UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2023


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

For the transition period from to

PAXMEDICA, INC.

(Exact name of registrant as specified in its charter)


Delaware	001-41475	85-0870387
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(IRS Employer Identification No.)


303 South Broadway, Suite 125 Tarrytown, NY		10591
(Address Of Principal Executive Offices)		(Zip Code)

(914) 987-2876

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address, if changed since last report)

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	PXMD	Nasdaq Capital Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of May 15, 2023, the Registrant had 14,619,477 shares of common stock, par value $0.0001 per share, issued and outstanding.

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PAXMEDICA, INC.

Form 10-Q

For the Quarter Ended March 31, 2023

Table of Contents


		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements	1
	Condensed Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022	1
	Unaudited Condensed Statements of Operations for the three months ended March 31, 2023 and 2022	2
	Unaudited Condensed Statements of Changes in Stockholders’ Deficit for the three months ended March 31, 2023 and 2022	3
	Unaudited Condensed Statements of Cash Flows for the three months ended March 31, 2023 and 2022	4
	Notes to Unaudited Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.	Controls and Procedures	23
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	26

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PART I. FINANCIAL INFORMATION

Item 1.Condensed Financial Statements

PAXMEDICA, INC.

CONDENSED BALANCE SHEETS


	March 31,		December 31,
	2023		2022
ASSETS		(Unaudited)
Current assets
Cash	$	3,986,249	$	1,901,887
Prepaid and other current assets		766,172		302,431
Total current assets		4,752,421		2,204,318
Total assets	$	4,752,421	$	2,204,318

LIABILITIES, AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	480,211	$	721,955
Accounts payable - related party		—		20,000
Accrued expenses		163,983		1,019,071
Note payable - fair value, current portion		1,120,707		173,543
Shares settled liability		34,500		160,949
Total current liabilities		1,799,401		2,095,518
Note payable - fair value, less current portion		420,253		—
Total liabilities		2,219,654		2,095,518

Commitments and contingencies (Note 9)

Stockholders’ Equity
Preferred stock, par value $0.0001, 10,000,000 shares authorized:
Series X preferred shares, 500,000 shares authorized at March 31, 2023; 45,567 shares issued and outstanding at March 31, 2023 and December 31, 2022		5		5
Common stock, par value $0.0001; 200,000,000 shares authorized at March 31, 2023 and 20,000,000 shares authorized at December 31, 2022; 13,920,234 and 12,035,592 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		1,392		1,204
Additional paid-in capital		40,105,133		33,847,607
Accumulated deficit		(37,573,763)		(33,740,016)
Total stockholders’ equity		2,532,767		108,800
Total liabilities, and stockholders’ equity	$	4,752,421	$	2,204,318

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

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PAXMEDICA, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Operating expenses
General and administrative	$	3,814,184	$	933,817
Research and development		222,491		1,070,704
Total operating expenses		4,036,675		2,004,521

Loss from operations		(4,036,675)		(2,004,521)

Other income (expense):
Interest expense		(3,928)		—
Loss on extinguishment of debt		(36,850)		—
Change in fair value of notes		335,364		—
Change in fair value of SAFE		—		1,634,217
Change in fair value warrant liability		—		2,233,766
Other income (expense)		(91,658)		—
Total other income (expense)		202,928		3,867,983

Net income (loss)	$	(3,833,747)	$	1,863,462

Basic weighted average number of shares outstanding		12,637,671		6,913,492
Diluted weighted average number of shares outstanding		12,637,671		7,562,978

Basic net income (loss) per share	$	(0.30)	$	0.18
Diluted net income (loss) per share	$	(0.30)	$	(0.05)

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

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PAXMEDICA, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

For The Three Months Ended March 31, 2023


							Additional				Total
	Series X Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance at January 1, 2023	45,567	$	5	12,035,592	$	1,204	$	33,847,607	$	(33,740,016)	$	108,800
Reclassification of shares settled liability to equity	—		—	23,808		2		126,447		—		126,449
Issuance of common stock in connection with equity purchase agreement	—		—	1,200,000		120		2,804,880		—		2,805,000
Issuance of common stock warrants in connection with notes payable, net of fees	—		—	—		—		1,155,643		—		1,155,643
Stock-based compensation	—		—	660,834		66		2,170,556		—		2,170,622
Net loss	—		—	—		—		-		(3,833,747)		(3,833,747)
Balance at March 31, 2023	45,567	$	5	13,920,234	$	1,392	$	40,105,133	$	(37,573,763)	$	2,532,767

For The Three Months Ended March 31, 2022


							Additional				Total
	Series Seed Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Deficit
Balance at January 1, 2022	2,696,439	$	270	6,913,492	$	691	$	8,828,425	$	(18,938,249)	$	(10,108,863)
Stock-based compensation	—		—	—		—		181,194		—		181,194
Net income	—		—	—		—		—		1,863,462		1,863,462
Balance at March 31, 2022	2,696,439	$	270	6,913,492	$	691	$	9,009,619	$	(17,074,787)	$	(8,064,207)

