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As filed with the Securities and Exchange Commission on August 8, 2022.
Registration No. 333-239676
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 10
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
PAXMEDICA, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number)
85-0870387
(I.R.S. Employer
Identification No.)
303 South Broadway, Suite 125
Tarrytown, NY 10591
914-987-2876
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Howard J. Weisman
Chief Executive Officer
PaxMedica, Inc.
303 South Broadway, Suite 125
Tarrytown, NY 10591
Tel: 914-987-2876
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
David S. Rosenthal, Esq.
Anna Tomczyk, Esq.
Dechert LLP
1095 Avenue of the Americas
New York, NY 10036
Telephone: (212) 698-3500
Lance Brunson, Esq.
Brunson Chandler & Jones, PLLC
175 South Main Street, 15th Floor
Salt Lake City, UT 84111
Telephone: 801-303-5737
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment, which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 8, 2022
PRELIMINARY PROSPECTUS
1,545,454 Shares
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Common Stock
This is the initial public offering of PaxMedica, Inc. We are offering 1,545,454 shares of our common stock in this offering.
Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price will be between $4.50 and $6.50 per share of common stock. We have applied to list our common stock on the Nasdaq Capital Market under the symbol “PXMD”.
We are also seeking to register the issuance of warrants to purchase 108,181 shares of common stock (the “Representative’s Warrants”) to the underwriters as well as the 108,181 shares of common stock issuable upon exercise by the underwriters of the Representative’s Warrants at an exercise price of $6.875 per share (125% of the initial public offering price, based on an assumed initial public offering price of $5.50 per share (the midpoint of the estimated price range set forth on this cover page).
We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our common stock is speculative and involves a high degree of risk. See “Risk Factors” beginning on page 15 for a discussion of information that should be considered in connection with an investment in our common stock.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Per Share
Total
Initial public offering price
$        $       
Underwriting discounts and commissions(1)
$        $       
Proceeds, before expenses, to us
$        $       
(1)
See “Underwriting” for a description of the compensation payable to the underwriters.
We have granted the underwriters an option for a period of 45 days to purchase up to an additional 231,818 shares of common stock from us at the public offering price, less underwriting discounts and commissions. If the underwriters exercise this option in full, the total underwriting discounts and commissions will be approximately $0.8 million and the additional proceeds to us, before expenses, from the over-allotment option exercise will be approximately $1.2 million.
Delivery of the shares of our common stock is expected to be made on or about            , 2022.
Craft Capital Management LLCR.F. Lafferty & Co., Inc.
The date of this prospectus is           , 2022.

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F-1
Neither we nor the underwriters have authorized anyone to provide you with information that is different from that contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell shares of common stock and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date on the front of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.
Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.
INDUSTRY AND MARKET DATA
This prospectus contains estimates, projections and other information concerning our industry, our business, and the markets for our product candidates, including data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.
 

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PROSPECTUS SUMMARY
This summary highlights certain information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before purchasing our common stock. The words “PaxMedica,” “us,” “we,” the “Company” and any variants thereof used in this prospectus refer to PaxMedica, Inc. Investing in our common stock is speculative and involves a high degree of risk. You should carefully consider the risks and uncertainties described herein, together with all of the other information in this prospectus, including our financial statements and related notes, before investing in our common stock. If any of the risks described herein materialize, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment. Our expectations for our future performance may change after the date of this prospectus and there is no guarantee that such expectations will prove to be accurate.
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 adenosine triphosphate (“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 Tropical Disease Priority Voucher Program of the U.S. Food and Drug Administration (the “FDA”) 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 (as defined below) 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.
Our Development Strategy
Current Clinical Development Plan
Our clinical development plan seeks to obtain initial U.S. approval of PAX-101 for the treatment of East African HAT, which is caused by the parasite Trypanosome brucei rhodesiense, and, using the FDA’s 505(b)(2) regulatory pathway, leverage such approval, if achieved, to facilitate an accelerated development program for PAX-101 for certain neurologic indications including ASD, ME/CFS and LCS. Based on our
 
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pre-IND meeting with the FDA in March 2021 and, in part, on an analysis of the data that we have exclusively licensed from the Ministry of Health, Republic of Malawi and Lwala Hospital (Soroti, Uganda) relative to East African HAT patients treated with suramin, we believe we have created a strong development strategy that we plan to employ in seeking the approval of PAX-101 for the treatment of East African HAT. Based on our prior interactions with the FDA, including our pre-IND meeting with the FDA, we further believe that an approval, if any, in East African HAT could confer upon us the potential receipt of a priority review voucher (“PRV”) by the FDA, which we could potentially monetize to fund our future clinical programs. We expect further clinical studies of PAX-101 for the treatment of ASD, ME/CFS and LCS will be required and similar clinical development is needed for PAX-102 to reach the commercial stage. In November 2020, the FDA granted orphan drug designation to PAX-101 for the treatment of East African HAT. However, there can be no assurance that we will receive FDA approval for PAX-101 for the treatment of East African HAT and, even if PAX-101 is approved by the FDA, there can be no assurance that we will receive a PRV. For more information on the PRV process and how we may benefit from it, see the section of this prospectus captioned, “Business  — The Priority Review Voucher Program.
Development Pipeline
The following table summarizes our current product candidate and indication pipeline.
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PAX-101 (intravenous suramin)
Our lead product candidate under development is PAX-101, an intravenous formulation of suramin, which we are developing for multiple indications, including East African HAT, ASD, ME/CFS, and LCS.
The most advanced indication for which we are developing PAX-101 is for treatment of “Stage 1” Trypanosoma brucei rhodesiense (East African) HAT, the stage of the clinical course of HAT in which the parasite is found in the peripheral circulation, but it has not yet infiltrated the CNS. We maintain exclusively licensed worldwide rights to patient-level data on the use of suramin in the treatment of Stage 1 East African HAT, which we intend to leverage for demonstration of the safety and efficacy of PAX-101. We have met with the FDA in two formal meetings regarding the execution and development of PAX-101 for this indication. Pursuant to those conversations, and to satisfy the FDA’s requirement of demonstrating substantial effectiveness, rather than conducting new prospective clinical trials, we intend to complete an analysis and presentation of retrospective data from East African HAT patients previously treated with suramin from 2000 to 2020, for which we have the exclusive license. In addition to these retrospective data, we will also conduct preclinical and clinical safety studies to support submission of an NDA for PAX-101’s East African HAT indication. We expect that such work will be completed over the next 16 months, with the intention of filing an NDA in 2023. Additionally, we are developing a proprietary supply chain of drug substance and drug product which will form the bases of our NDA filing. In November 2020, the FDA granted orphan drug designation to PAX-101 for the treatment of East African HAT. It is expected that PAX-101, if approved by the FDA for the East African HAT indication, will qualify for new chemical entity exclusivity (providing sole marketing rights in the United States to the Company with respect to any product that contains suramin for up to seven years), in addition to orphan drug exclusivity, and potentially
 
