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 September 30, 2023

OR

☐ 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, former address and former fiscal year, 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, a 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 November 15, 2023, the Registrant had 2,292,715 shares of common stock, par value $0.0001 per share, issued and outstanding.

PAXMEDICA, INC.

Form 10-Q

For the Quarter Ended September 30, 2023

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022	1
	Unaudited Condensed Statements of Operations for the three and nine months ended September 30, 2023 and 2022	2
	Unaudited Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2023 and 2022	3
	Unaudited Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5
	Notes to Unaudited Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	36

PART I. FINANCIAL INFORMATION

Item 1.Financial Statements

PAXMEDICA, INC.

CONDENSED BALANCE SHEETS

	September 30,		December 31,
	2023		2022
ASSETS		(Unaudited)
Current assets
Cash	$	1,152,961	$	1,901,887
Accounts receivable		500,000		—
Prepaid and other current assets		1,580,616		302,431
Total current assets		3,233,577		2,204,318
Total assets	$	3,233,577	$	2,204,318
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	1,644,996	$	721,955
Accounts payable - related party		—		20,000
Accrued expenses		44,232		1,019,071
Note payable - fair value, current portion		1,581,268		173,543
Shares settled liability		—		160,949
Total current liabilities		3,270,496		2,095,518
Deferred revenue		500,000		—
Total liabilities		3,770,496		2,095,518
Commitments and contingencies (Note 9)
Stockholders’ Equity (Deficit)
Preferred stock, par value $0.0001, 10,000,000 shares authorized:
Series X preferred shares, 500,000 shares authorized as of September 30, 2023 and December 31, 2022; 45,567 shares issued and outstanding at September 30, 2023 and December 31, 2022		5		5
Common stock, par value $0.0001; 200,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 1,073,815 and 707,976 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively		107		71
Additional paid-in capital		45,572,237		33,848,740
Accumulated deficit		(46,109,268)		(33,740,016)
Total stockholders’ equity (deficit)		(536,919)		108,800
Total liabilities, and stockholders’ equity (deficit)	$	3,233,577	$	2,204,318

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

1

PAXMEDICA, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating expenses
General and administrative	$	2,425,849	$	2,367,711	$	9,008,943	$	4,077,491
Research and development		1,938,672		327,268		2,750,192		1,549,397
Total operating expenses		4,364,521		2,694,979		11,759,135		5,626,888
Loss from operations		(4,364,521)		(2,694,979)		(11,759,135)		(5,626,888)
Other income (expense):
Interest expense		(1,309)		(1,309)		(9,165)		(1,309)
Loss on conversion of SAFE		—		(5,338,808)		—		(5,338,808)
Loss on issuance of debt		—		(88,234)		—		(391,246)
Loss on extinguishment of debt		(357,407)		(3,940)		(394,257)		(3,940)
Change in fair value of notes		(325,981)		(151,195)		(114,704)		(255,145)
Change in fair value of SAFE		—		(2,827,737)		—		163,025
Change in fair value warrant liability		—		(357,411)		—		1,873,192
Other expense		—		—		(91,991)		—
Total other expense		(684,697)		(8,768,634)		(610,117)		(3,954,231)
Net loss	$	(5,049,218)	$	(11,463,613)	$	(12,369,252)	$	(9,581,119)
Basic weighted average number of shares outstanding		971,738		539,864		859,439		451,560
Diluted weighted average number of shares outstanding		971,738		539,864		859,439		451,560
Basic net loss per share	$	(5.20)	$	(21.23)	$	(14.39)	$	(21.22)
Diluted net loss per share	$	(5.20)	$	(21.23)	$	(14.39)	$	(21.22)

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

2

PAXMEDICA, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

For The Three Months Ended September 30, 2023

							Additional				Total
	Series X Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance at July 1, 2023	45,567	$	5	904,087	$	90	$	43,325,314	$	(41,060,050)	$	2,265,359
Issuance of common stock in connection with convertible note	—		—	96,122		10		445,157		—		445,167
Issuance of common stock in connection with equity purchase agreement	—		—	57,353		6		795,295		—		795,301
Delivery of common stock underlying restricted stock units, net of tax withholding	—		—	16,253		1		(58,435)		—		(58,434)
Stock-based compensation	—		—	—		—		1,064,906		—		1,064,906
Net loss	—		—	—		—		—		(5,049,218)		(5,049,218)
Balance at September 30, 2023	45,567	$	5	1,073,815	$	107	$	45,572,237	$	(46,109,268)	$	(536,919)

For The Three Months Ended September 30, 2022

										Additional				Total
	Series Seed Preferred Stock			Series X Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance at July 1, 2022	2,696,439	$	270	—	$	—	406,676	$	41	$	9,159,087	$	(17,055,755)	$	(7,896,357)
Issuance of Series X preferred stock	—		—	3,200		1	—		—		299,999		—		300,000
Conversion of SAFE liability to Series X preferred stock	—		—	100,000		20	—		—		9,999,980		—		10,000,000
Issuance of common stock and warrants	—		—	—		—	90,909		9		6,023,004		—		6,023,013
Issuance of common stock in connection with conversion of notes payables	—		—	—		—	14,006		1		1,159,499		—		1,159,500
Issuance of Series X preferred stock in connection with conversion of notes payable	—		—	2,555		—	—		—		296,819		—		296,819
Conversion of Series Seed preferred stock to common stock	(2,696,439)		(270)	—		—	91,614		9		261		—		—
Conversion of Series X preferred stock to common stock	—		—	(61,689)		(6)	69,117		7		(1)		—		—
Warrants exchanged for shares of common stock and Series X preferred stock	—		—	1,250		—	20,588		2		2,009,205		—		2,009,207
Reclassification of warrants to equity	—		—	—		—	—		—		912,580		—		912,580
Stock-based compensation	—		—	—		—	—		—		1,047,153		—		1,047,153
Net loss	—		—	—		—	—		—		—		(11,463,613)		(11,463,613)
Balance at September 30, 2022	—	$	—	45,316	$	15	692,910	$	69	$	30,907,586	$	(28,519,368)	$	2,388,302

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

3

PAXMEDICA, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

(Unaudited)

For The Nine Months Ended September 30, 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	707,976	$	71	$	33,848,740	$	(33,740,016)	$	108,800
Reclassification of shares settled liability to equity	—		—	1,824		—		160,949		—		160,949
Issuance of common stock in connection with convertible note	—		—	96,122		10		445,157		—		445,167
Issuance of common stock in connection with equity purchase agreement	—		—	209,118		21		5,565,895		—		5,565,916
Issuance of common stock warrants in connection with notes payable, net of fees	—		—	—		—		1,155,642		—		1,155,642
Delivery of common stock underlying restricted stock units, net of tax withholding	—		—	16,272		1		(104,320)		—		(104,319)
Stock-based compensation	—		—	42,503		4		4,500,174		—		4,500,178
Net loss	—		—	—		—		—		(12,369,252)		(12,369,252)
Balance at September 30, 2023	45,567	$	5	1,073,815	$	107	$	45,572,237	$	(46,109,268)	$	(536,919)

For The Nine Months Ended September 30, 2022

										Additional				Total
	Series Seed Preferred Stock			Series X Preferred Stock			Common Stock			Paid-in		Accumulated		Stockholders’
	Shares	Amount		Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance at January 1, 2022	2,696,439	$	270	—	$	—	406,676	$	41	$	8,829,075	$	(18,938,249)	$	(10,108,863)
Issuance of Series X preferred stock	—		—	3,200		1	—		—		299,999		—		300,000
Conversion of SAFE liability to Series X preferred stock	—		—	100,000		20	—		—		9,999,980		—		10,000,000
Issuance of Common stock and warrants	—		—	—		—	90,909		9		6,023,004		—		6,023,013
Issuance of common stock in connection with conversion of notes payables	—		—	—		—	14,006		1		1,159,499		—		1,159,500
Issuance of Series X preferred stock in connection with conversion of notes payable	—		—	2,555		—	—		—		296,819		—		296,819
Conversion of Series Seed preferred stock to common stock	(2,696,439)		(270)	—		—	91,614		9		261		—		—
Conversion of Series X preferred stock to common stock	—		—	(61,689)		(6)	69,117		7		(1)		—		—
Warrants exchanged for shares of common stock and Series X preferred stock	—		—	1,250		—	20,588		2		2,009,205		—		2,009,207
Reclassification of warrants to equity	—		—	—		—	—		—		912,580		—		912,580
Stock-based compensation	—		—	—		—	—		—		1,377,165		—		1,377,165
Net loss	—		—	—		—	—		—		—		(9,581,119)		(9,581,119)
Balance at September 30, 2022	—	$	—	45,316	$	15	692,910	$	69	$	30,907,586	$	(28,519,368)	$	2,388,302

