimate of pre-vesting forfeitures, or forfeiture rate, is based on our analysis of historical behavior by stock option holders. The estimated forfeiture rate is applied to the total estimated fair value of the awards, as derived from the Black-Scholes-Merton model, to compute the stock-based compensation expense, net of pre-vesting forfeitures, to be recognized in our statements of operations. We estimate forfeitures for employee grants at the time of grant and revise the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Research and Development Expenses Research and development costs are charged to expense as incurred and include employee-related expenses, including salaries, benefits and travel, expenses incurred under agreements with CROs and investigative sites that conduct preclinical studies and clinical trials, as well as the cost of acquiring, developing and manufacturing clinical trial materials, facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies and costs associated with preclinical activities and regulatory operations.

22 -------------------------------------------------------------------------------- Table of Contents We record costs for some development activities, such as clinical trials, based on our evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to us by our vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.

Income Taxes As part of the process of preparing our financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. Our provision for income taxes is based upon the estimated annual effective tax rates. We recorded an income tax benefit of $76,758 and $0 for the three months ended September 30, 2014 and 2013, respectively. We account for income taxes by the asset and liability method. Under this method, deferred income taxes are recognized for tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted laws and statutory tax rates applicable to the periods in which the differences are expected to be recovered or settled.

Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some of all of the deferred tax assets will not be realized. In consideration of historically generating net operating losses, as well as projected future taxable income and the availability of tax planning strategies, we have provided a valuation allowance for the full amount of our net deferred tax assets since the likelihood of realization of any future benefit from deductible temporary differences and net operating loss carry forwards cannot be determined at September 30, 2014 and December 31, 2013.

Components of Operating Results Revenue To date, we have not generated any revenue from product sales 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 CROs 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. However, as of April 2013, when we completed our Phase 2 clinical trial of rivipansel, all further clinical development obligations associated with rivipansel have shifted to Pfizer. As of the date of this report, the majority of our current research and development expenses are associated with the manufacturing of GMI-1271 and the clinical costs associated with the Phase 1 trial we initiated in June 2014.

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, as shown below under "Results of Operations-Research and Development Expense." 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.

23 -------------------------------------------------------------------------------- Table of Contents 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, but are not limited to: • per patient trial costs; • the number of patients that participate in the trials; • 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, potential commercialization of our drug candidates and the increased costs of operating as a public company. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses. Additionally, we have experienced, and expect to continue to experience, increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with NASDAQ listing rules and SEC requirements, insurance and investor relations costs. 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. 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.

24 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following tables set forth our results of operations before income taxes for the three and nine months ended September 30, 2014 and 2013: PERIOD- THREE MONTHS ENDED TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Revenue $ - $ 52 $ (52 ) Costs and expenses: Research and development 5,051 2,953 2,098 General and administrative 1,648 800 848 Total costs and expenses 6,699 3,753 2,946 Loss from operations (6,699 ) (3,701 ) (2,998 ) Other income 5 - 5 Loss before income taxes $ (6,694 ) $ (3,701 ) $ (2,993 ) PERIOD- NINE MONTHS ENDED TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Revenue $ 15,027 $ 3,915 $ 11,112 Costs and expenses: Research and development 14,290 8,579 5,711 General and administrative 4,479 2,075 2,404 Total costs and expenses 18,769 10,654 8,115 Loss from operations (3,742 ) (6,739 ) 2,997 Other income 14 1 13 Loss before income taxes $ (3,728 ) $ (6,738 ) $ 3,010 Revenue The increase in revenue for the nine months ended September 30, 2014 compared to the same period in 2013 is due to the receipt of a $15.0 million non-refundable milestone payment from Pfizer in May 2014. The $3.9 million in revenue for the nine months ended September 30, 2013 consisted primarily of the remaining deferred revenue related to the upfront payment from Pfizer in 2011. The upfront payment was fully recognized as of March 31, 2013 consistent with the completion of our development obligations under the collaboration.

25 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses The following tables summarize our research and development expenses by functional area for the three and nine months ended September 30, 2014 and 2013: THREE MONTHS ENDED PERIOD-TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Clinical development $ 567 $ 253 $ 314 Personnel related 1,147 969 178 Consulting fees 73 66 7 Manufacturing and formulation 2,159 811 1,348 Institutional research 227 55 172 Preclinical research 428 429 (1 ) Laboratory costs 310 303 7 Stock-based compensation 140 67 73 $ 5,051 $ 2,953 $ 2,098 During the three months ended September 30, 2014, our research and development expenses increased by $2.1 million, or 71%, compared to the same period in 2013 due primarily to an increase in spending on GMI-1271 related manufacturing and development and expenses related to conducting the Phase 1 clinical trial for GMI-1271 in AML.

NINE MONTHS ENDED PERIOD-TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Clinical development $ 1,585 $ 1,213 $ 372 Personnel related 3,355 2,906 449 Consulting fees 328 209 119 Manufacturing and formulation 4,488 2,005 2,483 Institutional research 418 223 195 Preclinical research 1,324 972 352 Laboratory costs 932 886 46 Stock-based compensation 360 165 195 License and milestone fees 1,500 - 1,500 $ 14,290 $ 8,579 $ 5,711 During the nine months ended September 30, 2014 our research and development expenses increased by $5.7 million, or 67%, compared to the same period in 2013.