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a tropical disease PRV. However, even if PAX-101 is approved by the FDA for the East African HAT indication, there can be no assurance that we will receive a tropical disease PRV.
Phase 2 Clinical Trial
Our lead neurologic indication for PAX-101 is for use in treating core symptoms of ASD. In 2021, we conducted a Phase 2 clinical trial at six sites in South Africa with respect to this indication (the “Phase 2 Trial”). The trial was a randomized, double-blind, placebo-controlled design, where we studied two doses of drug versus placebo over a 14-week treatment period. Dosing was at baseline and at the end of weeks 4 and 8. The study population included a patient population with diverse ethnicity and a mean age of approximately 8.4 years. Forty-four of the fifty-two enrolled subjects completed the study, with five withdrawals due to COVID-19 lockdowns, one for an adverse event and three for other reasons. The study evaluated a number of different clinically validated endpoints used in the assessment of the core symptoms of ASD. The primary endpoint of the study was the change between baseline and Week 14 in the Aberrant Behavior Checklist (“ABC”) composite score of core symptoms (“ABC Core”) including ABC-II (lethargy/social withdrawal), ABC-III (stereotypy) and ABC-V (inappropriate speech).
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PAX-101 10mg/kg demonstrated greater improvement through the 14-week treatment period compared to placebo in several assessment measures, including the ABC Core and the Clinical Global Impression – Global Improvement Scale (“CGI-I”). At Week 14, there was a mean improvement from baseline of 12.3 points in the ABC Core in subjects on 10 mg/kg vs. 8.4 points in subjects on placebo (p=0.37). The study was not fully powered for efficacy. However, at Week 14, the subjects treated with 10 mg/kg of PAX-101 demonstrated a mean improvement from baseline in the CGI-I overall symptom severity score of 2.8 points versus 1.7 points on placebo. This change in CGI-I was statistically significant (p=0.016). An improvement in the CGI-I overall symptom severity score of 2 points or more is generally considered to be a clinically relevant change. Certain key subpopulations demonstrated even further improvements on these and other assessments. This trial was designed as a robust dose-ranging study to confirm and expand upon the initial data from a prior-published single dose, single site, pilot study, but was not designed to demonstrate statistical significance across all efficacy endpoints.
 
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We were selected to present the results of the Phase2 Trial at the American Academy of Child and Adolescent Psychiatry conference Research Pipeline Presentation on October 27, 2021 and are preparing a manuscript with 11 co-authors to submit such data for publication in a peer-reviewed scientific journal. The full analysis will include data from primary, secondary, and exploratory endpoints evaluated in the trial, safety and laboratory data, and an analysis of the pharmacokinetic data. In July 2021, we completed a pre-IND meeting with the FDA to review the results of this trial where we agreed to obtain additional information about the pharmacokinetic profile of PAX-101 in children in different age groups. We intend to meet with the European Medicines Agency (the “EMA”) and refine the program’s development plan for global registration based on additional work required. We plan to start a pharmacokinetic study in South Africa to develop additional data in younger female subjects for the ASD indication and to submit an IND to the FDA in the second half of 2023 following completion of pre-clinical and other required toxicologic studies.
We are also exploring development of PAX-101 in the treatment of LCS. We have discussed these indication and development plans with our outside scientific advisors and have designed a dose-ranging proof of concept trial design, which we plan to initiate in 2023. We received approval from the South African Health Products Regulatory Authority and the South African National Health Research Ethics Council for our clinical trial application for a Phase 1B, prospective, randomized, placebo-controlled, double-blind, multiple-dose study and expect to enroll patients in the second half of 2022.
PAX-102 (intranasal suramin)
PAX-102, a proprietary intranasal formulation of suramin, is also being developed for neurologic indications. The rationale for this program is the potential to better target the suramin molecule to the CNS, which may potentially allow us to deliver similar potency to that achieved using PAX-101 and reduce the
 
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dose needed and improve the tolerability profile of the drug, ultimately offering patients a more convenient delivery system versus intravenous infusion. We have developed a proprietary intranasal formulation, and based on our in vitro nasal membrane permeation studies using the cultured EpiAirway (Mattek) membrane model, as well as more targeted CNS delivery in vivo, we believe our intranasal formulation has the potential to demonstrate rapid and efficient uptake across the nasal membrane. We continue to optimize this formulation and expect to open an Investigational New Drug application (an “IND”) on PAX-102 in 2023.
Suramin is not orally bioavailable and has historically been administered intravenously and at very high doses separated by a few days between infusions. Suramin intravenously administered in high doses for treatment and eradication of the parasite that causes East African HAT can cause significant side effects, including rash, nausea, vomiting, diarrhea, abdominal pain, and a feeling of general discomfort. Other side effects include skin sensations such as crawling or tingling sensations, tenderness of the palms and soles, numbness of the extremities, watery eyes, and photophobia. In addition, when administered in high doses or as a continuous infusion, suramin has been shown to cause nephrotoxicity and peripheral neuropathy. Regarding pharmacokinetics, suramin is approximately 99-98% protein bound in the serum and has a half-life of 41-78 days, with an average of 50 days. Also, it is not extensively metabolized and is eliminated by the kidneys.
Despite strong early results from early animal and human studies, we believe more research is needed to provide safe and effective delivery of APTs, such as suramin, for treating neurologic conditions. We believe it may be necessary to deliver appropriate levels of the drug in brain tissue while also minimizing blood and other tissue levels. While it is difficult to deliver drugs across the blood-brain barrier (the “BBB”), which is a natural protective mechanism of most mammals, including humans, such delivery is even more challenging for higher molecular weight compounds, such as suramin. A possible route to maximize delivery across the BBB is to use intranasal delivery to provide higher levels of a drug to the upper nasal mucosa to allow for nose-to-brain transport along the olfactory and trigeminal nerves. We believe our proprietary intranasal formulations and methods of delivering suramin to mammals have been shown, in in-vivo preclinical studies, to deliver suramin to the brain in ways that may reduce systemic exposure, and our development plan calls for clinical trials to test this potential for reduced systemic exposure in humans.
The PAX-101 and PAX-102 development programs in neurologic disorders may be filed with the FDA as a supplement to the initial 505(b)(2) NDA, assuming PAX-101 is approved for the treatment of East African HAT. As discussed in more detail below, a 505(b)(2) NDA is a special type of NDA that enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy of an existing or previously approved product, or published literature, in support of its application. 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Using a 505(b)(2) NDA, we expect to reduce the cost, time and risk that would otherwise be associated with bringing these programs to market. See “The 505(b)(2) NDA Regulatory Pathway” below for more information.
Early Program in Selective APTs
In addition to the PAX-101 and PAX-102 development programs, we have begun an early discovery program targeting the development of highly selective APTs. We have identified multiple compounds that are selective for certain purinergic receptor subtypes and have engaged in preclinical work with these compounds in an animal model of ASD. We expect to complete additional preclinical work and open an IND with respect to one or more of these compounds in 2023 or 2024. In the future, we intend to pursue opportunities to develop products, either alone or in partnership with other pharmaceutical companies, related to these APTs.
Our Markets
Market for ASD
According to the U.S. Center for Disease Control and Prevention (the “CDC”), ASD affects between 1% and 2% of the world’s population, including more than 3.5 million people in the United States. Prevalence of autism in eight-year-old U.S. children increased by approximately 243% from 2000 (1 in 150) to 2018
 