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

4

PAXMEDICA, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(12,369,252)	$	(9,581,119)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		4,500,178		1,377,165
Change in fair value of notes		114,704		255,145
Change in fair value of SAFE		—		(163,025)
Loss on conversion of SAFE		—		5,338,808
Loss on extinguishment of debt		394,257		3,940
Loss on issuance of debt		—		391,246
Change in fair value warrant liability		—		(1,873,192)
Other expense		91,991		—
Deferred revenue		500,000		—
Changes in assets and liabilities:
Prepaid and other current assets		(1,278,185)		(211,660)
Accounts receivable		(500,000)		—
Accounts payable		1,289,488		(65,578)
Accounts payable - related party		(20,000)		131,250
Accrued expenses		(874,411)		1,392,845
Net cash used in operating activities		(8,151,230)		(3,004,175)
Cash flows from financing activities
Proceeds from issuance of convertible promissory notes and warrants		3,200,000		1,240,970
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		5,565,916		—
Proceeds from issuance of common stock and warrants		—		6,582,450
Proceeds from issuance of Series X preferred stock		—		300,000
Payment of costs in connection with equity purchase agreement		(195,997)		—
Repayment of convertible promissory notes		(559,600)		—
Settlement of shares withheld for payment of employee taxes		(104,319)		—
Net cash provided by financing activities		7,402,304		8,123,420
Net increase (decrease) in cash		(748,926)		5,119,245
Cash, beginning of period		1,901,887		444,087
Cash, end of period	$	1,152,961	$	5,563,332
Non-cash financing activities:
Series X preferred stock issued in connection with conversion of notes payable	$	—	$	296,819
Common stock issued in connection with conversion of notes payable	$	445,167	$	1,159,500
Conversion of SAFE liability to Series X preferred stock	$	—	$	10,000,000
Warrants exchanged for Shares of common stock and Series X preferred stock	$	—	$	2,009,207
Reclassification of warrants to equity	$	—	$	912,580
Reclassification of shares settled liability	$	160,949	$	—
Unpaid deferred offering costs and financing fees	$	20,393	$	559,437

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

5

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 90,909 shares of its common stock to the underwriters, at a purchase price per share of $82.11 (the offering price to the public of $89.25 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 13,637 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 warrants to purchase 6,364 shares of the Company’s common stock with an exercise price of $111.56 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 $46.1 million at September 30, 2023, a net loss of approximately $12.4 million, and approximately $8.2 million of net cash used in operating activities for the nine months ended September 30, 2023.

Equity Purchase Agreement with Lincoln Park Capital

During the nine months ended September 30, 2023, in connection with its equity purchase agreement with Lincoln Park Capital Fund, LLC (LPC), the Company received net proceeds of approximately $5.4 million from the issuance of 0.2 million shares of the Company’s common stock (See Note 8).

2023 Note

During the nine months ended September 30, 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 47,059 shares of the Company’s common stock (See Note 6).

Vox Nova Exclusive Pharmacy Distribution Agreement

On June 30, 2023, the Company entered into an exclusive specialty benefit manager agreement with Vox Nova, LLC (“Vox Nova”) pursuant to which Vox Nova will act as the exclusive United States distributor for the Company’s lead pipeline asset, PAX-101 intravenous suramin. Vox Nova will provide certain distribution management, pharmacy benefit management, sales and supply monitoring services to the Company with respect to PAX-101, in the event PAX-101 receives FDA approval. The distribution agreement also provides for an exclusivity fee payable to the Company of up to $2.0 million, payable in installments based on various time and regulatory approval parameters. Vox Nova will pay $0.5 million of the exclusivity fee upfront in connection with the signing of the distribution agreement when the distribution right was transferred to Vox Nova. The remaining $1.5 million is due in four equal installments over a one-year period after PAX-101 is approved by the FDA and made available for distribution. The Company recognized the $0.5 million upfront fee in deferred revenue in June 30, 2023.

6

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Reverse Stock Split

On October 30, 2023, we filed a Certificate of Amendment to our Certificate of Incorporation (the “Reverse Split Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-17 reverse stock split of our outstanding common stock (the “Reverse Stock Split”). The Amendment became effective October 30, 2023 (the “Reverse Split Effective Time”). The Reverse Split Amendment was authorized by our stockholders at our special meeting of stockholders on September 26, 2023.

The Reverse Split Amendment provides that, at the Reverse Split Effective Time, every 17 shares of our issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in par value per share. The Reverse Stock Split affected all or our shares of common stock outstanding immediately prior to the Reverse Split Effective Time. As a result of the Reserve Stock Split, proportionate adjustments have been made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options and warrants issued and outstanding immediately prior to the Reverse Split Effective Time, which resulted in a proportionate decrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under our 2020 Plan (as defined below) immediately prior to the Reverse Split Effective Time has been reduced proportionately.

No fractional shares were issued as a result of the Reverse Stock Split. Stockholders of record who would otherwise have been entitled to receive a fractional share received a number of shares rounded up to the next whole share in lieu thereof. The Reverse Stock Split affected all stockholders proportionately and did not affect any stockholder’s percentage ownership of our common stock (other than the nominal effect of the treatment of fractional shares).

Our common stock began trading on The Nasdaq Capital Market on a split-adjusted basis when the market opened on October 31, 2023.

All share and per share information referenced throughout this Form 10-Q has been retroactively adjusted to reflect the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split have been rounded up to the nearest whole share.

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;

● 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.

7

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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 convertible 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.

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 and nine months ended September 30, 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 (the “2022 Annual Report”).

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.

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.

Concentrations of cash, cash equivalents and short-term investments

The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. As of September 30, 2023 and December 31, 2022, the Company had no cash equivalents or short-term investments.

Financial instruments that potentially subject the Company to the concentration of credit risk consist primarily of cash. The Company maintains its cash at high credit quality financial institutions, which may at times, be in excess of federal insured limits. The Company believes it is not exposed to any significant losses due to credit risk on cash.

8

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Accounts Receivable and Allowances for Doubtful Accounts

The Company records a provision for doubtful accounts, when appropriate, based on historical experience and a detailed assessment of the collectability of its accounts receivable. In estimating the allowance for doubtful accounts, the Company considers, among other factors, the aging of the accounts receivable, its historical write-offs, the credit worthiness of each customer, and economic conditions that could affect the collectability of the balances in the future. Account balances are charged off against the allowance when the Company believes that it is probable that the receivable will not be recovered. Actual write-offs may be in excess of the Company’s estimated allowance. The Company has not incurred any bad debt expense to date and no allowance for doubtful accounts has been recorded during the periods presented.

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 nine months ended September 30, 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 Note

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 the 2023 Note 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 note were recognized in general and administrative expense. The 2023 Note does not accrue interest.

9

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Revenue Recognition

The Company follows the provisions of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The guidance provides a five-step model to determine how revenue is recognized. In determining the appropriate amount of revenue to be recognized, the Company performs the following steps: (i) identification of the contracts with a customer; (ii) determination of the performance obligations in the contract; (iii) measurement of the transaction price, including potential constraints on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated stand-alone selling prices; and (v) recognition of revenue when (or as) the Company satisfies a performance obligation. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. Significant management judgment is required to determine the level of effort required under an arrangement and the period over which the Company expects to complete its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations are either completed or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance or contract-term using the cumulative catch-up method. The Company allocates the total transaction price to each performance obligation based on the relative standalone selling prices of the promised goods or service underlying each performance obligation.

Research and Development

Research and development costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received.

Accrued Outsourcing Costs

Substantial portions of the Company’s preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively “CROs”). These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as CROs, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical studies. For each clinical trial that the Company conducts, certain clinical trial costs are expensed immediately, while others are expensed over time based on the number of patients in the trial, the attrition rate at which patients leave the trial, and/or the period over which clinical investigators or CROs are expected to provide services. The Company’s estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.

Stock-Based Compensation

The Company expenses stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value of the awards and actual forfeitures. The Company accounts for forfeitures as they occur. Stock-based awards with graded vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. All stock-based compensation costs are recorded in general and administrative costs in the statements of operations.

Income (Loss) Per Share

Basic net income (loss) per share (“EPS”) of common stock is computed by dividing net income (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.

10

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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 income (loss) per share of common stock using the two-class method required for participating securities.

Basic income per share includes an allocation of undistributed income to the Company’s participating securities. Diluted income (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 income allocated to participating securities in arriving at basic income per share, assuming that all other dilutive potential common shares have been exercised and then next reallocating the undistributed income.

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 and nine months ended September 30, 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 loss per share is the same for the three and nine months ended September 30, 2023. The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net loss	$	(5,049,218)	$	(11,463,613)	$	(12,369,252)	$	(9,581,119)
Amount allocated to participating common shareholders		—		—		—		—
Net loss allocated to common shareholders- Basic	$	(5,049,218)	$	(11,463,613)	$	(12,369,252)	$	(9,581,119)
Net loss		(5,049,218)		(11,463,613)		(12,369,252)		(9,581,119)
Less: Change in fair value of warrant liabilities		—		—		—		—
Net loss allocated to common shareholders- Diluted	$	(5,049,218)	$	(11,463,613)	$	(12,369,252)	$	(9,581,119)
Denominator:
Basic weighted average number of shares outstanding		971,738		539,864		859,439		451,560
Diluted weighted average number of shares outstanding		971,738		539,864		859,439		451,560
Basic net loss per share	$	(5.20)	$	(21.23)	$	(14.39)	$	(21.22)
Diluted net loss per share	$	(5.20)	$	(21.23)	$	(14.39)	$	(21.22)

11

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 nine months ended September 30, 2023 and 2022, because including them would have been anti-dilutive:

	September 30,
	2023	2022
Preferred stock	—	—
Series X preferred stock	51,056	50,775
Unvested restricted stock units	95,504	93,072
Common stock warrants	81,623	34,559
Convertible notes	669,173	2,192
Total	897,356	180,598

Income taxes

ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

Recent accounting pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, or ASU 2016-13. ASU 2016-13 significantly changes the impairment model for most financial assets and certain other instruments. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value, and requires the reversal of previously recognized credit losses if fair value increases. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarifies codification and corrects unintended application of the guidance. In November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which clarifies or addresses specific issues about certain aspects of ASU 2016-13. In November 2019 the FASB also issued ASU No. 2019-10, Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which delays the effective date of ASU 2016-13 by three years for certain smaller reporting companies such as the Company. The guidance in ASU 2016-13 is effective for the Company for financial statements issued for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company adopted the standard on January 1, 2023, and the adoption did not have a material impact on the unaudited condensed financial statements.    