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

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PAXMEDICA, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities
Net income (loss)	$	(3,833,747)	$	1,863,462
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Stock-based compensation		2,170,622		181,194
Change in fair value of notes		(335,364)		—
Change in fair value of SAFE		—		(1,634,217)
Loss on extinguishment of debt		36,850		—
Change in fair value warrant liability		—		(2,233,766)
Other expense		91,658		—
Changes in assets and liabilities:
Prepaid and other current assets		(463,741)		—
Accounts payable		125,037		1,134,454
Accounts payable - related party		(20,000)		97,500
Accrued expenses		(754,660)		196,669
Net cash used in operating activities		(2,983,345)		(394,704)

Cash flows from financing activities
Proceeds from issuance of convertible promissory notes and warrants		3,200,000		—
Payment of costs in connection with convertible promissory notes and warrants		(503,696)
Proceeds from the issuance of common stock in connection with equity purchase agreement		2,805,000		—
Payment of costs in connection with equity purchase agreement		(195,997)
Repayment of convertible promissory notes		(237,600)		—
Net cash provided by financing activities		5,067,707		—

Net increase (decrease) in cash		2,084,362		(394,704)
Cash, beginning of period		1,901,887		444,087
Cash, end of period	$	3,986,249	$	49,383

Non-cash financing activities:
Reclassification of shares settled liability	$	126,449	$	—
Unpaid deferred offering costs and financing fees	$	20,393	$	286,757

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

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PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 1. Organization and description of business operations

PaxMedica, Inc. (the “Company”) is a clinical stage biopharmaceutical company organized as a Delaware limited liability company on April 5, 2018 (“Inception”) to focus on the development of drug candidates for the treatment of autism spectrum disorder (ASD), Fragile X syndrome tremor-ataxia (FXTAS) and Human African Trypanosomiasis (HAT).

Initial Public Offering

On August 9, 2022, the Company entered into an underwriting agreement relating to the public offering of its common stock, par value $0.0001 per share. The Company agreed to sell 1,545,454 shares of its common stock to the underwriters, at a purchase price per share of $4.83 (the offering price to the public of $5.25 per share minus the underwriters’ discount), pursuant to the Company’s registration statement on Form S-1 (File No. 333-239676), as amended, under the Securities Act of 1933, that was filed by the Company under Rule 462(b) under the Securities Act. The Company also granted the underwriters a 45-day option to purchase up to 231,818 additional shares of common stock to cover over-allotments. On August 30, 2022, the Company received net proceeds from its public offering of approximately $6.0 million, net of underwriter fees and commissions of approximately $0.8 million, and offering costs of approximately $1.4 million. In connection with its public offering the Company issued 108,181 warrants to purchase shares of the Company’s common stock with an exercise price of $6.5625 per share.

Going concern, liquidity and capital resources

The Company has no product revenues, incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. The Company had an accumulated deficit of approximately $37.6 million at March 31, 2023, a net loss of approximately $3.8 million, and approximately $3.0 million of net cash used in operating activities for the three months ended March 31, 2023.

Equity Purchase Agreement with Lincoln Park Capital

During the three months ended March 31, 2023, in connection with its equity purchase agreement with Lincoln Park Capital Fund, LLC (LPC), the Company received net proceeds of approximately $2.6 million from the issuance of 1.2 million shares of the Company’s common stock (See Note 8). Subsequent to March 31, 2023, the Company received proceeds of approximately $1.1 million from the issuance of 0.6 million shares of the Company’s common stock.

2023 Note

During the three months ended March 31, 2023, the Company issued a convertible promissory note (the “2023 Note”) with a principal balance of $3.7 million. The Company received proceeds of approximately $2.5 million, net of expenses and other costs. The 2023 Note bears no interest and matures 18 months from the issuance date. In connection with the 2023 Note, the Company issued a common stock warrant to purchase 800,000 shares of the Company’s common stock (See Note 6).

Going Concern

The accompanying condensed financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

The Company’s future liquidity and capital funding requirements will depend on numerous factors, including:

●

its ability to raise additional funds to finance its operations;

●

the outcome, costs and timing of clinical trial results for the Company’s current or future product candidates;

●

the emergence and effect of competing or complementary products;

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PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

●

its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

●

its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel; and

●

the terms and timing of any collaborative, licensing or other arrangements that it has or may establish.

The Company will likely need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity, or the completion of a licensing transaction for one or more of the Company’s pipeline assets. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. Failure to obtain additional equity or debt financing will have a material, adverse impact on the Company’s business operations. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or debt financings will likely have a dilutive effect on the holdings of the Company’s existing stockholders. Accordingly, there are material risks and uncertainties that raise substantial doubt about the Company’s ability to continue as a going concern for the next twelve months from the issuance of these condensed financial statements. The accompanying condensed financial statements do not include any adjustments that result from the outcome of these uncertainties.