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(1 in 44). Autism is the fastest-growing developmental disability, and the annual cost of autism services to U.S. citizens was an estimated $236 to $262 billion in 2016.
No pharmacological therapies exist for the treatment of the core symptoms of ASD, such as lethargy/social withdrawal, stereotypy, or repetitive or ritualistic behaviors, and inappropriate speech. Pharmacological therapies that have been approved to date, such as aripiprazole and risperidone, only treat the non-core symptom of irritability associated with ASD. There are also a number of new therapies for ASD in development by small and large companies with variable levels of clinical data, although none has proven efficacy and safety in large, randomized and controlled trials.
The global ASD therapeutics market size was valued at $3.3 billion in 2018, and is expected to reach $4.6 billion by 2026, according to a research report by Fortune Business Insights. We believe a drug that can demonstrate strong safety and efficacy in the treatment of the core symptoms of ASD would generate strong market demand because there are no comprehensive treatment options available to address these important aspects of this condition.
Market for ME/CFS and LCS
It has been estimated by the UK Office of Health Statistics that 13.7% of those who have been confirmed as having been infected with COVID-19 suffer from continuing neurologic symptoms that persist for more than 12 weeks after the viral infection has passed. Some of these LCS symptoms, including fatigue, “brain fog,” pain, sleep disturbances, headaches, anxiety and depression, can become debilitating and recent headlines in the United States and Europe indicate that the population suffering from LCS presents a potential public health crisis that will extend beyond the current COVID-19 pandemic.
Prior to the COVID-19 pandemic, little attention had been paid to a potentially related post-acute infection disorder known as ME/CFS which, in light of the recent observation and identification of LCS, has received renewed interest in the medical and patient advocacy community. Like LCS, ME/CFS sufferers have nearly identical physical symptoms which in extreme cases have been documented to last for years, resulting in affected individuals becoming house-, if not bed-bound. Suicidality is also a common concern of clinicians who care for these patients. The cause of ME/CFS is unknown but research points to the possibility that many cases of ME/CFS resulted from a prior viral infection, which may or may not have had overt physical symptoms at the time, and an immune response to this infection that continues to induce an inflammatory response, despite the lack of any virus or similar infectious invader. Although some ME/CFS sufferers can and do tolerate some ME/CFS symptoms, many seek help through various unproven diets, supplements and prescription drugs. In some cases, complex spinal fusion therapy has been shown to be beneficial for ME/CFS patients whose symptoms may be related to recovery from physical trauma.
There is significant opportunity within the global ME/CFS market. ME/CFS can cause significant impairment and disabilities that have negative economic consequences at both the individual and the societal level. At least one-quarter of ME/CFS patients are house- or bed-bound at some point in their lives. The direct and indirect economic costs of ME/CFS to society have been estimated at $17 to $24 billion annually, $9.1 billion of which has been attributed to lost household and labor force productivity.
The size of the market for LCS is not known. In January 2021, the World Health Organization (the “WHO”) revised its guidelines for COVID-19 treatment to include a recommendation that all patients should have access to follow-up care in case of LCS. As noted above, the UK Office of National Statistics performed a study in over 20,000 patients who tested positive for COVID-19 since April 2020 and found that 13.7% still reported having COVID-19 symptoms after at least 12 weeks. On February 23, 2021, the US National Institutes of Health announced that it would spend $1.15 billion over four years on research on LCS.
Market for East African HAT
The market for using PAX-101 to treat East African HAT is expected to be largely restricted to Sub-Saharan Africa, where suramin is already in use for Stage 1 East African HAT. Further, we may donate product for use in this indication to the WHO, either as a replacement for current limited supplies or as a
 
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supplementary source of suramin, if the WHO requests us to do so. If we obtain a U.S. approval for PAX-101 to be used in the treatment of East African HAT, we could potentially qualify to earn a tropical disease PRV from the FDA, which we would intend to monetize to raise funds to support the later-stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, ME/CFS and LCS. The estimated total cost to gain FDA approval, if any, for the HAT indication and qualify for the PRV is estimated to be between $8.0 to $10.0 million, with some portion of these expenses shared across our pipeline indications and formulations programs that would extend beyond the initial HAT approval, if any. There can be no assurance that we will receive a PRV, and even if we do obtain a PRV, there can be no assurance that we will receive sufficient funds from its sale to fund the clinical and commercial development of our drug candidates. If we are unable to obtain a PRV, or if the amount we obtain from its sale is insufficient to fund our operations, we may be required to fund the later-stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, ME/CFS and LCS through sales of our equity or debt securities, strategic collaborations with third parties or other similar transactions.
Intellectual Property
As of the date of this prospectus, our patent portfolio is limited to patent applications and we own rights to at least four families of patent applications. Our patent applications related to our product development candidates currently in development are projected to expire no earlier than 2040, not including any patent term adjustments, patent term extensions, supplementary protection certificates, or other term extensions that might be available in a particular jurisdiction. We also plan to file further patent applications covering our technology and products. Additionally, we own the exclusive rights to patient data in certain East African hospitals that is necessary for our HAT NDA filing. See “Business — Intellectual Property”.
Recent Developments
Private Placement of 2022 Convertible Promissory Notes and Warrants
In 2022, we issued senior secured convertible promissory notes, or the 2022 Notes, in a private placement in an aggregate principal amount of approximately $1.5 million with an interest rate of 10% per annum. The 2022 Notes mature 12 months from the date of issuance. In connection with the issuance of the 2022 Notes, we issued common stock purchase warrants, or the 2022 Warrants, to purchase up to 195,140 shares of common stock. The 2022 Notes are convertible, and the 2022 Warrants are exercisable, at a price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus).The purchase agreement entered into between us and the purchasers of the 2022 Notes and 2022 Warrants provides piggy-back and demand registration rights for the shares of common stock into which the 2022 Notes are convertible and the 2022 Warrants are exercisable. See “Description of Capital Stock — 2022 Convertible Promissory Notes” for further information.
Private Placement of Series X Preferred Stock
On August 2, 2022, we issued and sold an aggregate of 3,200 shares of our Series X preferred stock, par value $0.0001 per share (“Series X Preferred Stock”) to an “accredited investor” ​(as defined in Regulation D promulgated under the Securities Act of 1933, as amended, or the Securities Act) in a private placement, at a purchase price of $100 per share, for aggregate proceeds of approximately $320,000 and net proceeds to us of approximately $300,000, after deducting expenses (the “Series X Private Placement”). The Series X Private Placement constituted a qualified offering under the terms of our Simple Agreement for Future Equity (“SAFE”) and the $5.0 million outstanding under the SAFE automatically converted into 100,000 shares of Series X Preferred Stock. Upon the closing of this offering, all outstanding shares of Series X Preferred Stock will automatically convert into shares of common stock at the initial offering price, subject to the beneficial ownership restrictions contained in the certificate of designations for the Series X Preferred (the “Series X Conversion”).
2022 Convertible Note Conversion Agreements
On August 3, 2022, we entered into conversion agreements with certain holders of our 2022 Notes (the “First Conversion Agreements”), pursuant to which such holders agreed to convert an aggregate of
 
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$1.0 million of principal amount of the 2022 Notes at the consummation of this offering at the conversion price set forth in the 2022 Notes, 80% of the initial offering price (which, based on an assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, is $4.40) and entered into a conversion agreement with another holder of our 2022 Notes (together with the First Conversion Agreements, the “2022 Convertible Note Conversion Agreements”), pursuant to which such holder agreed to convert an aggregate of $255,555 of principal amount of its 2022 Notes at the consummation of this offering into an aggregate of 2,555 shares of Series X Preferred Stock, which is convertible into 46,465 shares of common stock at the initial offering price, subject to the beneficial ownership restrictions contained in the certificate of designations for the Series X Preferred.
Warrant Exchange
On August 3, 2022, we entered into an exchange agreement (the “Warrant Exchange Agreement”) with a holder of certain warrants to purchase our common stock issued in 2020 (“2020 Warrants”) pursuant to which they agreed to exchange an aggregate of 750,000 2020 Warrants for 375,000 shares of common stock (or, to the extent that the holder would exceed the beneficial ownership limitation contained in the Warrant Exchange Agreement, an equivalent number of shares of Series X Preferred Stock) at the consummation of this offering.
Series Seed Exchange
On August 5, 2022, we entered into exchange agreements with the holders of our Series Seed preferred stock, par value $0.0001 per share (“Series Seed Preferred Stock”), pursuant to which we agreed to exchange (the “Series Seed Exchange”) all shares of our outstanding Series Seed Preferred Stock into an aggregate of 1,557,435 shares of our common stock immediately prior to the effectiveness of the registration statement that this prospectus forms a part.
Summary Risk Factors
Our business and an investment in our company is subject to numerous risks, many of which are discussed in the section entitled “Risk Factors” set forth in this prospectus. Some of these risks include:

We are an early clinical stage pharmaceutical company with a limited operating history.