Note 3. Fair Value Measurements

Convertible Notes

During the nine months ended September 30, 2023, the Company issued the 2023 Note. The fair value of the 2023 Note on the issuance date and as of September 30, 2023 were estimated using a Monte Carlo simulation to capture the path dependencies intrinsic to their terms. The significant unobservable inputs used in the fair value measurement of the Company’s convertible notes are the common stock price, volatility, and risk-free interest rates. Significant changes in these inputs may result in significantly lower or higher fair value measurement. The Company elected the fair value option when recording its 2023 Note (See Note 2) and its convertible notes issued in 2022 (the “2022 Notes”). The notes were classified as liabilities and measured at fair value on the issuance date, with changes in fair value recognized as other income (expense) on the statements of operations and disclosed in the condensed financial statements. During the nine months ended September 30, 2023, the Company paid off the remaining balance of its 2022 Notes (approximately $0.2 million) with a portion of the proceeds received from the 2023 Note.

12

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

A summary of significant unobservable inputs (Level 3 inputs) used in measuring the 2022 Notes as of the payoff date of February 6, 2023, and the 2023 Note upon the issuance date, and as of September 30, 2023 is as follows:

	February 6, 2023		September 30, 2023
Dividend yield	—	%	—	%
Expected price volatility	30.0 - 53.7	%	30	%
Risk free interest rate	4.65 - 4.89	%	5.35	%
Expected term (in years)	0.5 - 1.4		0.1 - 1.0

The following tables classify the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2023 and December 31, 2022:

	Fair value measured at September 30, 2023
			Quoted prices in active		Significant other		Significant
	Total carrying value at		markets		observable inputs		unobservable inputs
	September 30, 2023		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Convertible notes	$	1,581,268	$	—	$	—	$	1,581,268

	Fair value measured at December 31, 2022
			Quoted prices in active		Significant other		Significant
	Total carrying value at		markets		observable inputs		unobservable inputs
	December 31, 2022		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Convertible notes	$	173,543	$	—	$	—	$	173,543

For the three and nine months ended September 30, 2023, there was a change of approximately $0.1 million and $(0.2) million in Level 3 liabilities measured at fair value, respectively. For the three and nine months ended September 30, 2022, there was a change of approximately $3.3 million and $1.8 million in Level 3 liabilities measured at fair value, respectively.

The fair value of the convertible notes may change significantly as additional data is obtained, impacting the Company’s assumptions used to estimate the fair value of the liabilities. In evaluating this information, considerable judgment is required to interpret the data used to develop the assumptions and estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts, and such changes could materially impact the Company’s results of operations in future periods.

The following table presents changes in Level 3 liabilities measured at fair value for the nine months ended September 30, 2023. Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

	Convertible Notes
Balance at December 31, 2022	$	173,543
Issuance of convertible notes		1,903,531
Issuance of common stock in connection with conversion of notes payable		(445,167)
Repayment of convertible notes		(559,600)
Loss on extinguishment of debt		394,257
Change in fair value		114,704
Balance at September 30, 2023	$	1,581,268

13

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Note 4. Prepaid and other current assets

As of September 30, 2023, the Company recorded prepaid expenses and other current assets of approximately $1.6 million, primarily consisting of services to be performed for research and development activities.  As of December 31, 2022, prepaid and other current assets totaled approximately $0.3 million, primarily consisting of directors and officers insurance. As of September 30, 2023 the Company has paid approximately $0.5 million for inventory in transit and paid approximately $0.7 million in research and development activities.

Note 5. Accrued Expenses

The Company’s accrued expenses as of September 30, 2023 and December 31, 2022 consisted of the following:

	September 30,		December 31,
	2023		2022
Employee and related expenses	$	37,482	$	510,297
Directors and officers insurance		—		269,753
Professional fees		6,750		162,021
Research and development		—		77,000
Total accrued expenses	$	44,232	$	1,019,071

Note 6. Convertible promissory notes

During the nine months ended September 30, 2023, the Company issued the 2023 Note with a principal balance of $3.7 million. The Company received proceeds of approximately $3.2 million and incurred fees of approximately $0.5 million. 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 47,059 shares of the Company’s common stock. The 2023 Note is secured by all of the Company’s assets and personal property. The 2023 Note is convertible into shares of the Company's common stock at any time, provided that no such conversion would result in the beneficial ownership by the investor and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. The conversion price of the 2023 Note is equal to $59.50, subject to customary adjustments, however, if new securities, other than exempted securities, are issued by the Company at a price less than the conversion price, the conversion price shall be reduced to such price. The 2023 Note is an 18 month note and provides that, commencing August 6, 2023, the Company will pay the outstanding principal amount of the 2023 Note in twelve consecutive monthly payments of $306,666.66 each. At the option of the Company, the monthly payment can be made in cash, shares of the common stock of the Company at a price based on 90% of the 5 lowest VWAPs during the 20 days prior to the payment date, or a combination of cash and stock. The shares issued as monthly payments must either be eligible for immediate resale under Rule 144 or be registered. Any portion of a monthly payment being made in cash shall include a premium of 5% of such cash amount.

On September 5, 2023, the Company and the holder of the 2023 Note (the “Investor”) entered into a letter agreement (the “Letter Agreement”) pursuant to which the Investor agreed to waive any default, any Event of Default, and any Mandatory Default Amount (each as defined in the 2023 Note) associated with the Company’s market capitalization being below $10 million for 10 consecutive days through December 31, 2023. Notwithstanding the waiver, the Investor retains its right to exercise conversion rights under 2.2(c)(2)(x) of the 2023 Note, which could result in a substantial amount of common stock issued at a significant discount to the trading price of the Company’s common stock. In addition, if the Company is unable to increase its market capitalization and is unable to obtain a further waiver or amendment to the 2023 Note, then the Company could experience an event of default under the 2023 Note, which could have a material adverse effect on the Company’s liquidity, financial condition, and results of operations. The Company cannot make any assurances regarding the likelihood, certainty, or exact timing of the Company’s ability to increase its market capitalization, as such metric is not within the immediate control of the Company and depends on a variety of factors outside the Company’s control.

As of September 30, 2023, the outstanding principal balance of the 2023 Notes was approximately $2.9 million. As of December 31, 2022, the outstanding principal balance of the 2022 Notes was approximately $0.2 million, and proceeds received from the 2023 Note were used to repay the remaining balance of the 2022 Notes.

14

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

For the nine months ended September 30, 2023, the Company recorded a $0.1 million change in fair value of its notes, and a loss on extinguishment of debt of approximately $0.4 million, and repaid approximately $0.8 million of the notes of which approximately $0.3 million in cash and stock issuances of approximately $.45 million, which are included in the accompanying condensed statements of operations. For the nine months ended September 30, 2022, the Company recorded a loss on issuance of debt of $0.4 million, and a change of fair value of $0.25 million that is included in the change in fair value of notes, in the accompanying condensed statements of operations

Note 7. Stock-based compensation

Stock-based Compensation

The following is a summary of stock-based compensation during the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Canceled stock options	$	30,242	$	119,829	$	140,913	$	449,840
Restricted stock units		1,034,664		927,324		4,359,265		927,325
Total	$	1,064,906	$	1,047,153	$	4,500,178	$	1,377,165

Restricted Stock Units

The following is a summary of the restricted stock units during the nine months ended September 30, 2023:

		Weighted Average
		Grant-Date
	Number of Shares	Fair Value
Unvested as of December 31, 2022	108,982	$	81.51
Granted	47,771		30.47
Vested	(62,720)		84.75
Unvested as of September 30, 2023	94,033	$	53.85

During the nine months ended September 30, 2023, the Company granted 47,771 time-based RSUs with a fair value of approximately $1.5 million to members of its board of directors and employees of the Company. The RSUs are subject to service conditions and vest 33.34% on the one year anniversary of the grant date, with the remaining units vesting on each three-month anniversary thereafter.

During the nine months ended September 30, 2022, 17,148 RSU’s (granted on January 1, 2022) were forfeited due to terminations of two of the Company’s employees and two of its board members.

During the three and nine months ended September 30, 2023, the Company recorded stock-based compensation expense related to the RSUs of approximately $1.0 million and $4.4 million, respectively. During the three-month period ended September 30, 2022, the company recorded approximately $0.9 million in stock compensation expense related to the RSUs. The unamortized stock-based compensation expense related to RSUs as of September 30, 2023 is approximately $2.2 million, which is expected to be recognized over a remaining weighted average vesting period of 1.0 years.

Performance-based Restricted Stock Units

As of September 30, 2023, there were 1,471 performance-based restricted stock units with a fair value of approximately $60,000 outstanding. The RSUs are subject to a performance condition, and will vest upon the Company signing a definitive agreement with a strategic partner. No performance-based RSUs were issued during the nine months ended September 30, 2023.

15

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

Canceled Stock Options

The Company previously granted options to purchase shares of the Company’s common stock and during the year ended December 31, 2020 these options were canceled in exchange for RSUs. No stock options were outstanding as of September 30, 2023 and 2022. Compensation cost related to the canceled stock options of $4.3 million will continue to be recognized over the original vesting criteria.

During the three months ended September 30, 2023 and 2022, the Company recorded stock-based compensation expense related to the canceled stock options of approximately $0.03 million and $0.1 million, respectively. During the nine months ended September 30, 2023 and 2022, the Company recorded stock-based compensation expense related to the canceled stock options of approximately $0.1 million and $0.45 million, respectively. The unamortized stock-based compensation expense related to canceled stock options as of September 30, 2023 is approximately $0.02 million.