The COVID-19 global pandemic has been unprecedented and unpredictable, is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. Based on the Company’s current assessment, the Company does not expect any material impact on its long-term development timeline and its liquidity due to the worldwide spread of the COVID-19 virus. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the resulting global pandemic and the actions implemented to combat the virus throughout the world.

Note 2. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Basis of presentation

The accompanying unaudited condensed financial statements are presented in U.S. dollars and in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023.

The accompanying unaudited condensed financial statements should be read in conjunction with the financial statements for the year ended December 31, 2022 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2023.

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 contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company’s condensed financial statements relate to the valuation of convertible notes, valuation of warrants, and valuation of equity-based awards. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.

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PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Significant Accounting Policies:

For a detailed discussion about the Company’s significant accounting policies, see the Company’s December 31, 2022 financial statements included in its 2022 Annual Report.

Fair value of financial instruments

The Company accounts for financial instruments under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820 (“ASC 820”), Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements, ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 - observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 - assets and liabilities whose significant value drivers are unobservable.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment. During the three months ended March 31, 2023, the Company issued the 2023 Notes and warrants in connection with the 2023 Notes. The 2023 Notes were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other expense on the statements of operations and disclosed in the condensed financial statements. The carrying amounts of the Company’s financial assets and liabilities, such as accounts payable, approximate fair value due to the short-term nature of these instruments.

Convertible Notes

In accordance with Accounting Standards Codification 825, Financial Instruments (“ASC 825”), the Company has elected the fair value option for recognition of its 2023 Note (See Note 3). In accordance with ASC 825, the Company recognizes these 2023 Notes at fair value with changes in fair value recognized in the condensed statements of operations. The fair value option may be applied instrument by instrument, but it is irrevocable. As a result of applying the fair value option, direct costs and fees related to the convertible notes were recognized in general and administrative expense. The 2023 Note does not accrue interest.

Earnings (Loss) Per Share

Basic net earnings (loss) per share (“EPS”) of common stock is computed by dividing net loss allocated to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity.

Preferred Stock, unvested restricted stock units and the SAFE investment are participating securities as they participate in undistributed earnings on an as-if converted basis. The Company computes earnings (loss) per share of common stock using the two-class method required for participating securities.

Basic earnings per share includes an allocation of undistributed earnings to the Company’s participating securities. Diluted earnings (loss) per share is calculated using the more dilutive approach of (i) applying the treasury stock method, the if-converted method, or contingently issuable method and (ii) adding back the undistributed earnings allocated to participating securities in

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PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

arriving at basic earnings per share, assuming that all other dilutive potential common shares have been exercised and then next reallocating the undistributed earnings.

For warrants that are liability-classified, during periods when the impact is dilutive, the Company assumes share settlement of the instruments as of the beginning of the reporting period and adjusts the numerator to remove the change in fair value of the warrant liability and adjusts the denominator to include the dilutive shares calculated using the treasury stock method.

Participating securities do not share in the losses of the Company, therefore, during periods of net loss, no effect is given to the Preferred Stock, unvested restricted stock units and the SAFE investment.

The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the assumed conversion of convertible preferred stock, exercise of common stock warrants, the SAFE investment and the vesting of RSUs using the treasury stock method.

The Company’s common stock equivalents have been excluded from the computation of diluted loss per share for the three-month period ended March 31, 2023, as the effect would be to reduce the loss per share. Therefore, the weighted average common stock outstanding used to calculate both basic and diluted income (loss) per share is the same for the three-month period ended March 31, 2023. The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the three-month period ended March 31, 2023 and 2022:


	Three Months Ended March 31,
	2023		2022
Numerator:
Net income (loss)	$	(3,833,747)	$	1,863,462
Amount allocated to participating common shareholders		—		(603,927)
Net income (loss) allocated to common shareholders- Basic	$	(3,833,747)	$	1,259,535

Net income (loss)		(3,833,747)		1,863,462
Less: Change in fair value of warrant liabilities		—		(2,233,766)
Net income (loss) allocated to common shareholders- Diluted	$	(3,833,747)	$	(370,304)

Denominator:
Basic weighted average number of shares outstanding		12,637,671		6,913,492
Add:
Warrants		—		649,486
Diluted weighted average number of shares outstanding		12,637,671		7,562,978

Basic net income (loss) per share	$	(0.30)	$	0.18

Diluted net income (loss) per share	$	(0.30)	$	(0.05)

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PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

The following securities were excluded from the computation of diluted net loss per share attributable to common shareholders for the three months ended March 31, 2023 and 2022, because including them would have been anti-dilutive:

SEC Form 10-Q filed by PaxMedica Inc.