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. Moreover, after this offering, we will likely need to raise additional capital to support our development and commercialization efforts. We may never become profitable or, if we achieve profitability, be able to sustain profitability.

Our independent auditor’s report for the fiscal year ended December 31, 2021 includes an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.

Our research and development are primarily focused on the drug suramin, leaving us subject to the risk of a lack of diversity in the active pharmaceutical ingredients we utilize in our business. We do not know whether we will be successful in our efforts to build a pipeline of product candidates or if we will be able to develop any products of commercial value.

We currently have no supply source for suramin and cannot conduct clinical trials until we have sufficient supply.

We cannot be certain that PAX-101 or any other product candidates that we may develop or acquire will receive regulatory approval, and without regulatory approval we will not be able to market any of our product candidates. Any delay in the regulatory review or approval of any of our product candidates will materially or adversely harm our business.

Even if we obtain regulatory approval for our product candidates, if we are unable to successfully commercialize our products, it will limit our ability to generate revenue and will materially adversely affect our business, financial condition and results of operations.
 
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While we believe we may be eligible to receive a tropical disease PRV for the use of PAX-101 for the treatment of HAT, there is a risk that we will not receive such PRV, which would require us to find alternative sources of funding for our later stage clinical programs.

It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights. PAX-101 and our other product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.

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.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our drug candidates.

We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.

Since certain of our directors and officers are employed by and/or consult for other companies, their other activities could compete for time on, or create conflicts of interest with, our activities.

We face risks related to health pandemics, epidemics and outbreaks, including the COVID-19 pandemic, which could significantly disrupt our preclinical studies and clinical trials, and therefore our receipt of necessary regulatory approvals could be delayed or prevented.
Before making an investment in our common stock, you should review the discussion of risks relating to our business set forth in the section titled “Risk Factors” in this prospectus.
Corporate Information
We were formed as a Delaware limited liability company under the name Purinix Pharmaceuticals LLC (“Purinix”) on April 5, 2018. On April 15, 2020, we converted into a Delaware corporation and changed our name to PaxMedica, Inc. Our offices are located at 303 South Broadway, Suite 125, Tarrytown, NY 10591, and our telephone number is (914) 987-2876. Our website is www.paxmedica.com. Information contained in, or accessible through, our website does not constitute part of this prospectus or registration statement and inclusions of our website address in this prospectus or registration statement are inactive textual references only.
“PaxMedica” and our other common law trademarks, service marks or trade names appearing herein are the property of PaxMedica, Inc. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
Our Status as an Emerging Growth Company
The Jumpstart Our Business Startups Act (the “JOBS Act”), was enacted in April 2012 with the intention of encouraging capital formation in the United States and reducing the regulatory burden on newly public companies that qualify as “emerging growth companies.” We are an emerging growth company within the meaning of the JOBS Act. As an emerging growth company, we may take advantage of certain exemptions from various public reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, certain requirements related to the disclosure of executive compensation in this prospectus and in our periodic reports and proxy statements, and the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company.
We will remain an emerging growth company until the earliest to occur of (1) the last day of the fiscal year in which we have $1.07 billion or more in annual revenue; (2) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (3) the date on which we have issued, in any three-year period, more than $1.07 billion in non-convertible debt securities; or (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.
 
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For certain risks related to our status as an emerging growth company, see the disclosure elsewhere in this prospectus under “Risk Factors — Risks Related to Our Common Stock and this Offering — We are an ‘emerging growth company’ and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.”
 
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THE OFFERING
The following summary contains basic information about our initial public offering and our common stock and is not intended to be complete. It does not contain all of the information that may be important to you. For a more complete understanding of our common stock, please refer to the section of this prospectus titled “Description of Capital Stock.”
Common stock we are offering
1,545,454 shares
Underwriters’ over-allotment option
231,818 shares
Common stock outstanding immediately before this offering
8,470,927 shares
Common stock outstanding immediately after this offering(1)
10,016,381 shares (or 10,248,199 shares, if the underwriters exercise their option to purchase additional shares in full)
Representative’s Warrant
The registration statement of which this prospectus is a part also registers for sale the Representative’s Warrants to purchase 108,181 shares of our common stock (7% of the shares of common stock sold in this offering) to the underwriters, as a portion of the underwriting compensation payable in connection with this offering. The Representative’s Warrants will be exercisable at any time, and from time to time, in whole or in part, during the four and a half year period commencing six months from the closing of this offering at an exercise price of $6.875 (125% of the public offering price of the common stock). Please see “Underwriting — Representative’s Warrants for a description of these warrants.
Use of proceeds
We estimate that we will receive net proceeds from this offering of approximately $6.6 million, or approximately $7.8 million if the underwriters exercise their overallotment option in full, based upon an assumed initial public offering price of $5.50 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) and after deducting the underwriting discounts and commissions and estimating offering expenses payable by us. We intend to use substantially all of the net proceeds of this offering to further our product development activities and for working capital and general corporate purposes. See the section of this prospectus titled “Use of Proceeds” for additional information.
Dividend policy
We have never declared or paid any cash dividends on our common stock, and currently do not plan to declare cash dividends on shares of our common stock in the foreseeable future. We expect that we will retain all of our available funds and future earnings, if any, for use in the operation and expansion of our business.
Proposed listing symbol
“PXMD”.
Lock-up
We, our directors, executive officers, and certain stockholders have agreed not to offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any of our securities for a period of 180 days following the closing of the offering of the shares. See “Underwriting” for more information.
 
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Risk Factors
Investing in our common stock is speculative and involves a high degree of risk. See “Risk Factors” beginning on page 15 and other information appearing elsewhere in this prospectus for a discussion of factors you should carefully consider before deciding whether to invest in our common stock.
(1)
The number of shares of our common stock outstanding after this offering is based on the number of shares outstanding as of March 31, 2022, and excludes:

284,176 shares of our common stock issuable upon the exercise of the 2020 Warrants to purchase shares of common stock at an exercise price equal to $3.00;

375,000 shares of common stock issuable upon the exchange of 750,000 2020 Warrants in connection with the consummation of this offering, or the 2020 Warrant Exchange;

1,876,375 shares of common stock issuable upon the conversion of our outstanding Series X Preferred Stock;

1,342,666 shares of our common stock reserved for issuance upon settlement of restricted stock units granted as of March 31, 2022 pursuant to the PaxMedica Inc. Amended and Restated 2020 Omnibus Equity Incentive Plan (the “2020 Plan”);

419,000 shares of our common stock reserved for issuance upon settlement of restricted stock units granted since March 31, 2022 pursuant to the 2020 Plan;

108,181 shares of our common stock underlying the Representative’s Warrants to be issued to the underwriters in connection with this offering;

738,334 shares of our common stock available for issuance under the 2020 Plan;

334,441 shares of our common stock issuable upon conversion of the 2022 Notes at a conversion price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus); and

195,140 shares of our common stock issuable upon exercise of the 2022 Warrants at an exercise price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus).
Except as otherwise indicated, all information in this prospectus reflects and assumes the following:

no exercise by the underwriters of its overallotment option to purchase additional shares of common stock from us;

no effect of the beneficial ownership restrictions contained in certain of our securities, including the Series X Preferred Stock, 2020 Warrants, 2022 Convertible Notes and 2022 Convertible Warrants;

the exchange of our outstanding Series Seed preferred stock, par value $0.0001 per share (“Series Seed Preferred Stock”) upon the closing of this offering for an aggregate of 1,557,435 shares of common stock (the “Series Seed Exchange”);

our conversion from a limited liability company to a corporation on April 15, 2020; and

a 1-for-0.5775898 reverse stock split of our common stock effected on July 22, 2020 (no fractional shares were issued) (the “Reverse Stock Split”).
 