Warrants

The following is a summary of the Company’s warrant activity during the nine months ended September 30, 2023:

		Weighted				Weighted Average
	Shares	Average		Aggregate		Remaining
	Underlying	Exercise		Intrinsic		Contractual
	Warrants	Price		Value		Term (Years)
Outstanding as of December 31, 2022	26,204	$	75.94	$	—	3.9
Issued	55,419		55.62
Outstanding as of September 30, 2023	81,623	$	62.14	$	—	4.4
Exercisable as of September 30, 2023	81,623	$	62.14	$	—	4.4

On January 19, 2023, the Company issued warrants to purchase 1,768 shares of the Company’s common stock with an exercise price of $51.00 per share as consideration to waive the lock-up restriction related to its August IPO. The warrants expire 5 years from the issuance date.

On February 6, 2023, the Company issued warrants to purchase 47,059 shares of the Company’s common stock with an exercise price of $55.25 per share in connection with the issuance of its 2023 Note (See Note 6).

On March 7, 2023, the Company issued warrants to purchase 6,592 shares of the Company’s common stock with an exercise price of $59.50 per share as consideration to waive the lock-up restriction related to its August IPO. The warrants are not exercisable prior to September 7, 2023 and expire 5 years from the issuance date.

Note 8. Preferred and common stock

Series X Preferred Stock

There were no shares of Series X preferred stock issued during the three and nine months ended September 30, 2023. As of September 30, 2023, there were 45,567 shares of Series X preferred stock outstanding.

Common Stock

On November 17, 2022, the Company entered into an equity purchase agreement (the “Purchase Agreement”) with LPC which provided that, upon the terms and subject to the conditions and limitations set forth therein, the Company could sell to LPC, at its discretion, up to $20.0 million of shares of its common stock over the 30-month term of the Purchase Agreement. During the nine months ended September 30, 2023, the Company issued 0.2 million shares of common stock, receiving net proceeds of approximately $5.4 million.

During the nine months ended September 30, 2023, the Company issued 58,744 shares of its common stock in connection with the vesting of RSUs issued to members of the Company’s board of directors and employees. The Company withheld 3,650 of these shares

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PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

at a fair value of approximately $0.1 million, to cover the withholding taxes related to the settlement of these vested restricted stock units.

During the nine months ended September 30, 2023, the Company issued 1,824 shares of its common stock in settlement of a shares settled liability at December 31, 2022 of approximately $161,000.

Note 9. Commitments and contingencies

Litigation

As of September 30, 2023 and 2022, there was no litigation against the Company. The Company may be involved in legal proceedings, claims and assessments arising from the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.

Note 10. Related party transactions

Expenses - During the three-month periods ended September 30, 2023 and 2022, the Company expensed $60,000 for management fees owed to Tardimed. In addition, during the three-months ended September 30, 2023, the company entered into a Consulting Services agreement with Tardimed for regulatory support to gain registration of PAX-101 and expensed $27,500. During the nine-month periods ended September 30, 2023 and 2022 the Company expensed $180,000 for management fees owed to Tardimed for the Rent and Administrative Services agreement.

Accounts payable – As of September 30, 2023 there were no related party payables. As of September 30, 2022, related party payables totaled $132,000, consisting of $80,000 owed to Tardimed for management fees, $27,000 owed to members of our board of directors and $25,000 owed to the Company’s Chief Financial Officer for consulting services.

Prepaids – As of September 30, 2023, the Company paid $0.1 million for services to be performed by PoloMar, a related party due to their ownership by Tardimed.

Note 11. Subsequent events

The Company has evaluated all subsequent events through the date of filing, November 15, 2023, of this Quarterly Report on Form 10-Q with the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the condensed financial statements as of September 30, 2023, and events which occurred after September 30, 2023, but which were not recognized in the condensed financial statements.

2023 Note

Subsequent to September 30, 2023, in connection with the 2023 Note with the Lind Capital Partners, the Company issued approximately 1.2 million shares of Common Stock with an approximate value of $2.7 million instead of making the monthly payment in cash (see Note 6).

Reverse Stock Split

On October 30, 2023, we filed a Certificate of Amendment to our Certificate of Incorporation (the “Reverse Split Amendment”) with the Secretary of State of the State of Delaware to effect a 1-for-17 reverse stock split of our outstanding common stock (the “Reverse Stock Split”). The Amendment became effective October 30, 2023 (the “Reverse Split Effective Time”). The Reverse Split Amendment was authorized by our stockholders at our special meeting of stockholders on September 26, 2023.

The Reverse Split Amendment provides that, at the Reverse Split Effective Time, every 17 shares of our issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in par value per share. The Reverse Stock Split affected all or our shares of common stock outstanding immediately prior to the Effective Time. As a result of the Reserve Stock Split, proportionate adjustments have been made to the per share exercise price and/or the number of shares issuable

17

PAXMEDICA, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

upon the exercise or vesting of all stock options and warrants issued us and outstanding immediately prior to the Reverse Split Effective Time, which resulted in a proportionate decrease in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options and warrants, and, in the case of stock options and warrants, a proportionate increase in the exercise price of all such stock options and warrants. In addition, the number of shares reserved for issuance under our 2020 Plan (as defined below) immediately prior to the Reverse Split Effective Time has been reduced proportionately.

No fractional shares were issued as a result of the Reverse Stock Split. Stockholders of record who would otherwise have been entitled to receive a fractional share received a number of shares rounded up to the next whole share in lieu thereof. The Reverse Stock Split affected all stockholders proportionately and did not affect any stockholder’s percentage ownership of our common stock (other than the nominal effect of the treatment of fractional shares).

Our common stock began trading on The Nasdaq Capital Market on a split-adjusted basis when the market opened on October 31, 2023.

All share and per share information referenced throughout this Form 10-Q has been retroactively adjusted to reflect the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split have been rounded up to the nearest whole share.

Rediscovery Life Sciences, LLC

On October 24, 2023, we acquired certain suramin research assets from Rediscovery Life Sciences (“RLS”) for the purchase price of $100,000. These assets were previously dedicated to the study of suramin's potential efficacy in treating acute kidney injury resulting from chronic kidney disease.

The newly acquired data from RLS is expected to bolster our ongoing efforts to support the submission for the approval of PAX-101, specifically for the treatment of African Sleeping Sickness caused by the Trypanosoma brucei rhodesiense parasite. The integration of the data from RLS will serve as a complementary component in the planned submission for the NDA.

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

References to the “Company,” “Paxmedica, Inc.,” “our,” “us,” or “we” refer to Paxmedica, Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report and with our audited financial statements for the fiscal year ended December 31, 2022, as included in our 2022 Annual Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “ongoing,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:

● our lack of operating history;

● the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital, including through future sales and issuances of equity or equity-linked securities which could also result in substantial dilution to our stockholders;

● our current and future capital requirements to support our development and commercialization efforts for our product candidates and our ability to satisfy our capital needs;

● our dependence on our product candidates, which are still in preclinical or early stages of clinical development;

● our, or our third-party manufacturers’, ability to manufacture cGMP batches of our product candidates as required for pre-clinical and clinical trials and, subsequently, our ability to manufacture commercial quantities of our product candidates;

● whether we will be successful in obtaining a priority review voucher, or PRV, for PAX-101 and the commercial value to be realized from any such PRV, if any;

● our relationship with TardiMed, an affiliated entity that provides office space, important administrative services, and consulting services related to regulatory support to us, as well as our ability to attract and retain key executives and medical and scientific personnel;

● our ability to complete required clinical trials for our product candidates and obtain approval from the FDA or other regulatory agencies in different jurisdictions;

● our lack of a sales and marketing organization and our ability to commercialize our product candidates if we obtain regulatory approval;

● our dependence on third parties to manufacture our product candidates;

● our reliance on third-party CROs to conduct our clinical trials;

● our ability to obtain, maintain or protect the validity of our intellectual property, including our granted or potential future patents;

● our ability to internally develop new inventions and intellectual property;

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● interpretations of current laws and the passages of future laws;

● acceptance of our business model by investors;

● adverse developments affecting the financial markets;

● the accuracy of our estimates regarding expenses and capital requirements; and

● our ability to adequately support organizational and business growth.

The following discussion should be read in conjunction with our financial statements and related notes and other financial information appearing elsewhere in this report. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Item 1A— “Risk Factors” of our Annual Report on Form 10-K filed with the SEC on March 30, 2023 and under Item 1A – “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” of this Item 2.

Overview

We are a clinical stage biopharmaceutical company focusing on the development of anti-purinergic drug therapies (“APT”) for the treatment of disorders with intractable neurologic symptoms, ranging from neurodevelopmental disorders, including autism spectrum disorder (“ASD”), to Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS”), a debilitating physical and cognitive disorder believed to be viral in origin and now with rising incidence globally due to the long-term effects of SARS-CoV-2 (“COVID-19”). APTs have been shown to block the effects of excess production and extracellular receptor activity of ATP, which acts as both the main energy molecule in all living cells and a peripheral and central nervous system neurotransmitter via receptors that are found throughout the nervous system. Excess purinergic signaling can offset homeostasis and trigger immune responses that result in localized and systemic increases in inflammatory chemokines and cytokines, ultimately stimulating ATP production. APTs may also impact immunologic and inflammatory mechanisms that may be causing or exacerbating symptoms in these seemingly unrelated disorders, which may be caused in part by similar mechanisms of ATP overproduction.