The increase in research and development expenses was primarily attributable to the $1.5 million milestone license fee due to the University of Basel related to the Pfizer milestone payment, an increase of $2.5 million in expenses related to the manufacturing and process development and toxicology studies for GMI-1271 and expenses related to conducting the Phase 1 clinical trial for GMI-1271 in AML, in which we enrolled the first subject in June 2014. The increase in expenses was offset by the decrease in costs associated with rivipansel following the completion of the Phase 2 clinical trial in April 2013.

26 -------------------------------------------------------------------------------- Table of Contents The following tables summarize our research and development expenses by drug candidate for the three and nine months ended September 30, 2014 and 2013: THREE MONTHS ENDED PERIOD-TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Rivipansel $ 20 $ 118 $ (98 ) GMI-1271 2,721 1,103 1,618 GMI-1051 7 7 - Other research and development 1,016 690 326 Personnel related and stock-based compensation 1,287 1,035 252 $ 5,051 $ 2,953 $ 2,098 NINE MONTHS ENDED PERIOD-TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Rivipansel $ 1,554 $ 1,123 $ 431 GMI-1271 6,201 2,526 3,675 GMI-1051 7 7 - Other research and development 2,816 1,853 963 Personnel related and stock-based compensation 3,712 3,070 642 $ 14,290 $ 8,579 $ 5,711 General and Administrative Expenses The following tables disclose the components of our general and administrative expenses for the three and nine months ended September 30, 2014 and 2013: THREE MONTHS ENDED PERIOD-TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Personnel related $ 591 $ 357 $ 234 Stock-based compensation 302 81 221 Legal, consulting and other professional expenses 616 285 331 Other 139 77 62 $ 1,648 $ 800 $ 848 NINE MONTHS ENDED PERIOD-TO SEPTEMBER 30, PERIOD (in thousands) 2014 2013 CHANGE Personnel related $ 1,539 $ 1,015 $ 524 Stock-based compensation 793 200 593 Legal, consulting and other professional expenses 1,801 634 1,167 Other 346 226 120 $ 4,479 $ 2,075 $ 2,404 27 -------------------------------------------------------------------------------- Table of Contents General and administrative expenses increased for the three and nine months ended September 30, 2014 by $0.8 million and $2.4 million, respectively, compared to the same periods in 2013 primarily due to an increase in professional fees and other costs associated with our IPO and supporting public company operations. In addition, stock-based compensation increased for the three and nine months ended September 30, 2014 compared to September 30, 2013 due to additional awards granted in 2014.

Liquidity and Capital Resources Sources of Liquidity Prior to our IPO in January 2014, we funded our operations primarily through private placements of our capital stock and upfront payments under our collaborative agreements. Through December 31, 2013, we raised an aggregate of $86.6 million to fund our operations, of which $22.5 million was the upfront payment under our license agreement with Pfizer and $64.1 million was from the sale of convertible promissory notes and our convertible preferred stock. In January 2014, we received net proceeds of $57.2 million from the IPO, and in May 2014, we received a non-refundable cash payment from Pfizer of $15.0 million, of which we will pay $1.5 million to the University of Basel under the terms of our research agreement with them. As of September 30, 2014, we had $61.4 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.

Initial Public Offering of Common Stock On January 15, 2014, we closed our IPO in which we sold an aggregate of 8,050,000 shares of common stock, including the full exercise of the underwriters' option to purchase additional shares, for net proceeds of $57.2 million after deducting underwriting discounts and offering-related expenses.

Upon closing of the IPO, all of our convertible preferred stock then outstanding automatically converted into 9,305,359 shares of common stock.

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.

28 -------------------------------------------------------------------------------- Table of Contents 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, 2014 will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months, without giving effect to any potential additional milestone payments we may receive under our license agreement with Pfizer. 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.

Cash Flows The following table represents a summary of our cash flows for the nine months ended September 30, 2014 and 2013: Nine Months Ended September 30, 2014 2013 (In millions) Net cash provided by (used in) operating activities $ 1.9 $ (10.0 ) Net cash used in investing activities (0.2 ) (0.1 ) Net cash provided by financing activities 57.4 0.4 Operating Activities 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 and clinical studies and to support the manufacturing development of GMI-1271. Net cash used in operating activities for the nine months ended September 30, 2013 reflects, among other things, the amounts used to conduct our clinical trials for rivipansel as well as preclinical studies for GMI-1271.

Investing Activities Net cash used in investing activities in both periods presented was primarily due to the acquisition of additional lab equipment needed to further our research and development activities.

Financing Activities 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. Net cash provided by financing activities during the nine months ended September 30, 2013 is comprised solely of employee stock option exercises.

29 -------------------------------------------------------------------------------- Table of Contents Contractual Obligations As of September 30, 2014, our significant contractual obligations consist of rent obligations under non-cancelable leases for our current office space in Gaithersburg, Maryland, which has a term through October 2015, and our planned future corporate headquarters in Rockville, Maryland, which will have an eight-year term expected to commence on November 1, 2015. The following table depicts our obligations under these leases as of September 30, 2014.

Payments Due by Period October to December After Total 2014 2015 2016 2017 2018 2018 (In thousands) Operating leases $ 5,849 $ 124 $ 519 $ 610 $ 625 $ 641 $ 3,330 Off-Balance Sheet Arrangements During the nine months ended September 30, 2014, 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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