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SUMMARY FINANCIAL INFORMATION
The following summary financial and other data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our audited financial statements and related notes, which are included elsewhere in this prospectus. We have derived the statements of operations data for the years ended December 31, 2021 and December 31, 2020 from our audited financial statements included elsewhere in this prospectus. The summary financial data for the three months ended March 31, 2022 and March 31, 2021 and the balance sheet data as of March 31, 2022 have been derived from our unaudited financial statements included elsewhere in this prospectus. These unaudited financial statements have been prepared on a basis consistent with our audited financial statements and, in our opinion, contain all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of such financial data. Readers are cautioned that historical results are not necessarily indicative of the results to be expected in future periods.
Year ended December 31,
Three Months Ended March 31,
Statements of Operations Data
2021
2020
2022
2021
(as restated)
Operating Expenses:
General and administrative expense
$ 4,973,245 $ 4,629,070 $ 933,817 $ 1,286,992
Research and development expense
2,224,555 936,776 1,070,704 427,995
Loss from operations
$ 7,197,800 $ 5,565,846 $ 2,004,521 $ 1,714,947
Total other income (expense)
(3,031,171) (2,260,162) $ 3,867,983 (5,505,304)
Net income (loss)
$ (10,228,971) $ (7,826,008) $ 1,863,462 $ (7,220,251)
Net income (loss) attributable to common stockholders, basic and diluted
$ (10,228,971) $ (9,297,872) $ 1,863,462 $ (7,220,251)
Basic weighted average number of shares outstanding
6,666,005 5,775,898 6,913,492 5,909,793
Diluted weighted average number of shares outstanding
6,666,005 5,775,898 7,562,978 5,909,793
Net income (loss) per share attributable to common stockholders, basic
$ (1.53) $ (1.61) $ 0.18 $ (1.22)
Net income (loss) per share attributable to common stockholders, diluted
$ (1.53) $ (1.61) $ (0.05) $ (1.22)
Actual
Pro Forma(1)
Pro Forma as Adjusted(2)
Balance Sheet Data as of March 31, 2022
(unaudited)
Cash
$ 49,383 $ 1,820,939 $ 8,446,511
Total assets
540,919 2,312,475 8,938,047
Working capital (deficit)(3)
(8,555,743) (1,527,468) 5,098,105
Preferred stock
270
Common stock
691 1,095 1,254
Additional paid-in capital
9,009,619 23,985,792 30,611,205
Accumulated deficit
(17,074,787) (25,022,819) (25,022,819)
Total stockholders’ equity (deficit)
$ (8,064,207) $ (1,035,932) $ 5,589,641
(1)
After giving effect to (i) the Series Seed Exchange, (ii) the Series X Private Placement , (iii) the SAFE Conversion, (iii) the Series X Conversion, (iv) the Warrant Exchange, (v) the issuance of the 2022 Convertible Notes and 2022 Warrants (vi) the 2022 Convertible Note Conversion Agreements, and (vii) the reclassification of the 2022 Warrants from a current liability to stockholders’ equity due to the establishment of a fixed exercise price at the time of this offering.
 
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(2)
The pro forma as adjusted amounts give effect to the pro forma adjustment set forth in footnote (1), and the issuance and sale by us of 1,545,454 shares of our common stock in this offering at an initial public offering price of $5.50 per share, after deducting the underwriting discounts and commissions and estimated expenses payable by us, net of $0.7 million recorded in accrued expenses and other current liabilites and other assets at March 31, 2022.
(3)
We define working capital as current assets less current liabilities. See our financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.
 
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RISK FACTORS
An investment in our common stock is speculative, illiquid and involves a high degree of risk including the risk of a loss of your entire investment. You should carefully consider the risks and uncertainties described below and the other information contained in this prospectus. The risks set forth below are not the only ones facing us. Additional unanticipated or unknown risks and uncertainties may exist that could also adversely affect our business, operations and financial condition in ways that are unknown to us or unpredictable. If any of the following risks actually materialize, our business, financial condition and/or operations could suffer. In such event, the trading price of our common stock could decline, and you could lose all or a substantial portion of your investment.
Risks Related to Our Financial Position and Need for Capital
We are an early clinical stage pharmaceutical company with a limited operating history.
We are an early clinical stage pharmaceutical company with a limited operating history. We must complete clinical studies and receive regulatory approval of an NDA before commercial sales of a product can commence. The likelihood of success of our business plan must be considered in light of the problems, substantial expenses, difficulties, complications and delays frequently encountered in connection with developing and expanding early-stage businesses and the regulatory and competitive environment in which we operate. Pharmaceutical product development is a highly speculative undertaking, involves a substantial degree of risk and is a capital-intensive business.
Accordingly, you should consider our prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development, especially early-stage clinical pharmaceutical companies such as ours. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that we cannot assure you that we will be able to, among other things:

successfully implement or execute our current business plan, and we cannot assure you that our business plan is sound;

successfully manufacture our clinical products and establish commercial drug supply;

successfully complete the clinical trials necessary to obtain regulatory approval for the marketing of our drug candidates, including PAX-101;

secure, maintain and, as necessary, defend our intellectual property rights;

secure market exclusivity and/or adequate intellectual property protection for our drug candidates;

attract and retain an experienced management and advisory team;

secure acceptance of our drug candidates in the medical community and with third-party payors and consumers;

launch commercial sales of our drug candidates, whether alone or in collaboration with others;

raise sufficient funds in the capital markets or otherwise to effectuate our business plan; and

utilize the funds that we do have and/or raise in this offering or in the future to efficiently execute our business strategy.
If we cannot successfully execute any one of the foregoing, our business may fail and your investment will be adversely affected.
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. Moreover, after this offering, we will likely need to raise additional capital to support our development and commercialization efforts. 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
 
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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 $18.9 million and $17.1 million as of December 31, 2021 and March 31, 2022, respectively.
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 and the development of our administrative organization. We expect that our cash and cash equivalents at March 31, 2022, plus the net proceeds from this offering to be sufficient to meet our operating and capital requirements for at least the next 12 months, based on planned expenditures. 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 and research and development activities 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.
Our ability to continue as a going concern is dependent on our ability to raise additional capital and should we be unable to raise sufficient additional capital, we may be required to undertake cost-cutting measures including delaying or discontinuing certain clinical activities. After this offering, we may need to raise significant additional capital to continue to fund the clinical trials for PAX-101, and our other product candidates. We will likely seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders and certain of those securities may have rights senior to those of our common stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations, fund raising capabilities or otherwise. Any other third-party funding arrangement could require us to relinquish valuable rights.
The source, timing and availability of any future financing will depend principally upon market conditions, and, more specifically, on the progress of our clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our planned clinical trials. These factors among others create a substantial doubt about our ability 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.
Our independent auditor’s report for the fiscal year ended December 31, 2021 includes an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
Due to the uncertainty of our ability to meet our current operating and capital expenses, in its report on our audited annual financial statements as of and for the year ended December 31, 2021, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Recurring losses from operations raise substantial doubt about our ability to continue as a going concern. If we are unable to continue as a going concern, we might have to liquidate our assets and the value we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements.
 