One of our primary points of focus is currently the development and testing of our lead program, PAX-101, an intravenous formulation of suramin, in the treatment of ASD and the advancement of the clinical understanding of using that agent against other disorders such as ME/CFS and Long COVID-19 Syndrome (“LCS”), a clinical diagnosis in individuals who have been previously infected with COVID-19.

In February 2021, we announced positive topline data from our Phase 2 dose-ranging clinical trial evaluating PAX-101 (commonly known as intravenous suramin) for the treatment of the core symptoms of ASD, as described in more detail below. We also intend to submit data to support a New Drug Application (an “NDA”) for PAX-101 under the U.S. Food and Drug Administration’s (the “FDA”) Tropical Disease Priority Voucher Program for the treatment of Human African Trypanosomiasis, a fatal parasitic infection commonly known as African sleeping sickness (“HAT”), leveraging suramin’s historical use in treating HAT outside of the United States. We have exclusively licensed clinical data from certain academic or international government institutions to potentially accelerate PAX-101’s development plans in the United States through this regulatory program and seek approval in the United States for the treatment of East African HAT, which is caused by the parasite Trypanosome brucei rhodesiense, as early as 2024. We are also pursuing the development of next generation APT product development candidates for neurodevelopmental indications. These candidates include PAX-102, our proprietary intranasal formulation of suramin, as well as other new chemical entities that are more targeted and selective antagonists of particular purine receptor subtypes. We believe our lead drug candidate (suramin), if approved by the FDA, may be a significant advancement in the treatment of ASD and a potentially useful treatment for ME/CFS and LCS.

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We have not generated any product revenue to date and, through September 30, 2023, we had an accumulated deficit of approximately $46.1 million. To date, we have financed our operations through contributions from our prior members, proceeds from our initial public offering, the issuance of our convertible notes (including the 2023 Note, as described herein), the issuance of our Simple Agreement For Equity (“SAFE”), the issuance of Series X preferred stock, par value $0.0001 per share (“Series X preferred stock”) and the sale of shares of common stock to LPC pursuant to the Lincoln Park Purchase Agreement. We expect our expenses to increase significantly in connection with our ongoing activities to develop, seek regulatory approval and commercialization of PAX-101, and our other product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will likely need substantial additional financing to support our continuing operations. We will seek to fund our operations through public or private equity or debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenues to achieve profitability, and we may never do so. Accordingly, there are material risks and uncertainties that raise substantial doubt about our ability to continue as a going concern.

Equity Purchase Agreement with Lincoln Park Capital

During the nine months ended September 30, 2023, in connection with its equity purchase agreement with Lincoln Park Capital Fund, LLC, the Company received net proceeds of approximately $5.4 million from the issuance of 0.2 million shares of the Company’s common stock.

Convertible Notes

On February 2, 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 47,059 shares of the Company’s common stock. The 2023 Note is secured by all of the Company’s assets and personal property. The 2023 Note is convertible into shares of the Company's common stock at any time, provided that no such conversion would result in the beneficial ownership by the investor and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock. The conversion price of the 2023 Note is equal to $59.50, subject to customary adjustments, however, if new securities, other than exempted securities, are issued by the Company at a price less than the conversion price, the conversion price shall be reduced to such price. The 2023 Note provides that, commencing August 6, 2023, the Company will pay the outstanding principal amount of the 2023 Note in twelve consecutive monthly payments of $306,666.66 each. At the option of the Company, the monthly payment can be made in cash, shares of the common stock of the Company at a price based on 90% of the 5 lowest VWAPs during the 20 days prior to the payment date, or a combination of cash and stock. The shares issued as monthly payments must either be eligible for immediate resale under Rule 144 or be registered. Any portion of a monthly payment being made in cash shall include a premium of 5% of such cash amount.

On September 5, 2023, the Company and the holder of the 2023 Note (the “Investor”) entered into a letter agreement (the “Letter Agreement”) pursuant to which the Investor agreed to waive any default, any Event of Default, and any Mandatory Default Amount (each as defined in the 2023 Note) associated with the Company’s market capitalization being below $10 million for 10 consecutive days through December 31, 2023. Notwithstanding the waiver, the Investor retains its right to exercise conversion rights under 2.2(c)(2)(x) of the 2023 Note, which could result in a substantial amount of common stock issued at a significant discount to the trading price of the Company’s common stock.

As of September 30, 2023, the outstanding principal balance of the 2023 Note was approximately $2.9 million.

Vox Nova Exclusive Pharmacy Distribution Agreement

On June 30, 2023, the Company entered into an exclusive specialty benefit manager agreement with Vox Nova, LLC (“Vox Nova”) pursuant to which Vox Nova will act as the exclusive United States distributor for the Company’s lead pipeline asset, PAX-101 intravenous suramin. Vox Nova will provide certain distribution management, pharmacy benefit management, sales and supply monitoring services to the Company with respect to PAX-101, in the event PAX-101 receives FDA approval. The distribution agreement also provides for an exclusivity fee payable to the Company of up to $2.0 million, payable in installments based on various time and regulatory approval parameters. Vox Nova will pay $0.5 million of the exclusivity fee upfront in connection with the signing of the distribution agreement when the distribution right was transferred to Vox Nova. The remaining $1.5 million is due in four equal installments over a one-year period after PAX-101 is approved by the FDA and made available for distribution.

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Potential Priority Review Voucher Monetization

We may be eligible to receive a tropical disease Priority Review Voucher (“PRV”) for PAX-101, as HAT is defined as a disease qualifying for a tropical disease PRV under Section 524 of the Federal Food, Drug and Cosmetic Act. We are exploring potential monetization opportunities in connection with receipt of a potential PRV. On October 17, 2023, we entered into an Asset Divestiture Engagement Agreement (the “BP Engagement Agreement”) with Bourne Capital Partners, LLC (“BP”) to engage BP as our exclusive advisor to assist us in exploring a potential sale of the rights to a PRV. However, there can be no assurance that we will receive approval from the FDA for PAX-101, and even if PAX-101 is approved by the FDA, there is a risk that we will not receive a tropical disease PRV. Further, the PRV program has been subject to criticism, including by the FDA, and it is possible that even if we obtain approval for PAX-101 and qualify for a PRV, the program may no longer be in effect at the time of approval. In addition, although PRVs may be sold or transferred to third parties, there is no guarantee that we will be able to realize any value if we were to sell a PRV.

Type-B Meeting for HAT-301

On October 26, 2023, we completed a type-B meeting with the FDA, where we discussed the results of our recent data from our PAX-HAT-301 study of suramin in HAT. We received constructive feedback which will aid in the completion of the remaining work necessary to file a New Drug Application expected in the second half of 2024. Most of the work to achieve this important milestone will focus on completing the production of commercial lots of PAX-101 under CMC regulatory guidelines, underway now and scheduled to conclude in the first half of 2024.

Financial Operations Overview

Revenue

To date, we have not generated any product revenue. Our ability to generate product revenue will depend on the successful development and eventual commercialization of our current, and any potential future, product candidates.

Research and Development Expenses

Research and development expenses consist of costs incurred for the development of PAX-101 and our other product candidates, which include:

● the cost of acquiring, developing and manufacturing pre-clinical trial materials;

● costs for consultants and contractors associated with chemistry, manufacturing and controls, or CMCs, pre-clinical activities and regulatory operations;

● expenses incurred under agreements with contract research organizations, or CROs, that conduct our pre-clinical trials; and

● employee-related expenses, including salaries for those employees involved in the research and development process.

Research and development costs are expensed as incurred. Costs for certain activities, such as preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.

General and Administrative Expense

Our general and administrative expenses include costs associated with our executive, accounting, information technology and human resources functions. These expenses consist principally of payroll, employee benefits, travel, stock-based compensation and professional services fees such as consulting, audit, tax and legal fees, and general corporate costs. We expense all general and administrative expenses as incurred.

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We expect our general and administrative expenses to increase primarily as a result of costs related to us operating as a public company, such as additional legal, accounting, corporate governance, and investor relations expenses, and directors’ and officers’ insurance premiums.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 30, 2022

	Three Months Ended September 30,
	2023		2022
Operating expenses
General and administrative	$	2,425,849	$	2,367,711
Research and development		1,938,672		327,268
Total operating expenses		4,364,521		2,694,979
Loss from operations		(4,364,521)		(2,694,979)
Other income (expense), net		(684,697)		(8,768,634)
Net loss	$	(5,049,218)	$	(11,463,613)

Operating expenses

General and administrative

General and administrative expenses were approximately $2.4 million and $2.4 million for the three months ended September 30, 2023 and 2022, respectively. There was a minimal increase in general and administrative expenses was primarily due to $0.02 million for payroll expenses offset by a decrease of $0.03 million in legal and professional services.

Research and Development

Research and development expenses were approximately $1.9 million for the three months ended September 30, 2023 and approximately $0.3 million for the three months ended September 30, 2022. The $1.6 million increase in research and development expenses was primarily attributable to additional costs incurred in connection with our research activities, including costs associated with clinical trials, consultants, clinical trial materials, regulatory filings, facilities, laboratory expenses and other supplies.

Of the $1.9 million in research and development expenses incurred during the three months ended September 30, 2023, $1.2 million was associated with activities related to the HAT indication, and $0.7 million was associated with activities related to the ASD indication. These activities included, but were not limited to, milestone payments in connection with the recently completed ASD trial.

Of the approximately $0.3 million in research and development expenses incurred during the three months ended September 30, 2022, approximately $0.3 million was associated with activities related to the HAT indication, and approximately $0.02 million was associated with activities related to the ASD indication. These activities included regulatory advisory services and IV formulation work for HAT as well as work related to our ASD clinical trial.

The estimated aggregate costs expected to be incurred for the research and development activities relating to the filing of an NDA for HAT and an IND for ASD are approximately $10.3 million, which we expect to fund with the proceeds of our initial public offering and future capital raising activities.

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Other Income (expense)

Other income (expense) was approximately $(0.7) million for the three months ended September 30, 2023 compared with other income (expense) of $(8.8) million for the three months ended September 30, 2022. Other income (expense) of $(0.7) million for the three months ended September 30, 2023 was primarily comprised of $(0.35) million recognized for the change in fair value of our notes and $(0.35) million recognized for the loss on extinguishment of debt. Other income (expense) of approximately $(8.8) million for the three months ended September 30, 2022 was primarily comprised of $(2.8) million recognized for the change in fair value of our SAFE investment, $(5.3) million loss on conversion of SAFE to series X preferred stock, $(0.4) million recognized for the change in fair value of our warrant liability, $(0.2) million recognized for the change in fair value of our 2022 Notes, and $(0.1) million recognized for the loss on issuance of our 2022 Notes.

Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 30, 2022

	Nine Months Ended September 30,
	2023		2022
Operating expenses
General and administrative	$	9,008,943	$	4,077,491
Research and development		2,750,192		1,549,397
Total operating expenses		11,759,135		5,626,888
Loss from operations		(11,759,135)		(5,626,888)
Other expense, net		(610,117)		(3,954,231)
Net loss	$	(12,369,252)	$	(9,581,119)

Operating expenses

General and administrative

General and administrative expenses were approximately $9.0 million and $4.1 million for the nine months ended September 30, 2023 and 2022, respectively. The $4.9 million increase in general and administrative expenses was primarily due to increases of $3.1 million of stock-based compensation recognized for our restricted stock units, $1.0 million for legal and professional fees, $0.3 million for payroll expenses, $0.2 million for insurance expenses and $0.3 million for other operating expenses.

Research and Development

Research and development expenses were approximately $2.7 million for the nine months ended September 30, 2023 and approximately $1.5 million for the nine months ended September 30, 2022. The $1.2 million increase in research and development expenses was primarily attributable to higher costs incurred in connection with our research activities, including higher costs associated with pre-clinical trials, consultants, pre-clinical trial materials, regulatory filings, facilities, laboratory expenses and other supplies.

Of the $2.7 million in research and development expenses incurred during the nine months ended September 30, 2023, $1.7 million was associated with activities related to the HAT indication, and $1.0 million was associated with activities related to the ASD indication. These activities included, but were not limited to, milestone payments in connection with the recently completed ASD trial.

Of the approximately $1.5 million in research and development expenses incurred during the nine months ended September 30, 2022, approximately $1.4 million was associated with activities related to the HAT indication, and approximately $0.1 million was associated with activities related to the ASD indication. These activities included regulatory advisory services and IV formulation work for HAT as well as work related to our ASD clinical trial.

The estimated aggregate costs expected to be incurred for the research and development activities relating to the filing of an NDA for HAT and an IND for ASD are approximately $10.3 million, which we expect to fund with the proceeds of our initial public offering and future capital raising activities.

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Other Expense, net

Other Expense was approximately $0.6 million for the nine months ended September 30, 2023 compared with $4.0 million for the nine months ended September 30, 2022. Other expense of $0.6 million for the nine months ended September 30, 2023 was primarily comprised of $0.1 million recognized for the change in fair value of our notes, $0.4 million recognized for loss on extinguishment of debt and $0.1 million of other expense recognized to waive the lock-up restriction related to our August IPO.  Other expense of $4.0 million for the nine months ended September 30, 2022 was primarily comprised of $5.5 million on the loss on conversion of SAFE, $0.4 on loss of issuance of debt which was offset by the change in fair value warrant liability of $1.9 million.

Liquidity and Capital Resources

We were formed as a Delaware limited liability company on April 5, 2018 and converted into a Delaware corporation on April 15, 2020. As of September 30, 2023, we had an accumulated deficit since inception of approximately $46.1 million. Since inception, we have not generated revenue from product sales and have incurred net losses and negative cash flows from our operations. From inception through September 30, 2023, we have funded our operations in large part through contributions from TardiMed Sciences, LLC (“TardiMed”), the issuance of senior secured convertible promissory notes of approximately $7.0 million, proceeds from the public common stock offering, net of fees, of approximately $6.0 million, our SAFE of $5.0 million, and the issuance of shares of our common stock in connection with our equity purchase agreement of $5.6 million.

Equity Purchase Agreement with Lincoln Park Capital

During the nine months ended September 30, 2023, in connection with its equity purchase agreement with Lincoln Park Capital Fund, LLC (LPC), the Company received net proceeds of approximately $5.4 million from the issuance of 0.2 million shares of the Company’s common stock.

Convertible Notes

During the nine months ended September 30, 2023, the Company issued the 2023 Note with a principal balance of $3.7 million. The Company received proceeds of approximately $3.2 million, net of fees of $0.5 million. 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 47,059 shares of the Company’s common stock at an exercise price of $55.25 per share. As of December 31, 2022, the outstanding principal balance of our 2022 Notes was approximately $0.2 million, and proceeds received from the 2023 Note were used to repay the remaining balance of the 2022 Notes.

As of September 30, 2023, the outstanding principal balance of the 2023 Notes was approximately $2.9 million.

For the nine months ended September 30, 2023, the Company recorded a $0.1 million change in fair value of its notes, a loss on extinguishment of debt of approximately $0.4, and repaid approximately $0.8 million of the notes of approximately $0.3 million cash and stock issuances of approximately $0.45, which are included in the accompanying condensed statements of operations. For the nine months ended September 30, 2022, the Company recorded a loss on issuance of debt of $0.4 million, and a fair value loss of $0.25 million that is included in the change in fair value of notes, in the accompanying condensed statements of operations.

Vox Nova Exclusive Pharmacy Distribution Agreement

On June 30, 2023, the Company entered into an exclusive specialty benefit manager agreement with Vox Nova, LLC (“Vox Nova”) pursuant to which Vox Nova will act as the exclusive United States distributor for the Company’s lead pipeline asset, PAX-101 intravenous suramin. Vox Nova will provide certain distribution management, pharmacy benefit management, sales and supply monitoring services to the Company with respect to PAX-101, in the event PAX-101 receives FDA approval. The distribution agreement also provides for an exclusivity fee payable to the Company of up to $2.0 million, payable in installments based on various time and regulatory approval parameters. Vox Nova paid $0.5 million of the exclusivity fee upfront in connection with the signing of the distribution agreement when the distribution right was transferred to Vox Nova. The remaining $1.5 million is due in four equal installments over a one-year period after PAX-101 is approved by the FDA and made available for distribution.

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Operating activities

During the nine months ended September 30, 2023, net cash used in operating activities was $8.2 million, which primarily included our net loss of approximately $12.4 million, adjusted for non-cash expenses of approximately $5.6 million including stock-based compensation of approximately $4.5 million, $0.1 million of other expense and $0.5 million in deferred revenue related to the Vox Nova distribution agreement, change in fair value of our convertible notes of $0.1 million, and loss on extinguishment of debt of $0.4 million. The net change in operating assets and liabilities was approximately $1.4 million and was primarily due to decreases in accounts payable and accrued expenses of $1.0 million and decreases in prepaid and other current assets of $0.5 million.

During the nine months ended September 30, 2022 , net cash used in operating activities was $3.0 million, which primarily included our net loss of approximately $9.6 million, adjusted for non-cash expenses of approximately $5.3 million, including the change in fair value of our SAFE liability of $5.3 million, stock-based compensation of approximately $1.4 million, loss on issuance of debt of $0.4 million recorded in connection with the issuance of our 2022 Notes, and the change in fair value of our 2022 Notes of $0.25 million, offset by the change in fair value of our warrant liability of $1.9 million and the change in fair value of our SAFE investment of $0.2 million.. The net change in operating assets and liabilities was approximately $1.3 million and was primarily due to increases in accounts payable and accrued expenses of $1.5 million and increases in other assets of $0.2 million.

Investing Activities

There were no investing activities during the nine months ended September 30, 2023 and 2022.

Financing activities

During the nine months ended September 30, 2023, net cash provided by financing activities was approximately $7.4 million, consisting of net proceeds of $3.2 million received in connection with the issuance of our 2023 Note and warrants, net of fees paid of $0.5 million, and net proceeds of $5.6 million received from the issuance of shares of our common stock in connection with our equity purchase agreement with LPC, net of fees paid of $0.2 million, offset by the repayment of our 2022 Notes of $0.2 million and settlement of shares withheld for payment of employee taxes of $0.1 million.

During the nine months ended September 30, 2022, net cash provided by financing activities was approximately $8.1 million, consisting of $6.6 million of proceeds of our Initial Public Offering, $1.2 million received from the issuance of promissory notes and warrants, and $0.3 million from the issuance of Series X preferred stock.

Funding requirements

As of September 30, 2023, we had a cash balance of approximately $1.2 million. Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

We anticipate incurring additional losses for the foreseeable future and may never become profitable. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of product candidates. Furthermore, we expect to continue to incur additional costs as a public company. Accordingly, we will likely need to obtain substantial additional funding. If we are unable to raise capital or otherwise obtain funding when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. These factors raise substantial doubt about our ability to continue as a going concern.  The Company’s future liquidity and capital funding requirements will depend on numerous factors, including:

● 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;

● 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; and

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

We will seek to obtain additional capital through the sale of debt or equity financings or other arrangements such as, collaborations, strategic alliances and licensing arrangements to fund operations; however, there can be no assurance that we will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity or equity-linked securities may dilute existing stockholders and may contain senior rights and preferences compared to currently outstanding shares of common and preferred stock. Debt securities issued or other debt financing incurred may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued.