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Risks Related to Product Development, Regulatory Approval, Manufacturing and Commercialization
Our research and development are primarily focused on the drug suramin, leaving us subject to the risk of a lack of diversity in the active pharmaceutical ingredients we utilize in our business. We do not know whether we will be successful in our efforts to build a pipeline of product candidates or if we will be able to develop any products of commercial value.
Any product candidates that we develop or acquire may not be effective for the target indications and we may not be successful in using our intellectual property to build a pipeline of product candidates and progress these product candidates through clinical development for the treatment of any medical conditions. Moreover, our business plan currently is focused primarily on the use of the drug suramin, leaving us subject to the risk of a lack of diversity in our product pipeline and the active pharmaceutical ingredients we utilize in our business.
Even if we are successful in continuing to build our pipeline, we may not be able to develop or acquire other product candidates that are safe and effective. Our research programs may initially show promise in creating potential product candidates, yet fail to yield viable product candidates for further clinical development for a number of reasons, including as a result of being shown to have harmful side effects or other characteristics that indicate that they are unlikely to be products that will receive marketing approval and achieve market acceptance. Our research programs to identify new product candidates will require substantial technical, financial and human resources. In addition, we may focus our efforts and resources on one or more potential product candidates that ultimately prove to be unsuccessful in clinical trials testing efficacy and safety. If we are unable to identify suitable additional compounds for preclinical and clinical development, our ability to develop product candidates and obtain product revenues in future periods could be compromised, which could result in significant harm to our financial position and adversely impact our stock price.
We cannot be certain that PAX-101 or any other product candidates that we may develop or acquire will receive regulatory approval, and without regulatory approval we will not be able to market any of our product candidates. Any delay in the regulatory review or approval of any of our product candidates will materially or adversely harm our business.
We expect to invest most of our capital in the development of PAX-101 and PAX-102. Our ability to generate revenue related to product sales, which we do not expect will occur for at least the next several years, if ever, will depend on the successful development and regulatory approval of one or more of our product candidates. All of our product candidates require regulatory review and approval prior to commercialization. Any delays in the regulatory review or approval of our product candidates would delay market launch, increase our cash requirements and result in additional operating losses. This failure to obtain regulatory approvals would prevent our product candidate from being marketed and would have a material and adverse effect on our business.
The process of obtaining FDA and other required regulatory approvals, including foreign approvals, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Furthermore, this approval process is extremely complex, expensive and uncertain. We may be unable to submit any new drug application, or NDA, in the United States or any marketing approval application in foreign jurisdictions for any of our products. If we submit an NDA including any amended NDA or supplemental NDA, to the FDA seeking marketing approval for any of our product candidates, the FDA must decide whether to accept or reject the submission for filing. We cannot be certain that any of these submissions will be accepted for filing and reviewed by the FDA, or that the marketing approval application submissions to any other regulatory authorities will be accepted for filing and review by those authorities. We cannot be certain that we will be able to respond to any regulatory requests during the review period in a timely manner, or at all, without delaying potential regulatory action. We also cannot be certain that any of our product candidates will receive favorable recommendations from any FDA advisory committee or foreign regulatory bodies or be approved for marketing by the FDA or foreign regulatory authorities. In addition, delays in approvals or rejections of marketing applications may be based upon many factors, including regulatory requests for additional analyses, reports, data and studies, regulatory questions regarding data and results, changes in regulatory policy during the period of product development and the emergence of new information regarding such product candidates.
 
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The results of preclinical studies and clinical trials may not result in the demonstration of safety or efficacy of the products we are developing. Further, the data from these studies are subject to different interpretations, which could delay, limit or prevent regulatory review or approval of any of our product candidates. Furthermore, regulatory attitudes towards the data and results required to demonstrate safety and efficacy can change over time and can be affected by many factors, such as the emergence of new information, including on other products, policy changes and agency funding, staffing and leadership. We do not know whether future changes to the regulatory environment will be favorable or unfavorable to our business prospects.
In addition, the environment in which our regulatory submissions may be reviewed changes over time. For example, average review times at the FDA for NDAs have fluctuated over the last ten years, and we cannot predict the review time for any of our submissions with any regulatory authorities. Review times can be affected by a variety of factors, including budget and funding levels and statutory, regulatory and policy changes. Moreover, in light of widely publicized events concerning the safety risk of certain drug products, regulatory authorities, members of the U.S. Government Accountability Office, medical professionals and the general public have raised concerns about potential drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling such as boxed warnings and precautions that further limit use of the drug products, and establishment of Risk Evaluation and Mitigation Strategy (“REMS”) measures that may, for instance, restrict distribution of drug products. Drug safety issues may result in a more cautious approach by the FDA to clinical trials. Data from clinical trials may receive greater scrutiny with respect to safety, which may make the FDA or other regulatory authorities more likely to terminate clinical trials before completion, or require longer or additional clinical trials that may result in substantial additional expense and a delay or failure in obtaining approval or may result in approval for a more limited indication than originally sought.
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
 
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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.
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 (“GCP”), 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.
If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications and risks than anticipated, and in any case may not be successful.
We intend to seek FDA approval through the 505(b)(2) regulatory pathway for each of our product candidates. The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act, or FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant.
If the FDA does not allow us to pursue the 505(b)(2) regulatory pathway for our product candidates as anticipated, we may need to conduct additional clinical trials, provide additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for our product candidates would likely substantially increase. Moreover, the inability to pursue the 505(b)(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could materially adversely impact our competitive position and prospects. Even if we are permitted to pursue the 505(b)(2) regulatory pathway for a product candidate, we cannot assure you that we will receive the requisite or timely approvals for commercialization of such product candidate.
In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA’s interpretation of Section 505(b)(2). We expect that our competitors could file citizens’ petitions with the FDA in an attempt to persuade the FDA that our product candidates, or the clinical studies that support their approval, contain deficiencies. If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its Section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).
Delays in the commencement, enrollment and completion of our clinical trials could result in increased costs to us and may delay or limit our ability to obtain regulatory approval for PAX-101 and our other product candidates.
Delays in the commencement, enrollment and completion of clinical trials could increase our product development costs or delay the regulatory approval of our product candidates. The commencement, enrollment and completion of clinical trials can be delayed for a variety of reasons, including:
 
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the inability to reach agreements on acceptable terms with prospective contract research organizations (“CROs”) and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

the inability to maintain necessary supplies of study drug and comparator to maintain predicted enrollment rates at clinical trial sites;

regulatory authority objections to commencing a clinical trial;

the inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for the same indication as our product candidates;

withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials;

the inability to obtain ethics committee or IRB approval to conduct a clinical trial;

difficulty recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study and competition from other clinical trial programs for the same indication as our product candidates;

difficulty obtaining informed consent in some patient populations who may be under 18 years of age and may not have the capacity to consent;

the inability to retain subjects in clinical trials due to the treatment protocol, personal issues, side effects from the therapy or lack of efficacy; and

difficulty in importing and exporting clinical trial materials and study samples.
We currently do not have quantities of suramin sufficient to support all of our clinical trial needs and we will need to manufacture additional suramin in order to satisfy those needs.
There is no readily available source of suramin for use in clinical trials in the United States. There is currently one manufacturer of suramin, Bayer, which does not manufacture suramin on a regular basis and, when it does, generally only manufactures small quantities in response to outbreaks of HAT. While we are working with third-party manufacturers to develop our own commercial supply of suramin, this process is time-consuming and is not expected to be completed until 2022. See “Business-Manufacturing Activities.” We cannot conduct our clinical trials until we have sufficient suramin supply.
If our suppliers of active ingredients to manufacture suramin are unable or unwilling to perform for any reason, we may not be able to locate alternative acceptable manufacturers or formulators or enter into favorable agreements with them. Any inability to acquire sufficient quantities of suramin or other active pharmaceutical ingredients we may utilize in a timely manner from third parties could delay clinical trials and prevent us from developing our products in a cost-effective manner or on a timely basis. In addition, manufacturers of our product candidates are subject to current Good Manufacturing Practices (“cGMP”) and similar foreign standards and we would not have control over compliance with these regulations by our manufacturers. If one of our contract manufacturers fails to maintain compliance, the production of our products could be interrupted, resulting in delays and additional costs. In addition, if the facilities of such manufacturers do not pass a pre-approval or post-approval plant inspection, the FDA will not grant approval and may institute restrictions on the marketing or sale of our products.
We are reliant on third-party manufacturers and suppliers to meet the demands of our clinical supplies, particularly for suramin. Delays in receipt of materials, scheduling, release, custom’s control, and regulatory compliance issues may adversely impact our ability to initiate, maintain, or complete clinical trials that we are sponsoring. Commercial manufacturing and supply agreements have not been established. Issues arising from scale-up, environmental controls, equipment requirements, or other factors, may have an adverse impact on our ability to manufacture our product candidates.
Even if we obtain regulatory approval for our product candidates, if we are unable to successfully commercialize our products, it will limit our ability to generate revenue and will materially adversely affect our business, financial condition and results of operations.
Even if we obtain regulatory approval for our product candidates, our long-term viability and growth depend on the successful commercialization of products which lead to revenue and profits. Pharmaceutical
 