Contractual obligations and commitments

As of September 30, 2023, the 2023 Notes outstanding principal balance totals approximately $2.9 million. The notes bear no interest and mature 18 months from the issuance date.

Off-balance sheet arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We therefore believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

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 accounting principles generally accepted in the United States of America (“U.S. 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 date of the balance sheet and the reported amounts of expenses during the reporting period. In accordance with U.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. The most significant estimates 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, our future results of operations will be affected.

We define our critical accounting policies as those accounting principles 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, we believe the following are the critical accounting policies used in the preparation of our financial statements that require significant estimates and judgments:

Stock-Based Compensation

We expense stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value of the awards and actual forfeitures. We account for forfeitures as they occur. Stock-based awards with graded vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award.

The determination of the grant date fair value of options using an option pricing model is affected principally by our estimated fair value of shares of our common stock and requires management to make a number of other assumptions, including the expected term of the option, the expected volatility of the underlying shares, the risk-free interest rate and the expected dividend yield. The assumptions used in our Black-Scholes option-pricing model represent management’s best estimates at the time of measurement. These estimates are

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complex, involve a number of variables, uncertainties and assumptions and the application of management’s judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future. These assumptions are estimated as follows:

● Fair Value of Common Stock. See the subsection titled “- Fair Value of Common Stock” below.

● Expected Term. The expected term represents the period that our options are expected to be outstanding. We calculated the expected term using the simplified method for options based on the average of each option’s vesting term and the contractual period during which the option can be exercised, which is typically 10 years following the date of grant.

● Expected Volatility. The expected volatility was based on the historical share volatility of several comparable publicly traded companies over a period of time equal to the expected term of the options, as we did not have any material trading history to use the volatility of our own common stock. The comparable companies were chosen based on their size, stage in life cycle and area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

● Risk-Free Interest Rate. The risk-free interest rate was based on the yields of U.S. Treasury securities with maturities appropriate for the term of the award.

● Expected Dividend Yield. We have not paid dividends on our common stock nor do we expect to pay dividends in the foreseeable future. Therefore, we used an expected dividend yield of zero.

Fair Value of Common Stock

Following the Company’s initial public offering, a public trading market for our common stock has been established and it is no longer necessary for our board of directors to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock will be determined based on the closing price of our common stock as reported on the date of grant.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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. Actual results could differ from those estimates.

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 convertible notes. In accordance with ASC 825, the Company recognizes these convertible 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.

Accrued Outsourcing Costs

Substantial portions of our preclinical studies and clinical trials are performed by third-party laboratories, medical centers, CROs and other vendors. These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, we accrue expenses based upon estimated percentage of work completed and the contract milestones remaining. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. We outsource a substantial portion of our clinical trial activities, utilizing external entities such as CROs, independent clinical investigators, and other third-party service providers to assist us with the execution of its clinical studies. For each clinical trial that we conduct, certain clinical trial costs are expensed immediately, while others are expensed over time based on the number of patients in the trial, the attrition rate at which patients leave the trial, and/or the period over which clinical investigators or CROs are expected to provide services. Our estimates depend on the timeliness and accuracy of the data provided by the CROs regarding the status

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of each program and total program spending. We periodically evaluate the estimates to determine if adjustments are necessary or appropriate based on information it receives.

Research and Development

Research and development expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel serving our development functions, and other internal operating expenses, the cost of clinical studies, and the cost of our drug candidate for clinical study. In addition, research and development expenses include payments to third parties for the development of our product candidates and the estimated fair value for the issuance of equity for the license rights to products in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities at CROs that design, gain approval for and conduct clinical trials on our behalf. Such amounts are then recognized as an expense as the related goods are delivered or the services are performed.

Recent accounting pronouncements

See Note 2 to our financial statements for a description of recent accounting pronouncements applicable to our financial statements.

Emerging Growth Company Status

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (“JOBS Act”), and we may remain an emerging growth company for up to five years following the completion of our initial public offering. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved and an exemption from compliance with the requirements regarding the communication of critical audit matters in the auditor’s report on financial statements.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. As a result of this election, our financial statements may not be comparable to those of companies that are not emerging growth companies.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer has concluded that during the period covered by this report, our disclosure controls and procedures were not effective as of September 30, 2023 because of a material weakness in our internal control over accounting for complex financial instruments. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the Company’s management has concluded that our control around the interpretation and accounting for certain complex features of financial instruments was not effectively designed or maintained. As a result, our management performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, result of operations and cash flows of the periods presented. Management understands that the accounting standards applicable to our financial statements are complex and has since the inception of the Company benefited from the support of experienced third-party professionals with whom management has regularly consulted with respect to accounting issues. Management intends to continue to further consult with such professionals in connection with accounting matters.

Material Weaknesses in Internal Control over Financial Reporting

In the course of preparing our financial statements for the year ended December 31, 2022, and the period ended March 31, 2023, we identified material weaknesses in our internal control over financial reporting relating to the evaluation of complex financial instruments, including earnings per share. The material weaknesses have not been remediated as of September 30, 2023. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Our management has concluded that our control around the interpretation and accounting for certain complex instruments issued by the Company was not effectively designed or maintained.

We originally prepared an accounting position paper concluding that Series Seed Preferred Stock should have been classified as mezzanine equity in accordance with ASC 480. Upon further analysis, it was determined that the Series Seed Preferred Stock should have been recorded as permanent equity because certain redemption provisions are within the Company’s control. Therefore, management has concluded that our controls around the interpretation and accounting for our Series Seed Preferred Stock issued was not effectively designed or maintained. Additionally, the original earnings per share calculation did not correctly classify the shares associated with our SAFE investment and our Series Seed Preferred Stock as a separate class of participating securities. Upon further analysis we determined the controls over the calculation of earnings per share resulted in a material weakness.

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To remediate the above material weaknesses, we have developed a remediation plan with assistance from our accounting advisors and have dedicated significant resources and efforts to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents, and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. We do not believe that the remediation of these material weaknesses will result in significant incremental cost. However, another significant financial reporting failure or material weakness in internal control over financial reporting could result in substantial cost to remediate and could cause a loss of investor confidence and decline in the market price of our stock.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2023 covered by this report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II-OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in legal proceedings arising in connection with our business. Based on information currently available, we believe that the amount, or range, of reasonably possible losses in connection with any pending actions against us in excess of established reserves, in the aggregate, is not material to our consolidated financial condition or cash flows. However, losses may be material to our operating results for any particular future period, depending on the level of income for such period.

Item 1A. Risk Factors

You should carefully review and consider the information regarding certain risks and uncertainties facing us that could have a material adverse effect on our business prospects, financial condition, results of operations, liquidity and available capital resources set forth in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Risks Related to Our Financial Position and Need for Capital

We have never generated revenue from operations, are unlikely to generate revenues for several years, and our recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern. We may never become profitable or, if we achieve profitability, be able to sustain profitability.

We have never generated revenue from operations, are unlikely to generate revenues for several years, and are currently operating at a loss and expect our operating costs will increase significantly as we incur further costs related to preclinical development and the clinical trials for our drug candidates. We expect to incur substantial expenses without corresponding revenues unless and until we are able to obtain regulatory approval and successfully commercialize any of our drug candidates. We may never be able to obtain regulatory approval for the marketing of our drug candidates in any indication in the United States or internationally. Even if we are able to commercialize our drug candidates, there can be no assurance that we will generate significant revenues or ever achieve profitability. We have incurred recurring losses since inception and have an accumulated deficit of approximately $46.1 million as of September 30, 2023, which recurring losses have raised substantial doubt regarding our ability to continue as a going concern.

We anticipate operating losses to continue for the foreseeable future due to, among other things, costs related to research funding, development of our product candidates and preclinical and clinical programs, regulatory clearances, strategic alliances, the development of our administrative organization, as well as costs to comply with the requirements of being a public company operating in a highly regulated industry. As of September 30, 2023, we had $1.2 million of cash and cash equivalents. For the three months ended September 30, 2023, our rate of cash expenditures was approximately $1.67 million per month. Our forecast of the period of time through which our current financial resources will be adequate to support our operations and the costs to support our general and administrative, sales and marketing, research and development activities and costs to comply with the requirements of being a public

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company operating set forth below are forward-looking statements and involve risks and uncertainties. The financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

We are uncertain when or if we will be able to achieve or sustain profitability. If we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and remain profitable would impair our ability to sustain operations and adversely affect the price of our common stock and our ability to raise capital.

Risks Related to Our Common Stock

We have received deficiency letters from Nasdaq relating to non-compliance with Nasdaq’s continued listing requirements. Our common stock could become subject to delisting from Nasdaq if we fail to regain compliance.

On August 2, 2023, we received a notification letter (the “Minimum Bid Letter”) from the staff (the “Staff”) of the Listing Qualification Department of The Nasdaq Stock market LLC (“Nasdaq”) stating that we were not in compliance with Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”), requiring us to have a minimum bid price of $1.00 per share of common stock for 30 consecutive days. Nasdaq granted us a period of 180 calendar days, or until January 29, 2024, to regain compliance with the Minimum Bid Price Requirement, during which our shares of common stock are expected to remain eligible to be listed and traded on The Nasdaq Capital Market, unless we are subject to delisting for a different deficiency. In the event we are not in compliance by January 29, 2024, we may be afforded a second 180-calendar-day grace period. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement. If we do not regain compliance within the allotted compliance period(s), including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our shares of common stock will be subject to delisting.