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product development is an expensive, high risk, lengthy, complicated, resource intensive process. In order to succeed, among other things, we must be able to:

identify potential drug product candidates;

design and conduct appropriate laboratory, preclinical and other research;

submit for and receive regulatory approval to perform clinical studies;

design and conduct appropriate preclinical and clinical studies according to good laboratory and good clinical practices;

select and recruit clinical investigators;

select and recruit subjects for our studies;

collect, analyze and correctly interpret the data from our studies;

submit for and receive regulatory approvals for marketing;

secure market and formulary access from payors; and

manufacture the drug product candidates according to cGMP.
The development program with respect to any given product may take many years and thus delay our ability to generate profits. In addition, potential products that appear promising at early stages of development may fail for a number of reasons, including the possibility that the products may require significant additional testing or turn out to be unsafe, ineffective, too difficult or expensive to develop or manufacture, too difficult to administer, or unstable. Failure to successfully commercialize our products will adversely affect our business, financial condition and results of operations.
The market for PAX-101’s lead indication, HAT, is extremely small, as the majority of usage would be in Sub-Saharan Africa. Further, we would likely donate any product for use in this indication to the WHO for use by patients in Africa.
If our preclinical and clinical studies do not produce positive results, if our clinical trials are delayed or if serious side effects are identified during such studies or trials, we may experience delays, incur additional costs and ultimately be unable to commercialize our product candidates.
Before obtaining regulatory approval for the sale of our product candidates, we must conduct, generally at our own expense, extensive preclinical tests to demonstrate the safety of our product candidates in animals, and clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Preclinical and clinical testing is expensive, difficult to design and implement and can take many years to complete. A failure of one or more of our preclinical studies or clinical trials can occur at any stage of testing. We may experience numerous unforeseen events during, or as a result of, preclinical testing and the clinical trial process that could delay or prevent our ability to obtain regulatory approval or commercialize our product candidates, including:

our preclinical tests or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical testing or clinical trials or we may abandon projects that we expect to be promising;

regulators or ethics committees/IRBs may not authorize us to commence a clinical trial or conduct a clinical trial at a prospective trial site;

conditions imposed on us by the FDA or any non-U.S. regulatory authority regarding the scope or design of our clinical trials may require us to resubmit our clinical trial protocols to ethics committees/IRBs for re-inspection due to changes in the regulatory environment;

the number of patients required for our clinical trials may be larger than we anticipate and recruitment of the target population may be more difficult than anticipate, or participants may drop out of our clinical trials at a higher rate than we anticipate;

our third-party contractors or clinical investigators may fail to comply with regulatory requirements or fail to meet their contractual obligations to us in a timely manner;
 
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we might have to suspend or terminate one or more of our clinical trials if we, the regulators or the ethics committees/IRBs determine that the participants are being exposed to unacceptable health risks;

regulators or ethics committees/IRBs may require that we hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

the cost of our clinical trials may be greater than we anticipate;

the supply or quality of our product candidates or other materials necessary to conduct our clinical trials may be insufficient or inadequate or we may not be able to reach agreements on acceptable terms with prospective clinical research organizations; and

the effects of our product candidates may not be the desired effects or may include undesirable side effects or the product candidates may have other unexpected characteristics. For example, suramin can cause significant side effects, including nausea, vomiting, diarrhea, abdominal pain, and a feeling of general discomfort. Other side effects include skin sensations such as crawling or tingling sensations, tenderness of the palms and soles, numbness of the extremities, watery eyes, and photophobia. In addition, nephrotoxicity is common, as is peripheral neuropathy when the drug is administered at high doses.
In addition, if we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete our clinical trials or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

be delayed in obtaining, or may not be able to obtain, marketing approval for one or more of our product candidates;

obtain approval for indications that are not as broad as intended or entirely different than those indications for which we sought approval;

the product labeling may be very restrictive and lead to limitations in commercial value; or

have the product removed from the market after obtaining marketing approval.
Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any preclinical tests or clinical trials will be initiated as planned, will need to be restructured or will be completed on schedule, if at all. Significant preclinical or clinical trial delays also could shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Such delays could allow our competitors to bring products to market before we do and impair our ability to commercialize our products and product candidates.
If we cannot enroll enough patients to complete our clinical trials, such failure may adversely affect our business, financial condition and results of operations.
The completion rate of clinical studies of our products is dependent on, among other factors, the patient enrollment rate. Patient enrollment is a function of many factors, including:

Securing sufficient numbers of investigators and clinical trial sites;

investigator identification and recruitment of appropriate patients;

ethics committees/IRBs and regulatory approvals to initiate study sites;

patient population size;

the nature of the protocol to be used in the trial;

patient availability and proximity to clinical sites;

the eligibility criteria for the study;

competition from other companies’ clinical studies for the same patient population; and

the ability to obtain comparator drug/device.
 
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We believe our procedures for enrolling patients have been appropriate; however, delays in patient enrollment would increase costs and delay ultimate commercialization and sales, if any, of our products. Such delays could have a material adversely affect our business, financial condition and results of operations.
We face risks related to health pandemics, epidemics and outbreaks, including the COVID-19 pandemic, which could significantly disrupt our preclinical studies and clinical trials, and therefore our receipt of necessary regulatory approvals could be delayed or prevented.
We face risks related to health pandemics, epidemics or outbreaks of communicable diseases. For example, the outbreak around the world, including in the U.S., the European Union (the “E.U.”) members, China and many other countries, of the highly transmissible and pathogenic COVID-19. The outbreak of such communicable diseases could result in a widespread health crisis that could adversely affect general commercial activity and the economies and financial markets of many countries, which in the case of COVID-19 has occurred. In addition, the COVID-19 pandemic is having a severe effect on the clinical trials of many drug candidates. Some trials have been merely delayed, while others have been cancelled. The extent to which the COVID-19 pandemic may impact our preclinical and clinical trial operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration and geographic reach of the outbreak, the severity of COVID-19, and the effectiveness of actions to contain and treat COVID-19. Although to date our clinical trials have been minimally impacted by the pandemic, the continued spread of COVID-19 globally could adversely impact our clinical trial operations, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak occurs in their geography. Disruptions or restrictions on our ability to travel to monitor data from our clinical trials, or to conduct clinical trials, or the ability of patients enrolled in our studies to travel, or the ability of staff at study sites to travel, as well as temporary closures of our facilities or the facilities of our clinical trial partners and their contract manufacturers, would negatively impact our clinical trial activities. In addition, we rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our preclinical studies and clinical trials, including the collection of data from our clinical trials, and the outbreak may affect their ability to devote sufficient time and resources to our programs or to travel to sites to perform work for us. Similarly, our preclinical trials could be delayed and/or disrupted by the COVID-19 pandemic. As a result, the expected timeline for data readouts of our preclinical studies and clinical trials and certain regulatory filings may be negatively impacted, which would adversely affect our ability to obtain regulatory approval for and to commercialize our product candidates, increase our operating expenses and have a material adverse effect on our business, financial condition and results of operations.
If we are not successful in discovering, developing and commercializing additional product candidates, our ability to expand our business and achieve our strategic objectives would be impaired.
Research programs to identify product candidates require substantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for many reasons, including the following:

the research methodology used may not be successful in identifying potential product candidates;

we may be unable to identify viable product candidates in our screening campaigns;

competitors may develop alternatives that render our product candidates obsolete;

product candidates we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

a product candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all;
 