On November 14, 2023, we received a written notification from Nasdaq stating that we have demonstrated compliance with Nasdaq’s Minimum Bid Price Requirement with respect to the Company’s common stock, and that, accordingly, Nasdaq considers the prior outstanding Minimum Bid Price Requirement deficiency described above to be closed.

We were notified by the Staff on December 6, 2022 that we were not in compliance with Listing Rule 5550(b)(2) (the “Minimum Market Value Requirement”), requiring us to maintain a market value of listed securities of a minimum of $35.0 million for a period of 30 consecutive business days, and Nasdaq granted us a period of 180 calendar days, or until June 5, 2023, to regain compliance with the Minimum Market Value Requirement. On June 12, 2023, we received a determination letter (the “Minimum Market Value Letter”) from the Staff of the Listing Qualifications Department of Nasdaq stating that we have not regained compliance with the Minimum Market Value Requirement during the 180-day grace period. Pursuant to the Minimum Market Value Letter, unless we requested a hearing to appeal the Staff’s determination by 4:00 p.m., Eastern Time, on June 20, 2023, trading of our common stock would be suspended at the opening of business on June 22, 2023, and a Form 25-NSE would be filed with the SEC, which would remove our common stock from listing and registration on Nasdaq. On June 20, 2023, we requested a hearing before the Nasdaq Hearings Panel (the “Panel”) to appeal the Staff’s delisting determination, which was scheduled for August 10, 2023. Our hearing request stayed the suspension of trading of our common stock through the hearing process and until the Panel issued a written decision.

On August 16, 2023, we received a decision from the Panel granting our request for an exception to maintain our listing on The Nasdaq Capital Market notwithstanding our failure to regain compliance with the Minimum Market Value Requirement. Our request was granted, subject to us demonstrating compliance, on or prior to December 11, 2023, with the alternative criteria set forth in Nasdaq Listing Rule 5550(b)(1), which requires us to maintain stockholders' equity of at least $2.5 million.

The Panel reserves the right to reconsider the terms of the exception granted based on any event, condition or circumstance that exists or develops that would, in the opinion of the Panel, make continued listing of our common stock inadvisable or unwarranted. Failure to comply with the terms of the extension will result in delisting of our common stock from The Nasdaq Capital Market.

There can be no assurance that we will be successful in meeting the criteria set forth in the decision or that our common stock will otherwise remain eligible for continued listing on The Nasdaq Capital Market. If we fail to satisfy the continued listing requirements of Nasdaq, Nasdaq may take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair your ability to sell or purchase our common stock when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common

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stock to become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements.

Lind has conversion rights under the Lind Note, the exercise of which could result in the issuance of a substantial amount of our common stock at a significant discount to our common stock’s trading price.

On February 2, 2023, we entered into a Securities Purchase Agreement (the “Lind Purchase Agreement”) with Lind, pursuant to which we issued to Lind the Lind Note and the Lind Warrant. On September 5, 2023, we and Lind entered into a letter agreement (the “Lind Letter Agreement”) pursuant to which Lind agreed to waive any default, any Event of Default, and any Mandatory Default Amount (each as defined in the Lind Note) associated with our market capitalization being below $10.0 million for ten consecutive days through December 31, 2023. Notwithstanding the waiver, Lind retained its right to exercise conversion rights with respect to all or a portion of the outstanding principal amount of the Lind Note being converted into shares of common stock at the lower of the conversion price and 80% of the average of the three lowest daily VWAPs during the previous 20 trading days, which could and has resulted in the issuance of a substantial amount of our common stock at a significant discount to the trading price of our common stock, including 984,240 shares issued pursuant to conversion notices under this provision since September 5, 2023. The current conversion price of the Lind Note is $59.50. In addition, if we are unable to increase our market capitalization and are unable to obtain a further waiver or amendment to the Lind Note, then we could experience an event of default under the Lind Note, which could have a material adverse effect on our liquidity, financial condition, and results of operations. We cannot make any assurances regarding the likelihood, certainty, or exact timing of our ability to increase our market capitalization, as such metric is not within our immediate control and depends on a variety of factors outside our control.

Risks Related to Our Clinical Development

Clinical and preclinical drug development is a lengthy and expensive process with uncertain outcomes that may lead to delayed timelines and increased cost, which may prevent us from being able to complete clinical trials.

Clinical testing is expensive, can take many years to complete, and its outcome is inherently uncertain. The results of preclinical and clinical studies of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through preclinical studies and initial clinical trials. A number of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier studies, and we cannot be certain that we will not face similar setbacks.

In addition, there may be third party individuals or groups that publish data from experiments using suramin that may reflect, either positively or negatively, on our clinical development program despite that we have no affiliation with or control over such individuals or groups. For example, we are aware of other suramin-related research that has been conducted in the autism indication at the University of California, San Diego as well as in other unrelated indications within and outside of the United States. Our clinical development programs could be negatively impacted by adverse events reported in such third party studies.

With respect to ME/CFS and LCS, no company, to our knowledge, has yet been successful in its efforts to obtain regulatory approval in the United States or Europe of treatment for these conditions. The mechanism of disease for these conditions has not been scientifically confirmed, and as a result, the mechanism of action for PAX-101 in potentially treating these diseases is unknown. In addition, LCS is potentially a self-resolving disease in some people, as well as a disease that increases and decreases in severity. As such, there may not be sufficient biomarkers or validated behavioral scoring metrics that could be used to support potential approval for PAX-101 in these diseases, and clinical trials will be difficult to design, conduct and assess.

This will make our development and potential approval of PAX-101 for these indications very difficult, and we may not be successful.

We cannot be certain that clinical trials for PAX-101 or any of our other product candidates will be completed, or completed on schedule, or that any other future clinical trials for PAX-101 or any of our other product candidates, will begin on time, not need to be redesigned, enroll an adequate number of patients on time or be completed on schedule, if at all, or that any interim analyses with respect to such trials will be completed on schedule or support continued clinical development of the associated product candidate. In particular, the basis for our submission of an NDA for approval of PAX-101 in HAT is historical data that is limited and not complete,

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and FDA may not agree that our study design is adequate or the data sufficient for approval. Because of the difficulties inherent in designing clinical trials for a universally fatal disease, we may not be able to provide FDA with additional data (regarding safety and effectiveness) or analyses adequate for approval if requested by the FDA, which could prevent us from ever getting approval for PAX-101 in HAT.

We could also encounter delays if a clinical trial is suspended or terminated by us upon recommendation of the data monitoring committee for such trial, by the institutional review board (“IRB”) of the institutions in which such trials are being conducted, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, site misconduct or deviations from Good Clinical Practice, major findings from an inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions, or lack of adequate funding to continue the clinical trial.

If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates may be harmed, and our ability to generate revenue from the sale of any of these product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval processes, and jeopardize our ability to commence product sales and generate revenue. Any of these occurrences may significantly harm our business, financial condition and prospects.

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

Unregistered Sales of Equity Securities

There were no sales of unregistered securities during the period covered by this report that have not previously been reported on Form 8-K.

Use of Proceeds from Registered Securities

On August 12, 2022, our Registration Statement on Form S-1, as amended (File No. 333-239676), was declared effective in connection with our initial public offering.

There has been no material change in the planned use of proceeds from our initial public offering as described in the Prospectus relating to that offering dated August 25, 2022.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Insider Trading Arrangements

During the fiscal quarter ended September 30, 2023, the following officers, as defined in Rule 16a-1(f), adopted a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408:

On August 21, 2023, Stephen D. Sheldon, our Chief Financial Officer and Chief Operating Officer, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of shares of our common stock to satisfy tax withholding obligations and fees, upon the vesting of Restricted Stock Units granted pursuant to our Amended and Restated 2020 Omnibus Equity Incentive Plan (the “2020 Plan”). The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until November 25, 2025.

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On August 21, 2023, Buzz Woods, our head of Corporate Communications, adopted a Rule 10b5-1 trading arrangement providing for the sale from time to time of shares of our common stock to satisfy tax withholding obligations and fees, upon the vesting of Restricted Stock Units granted pursuant to the 2020 Plan. The trading arrangement is intended to satisfy the affirmative defense in Rule 10b5-1(c). The duration of the trading arrangement is until November 25, 2025.

No other officers, as defined in Rule 16a-1(f), or directors adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as defined in Regulation S-K Item 408, during the fiscal quarter ended September 30, 2023.

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Item 6. Exhibits.

Exhibit Number	Description
3.1	Amendment to Certificate of Incorporation of PaxMedica, Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on October 30, 2023).
10.1‡	Specialty Benefit Manager Agreement, effective as of June 30, 2023, by and between PaxMedica, Inc. and Vox Nova, LLC (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on August 9, 2023).
10.2†	Employment Agreement, dated as of August 16, 2023, between the Company and David W. Hough (incorporated by reference to Exhibit 10.23 to the Registration Statement on Form S-1 filed on November 9, 2023).
10.3	Letter Agreement, by and between PaxMedica, Inc. and Lind Global Fund II LP, dated September 5, 2023 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 6, 2023).
31.1*	Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.

† Indicates management contract.

‡ Certain portions of this exhibit have been omitted because the omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: November 15, 2023	PAXMEDICA, INC.
	By:	/s/ Howard J. Weisman
	Name:	Howard J. Weisman
	Title:	Chairman of the Board and Chief Executive Officer (Principal Executive Officer)

Dated: November 15, 2023	PAXMEDICA, INC.
	By:	/s/ Stephen D. Sheldon
	Name:	Stephen D. Sheldon
	Title:	Chief Financial Officer and Chief Financial Officer (Principal Financial and Accounting Officer)

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