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a product candidate may not be perceived or accepted as safe and effective by patients, the medical community or third-party payors; and

the development of resistance to potential product candidates may render them ineffective against target infections with respect to our development program in HAT.
If we are unsuccessful in identifying and developing additional product candidates, our potential for growth may be impaired.
Even if we receive regulatory approval for PAX-101 or any other product candidates we may develop or acquire, we still may not be able to successfully commercialize it and the revenue that we generate from its sales, if any, may be limited.
If approved for marketing, the commercial success of PAX-101 or any other product candidates we may develop or acquire will depend upon acceptance by the medical community, including physicians, patients and health care payors. The degree of market acceptance of PAX-101 or such other product candidate will depend on a number of factors, including:

demonstration of clinical safety and efficacy of such product candidate;

relative convenience and ease of administration;

the prevalence and severity of any adverse effects as well as the cost and convenience of monitoring and treating them;

the willingness of physicians to prescribe such product candidate and of the target patient population to try new therapies;

pricing and cost-effectiveness;

the inclusion or omission of such product candidate in applicable treatment guidelines;

the effectiveness of our or any future collaborators’ sales and marketing strategies;

limitations or warnings contained in FDA-approved labeling;

our ability to obtain and maintain sufficient third-party coverage or reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payors; and

the willingness of patients to pay out-of-pocket in the absence of third-party coverage or reimbursement.
If PAX-101 or any other product candidates we may develop or acquire is approved, but does not achieve an adequate level of adoption by physicians, health care payors and patients, we may not generate sufficient revenue and we may not be able to achieve or sustain profitability. Our efforts to educate the medical community and third-party payors on the benefits of such product candidate may require significant resources and may never be successful.
In addition, even if we obtain regulatory approvals, the timing or scope of any approvals may prevent or reduce our ability to commercialize such product candidate successfully. For example, if the approval process takes too long, we may miss market opportunities and give other companies the ability to develop competing products or establish market dominance. Any regulatory approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render such product candidate not commercially viable. For example, regulatory authorities may approve such product candidate for fewer or more limited indications than we request, may not approve the price we intend to charge for such product candidate, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve such product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that indication. Further, the FDA may place conditions on approvals including potential requirements or risk management plans and the requirement for a REMS to assure the safe use of the drug. If the FDA concludes a REMS is needed, the sponsor of the NDA must submit a proposed REMS; and the FDA will not approve the NDA without an approved REMS. REMS could include medication guides, physician communication plans, or elements to assure safe use, such as
 
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restricted distribution methods, patient registries and other risk minimization tools. Any of these limitations on approval or marketing could restrict the commercial promotion, distribution, prescription or dispensing of such product candidate. Moreover, product approvals may be withdrawn for non-compliance with regulatory standards or if problems occur following the initial marketing of the product. Any of the foregoing scenarios could materially harm the commercial success of such product candidate.
We currently have no sales and marketing organization. If we are unable to establish satisfactory sales and marketing capabilities, we may not successfully commercialize any of our product candidates, if regulatory approval is obtained.
At present, we have no sales or marketing personnel. In order to commercialize products that are approved for commercial sales, we must either develop a sales and marketing infrastructure or collaborate with third parties that have such commercial infrastructure. If we elect to develop our own sales and marketing organization, we do not intend to begin to hire sales and marketing personnel until our product candidates are in Phase 3 clinical trials or closer to NDA submission, and we do not intend to establish our own sales organization in the United States until shortly prior to FDA approval of PAX-101 or any of our other product candidates for neurologic indications. For HAT we do not intend to establish a sales organization as we do not intend to sell PAX-101 for HAT in any market.
We may not be able to establish a direct sales force in a cost-effective manner or realize a positive return on this investment. In addition, we will have to compete with established and well-funded pharmaceutical and biotechnology companies to recruit, hire, train and retain sales and marketing personnel. Factors that may inhibit our efforts to commercialize PAX-101 or any of our other product candidates in the United States without strategic partners or licensees include:

our inability to recruit and retain adequate numbers of effective sales and marketing personnel;

the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our future products;

the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and

unforeseen costs and expenses associated with creating an independent sales and marketing organization.
If we are not successful in recruiting sales and marketing personnel or in building a sales and marketing infrastructure, or if we do not successfully enter into appropriate collaboration arrangements, we will have difficulty successfully commercializing PAX-101 or any other product candidates we may develop or acquire, which would adversely affect our business, operating results and financial condition. Outside the United States, we may commercialize our product candidates by entering into collaboration agreements with pharmaceutical partners. We may not be able to enter into such agreements on terms acceptable to us or at all. In addition, even if we enter into such relationships, we may have limited or no control over the sales, marketing and distribution activities of these third parties. Our future revenues may depend heavily on the success of the efforts of these third parties.
Even if we obtain marketing approval for PAX-101 or any other product candidates that we may develop or acquire, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates could be subject to labeling and other restrictions and withdrawal from the market and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our future products.
Even if we obtain United States regulatory approval of PAX-101 or any other product candidates that we may develop or acquire, the FDA may still impose significant restrictions on its indicated uses or marketing or the conditions of approval, or impose ongoing requirements for potentially costly and time-consuming post-approval studies, and post-market surveillance to monitor safety and efficacy. Our future products will also be subject to ongoing regulatory requirements governing the manufacturing, labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of adverse events and other post-market information. These requirements include registration with the FDA, as well as continued compliance with current Good Clinical Practices regulations, or cGCPs, for any
 
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clinical trials that we conduct post-approval. In addition, manufacturers of drug products and their facilities are subject to continuous review and periodic inspections by the FDA and other regulatory authorities for compliance with current good manufacturing practices, cGMP, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents.
With respect to sales and marketing activities by us or any future partner, advertising and promotional materials must comply with FDA rules in addition to other applicable federal, state and local laws in the United States and similar legal requirements in other countries. In the United States, the distribution of product samples to physicians must comply with the requirements of the U.S. Prescription Drug Marketing Act. Application holders must obtain FDA approval for product and manufacturing changes, depending on the nature of the change. We may also be subject, directly or indirectly through our customers and partners, to various fraud and abuse laws, including, without limitation, the U.S. Anti-Kickback Statute, U.S. False Claims Act, and similar state laws, which impact, among other things, our proposed sales, marketing, and scientific/educational grant programs. If we participate in the U.S. Medicaid Drug Rebate Program, the Federal Supply Schedule of the U.S. Department of Veterans Affairs, or other government drug programs, we will be subject to complex laws and regulations regarding reporting and payment obligations. All of these activities are also potentially subject to U.S. federal and state consumer protection and unfair competition laws. Similar requirements exist in many of these areas in other countries.
In addition, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for our product candidates, physicians may nevertheless legally prescribe our products to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions, including revocation of its marketing approval. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.
If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, problems with the facility where the product is manufactured, or we or our manufacturers fail to comply with applicable regulatory requirements or GMP, we may be subject to the following administrative or judicial sanctions:

restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

issuance of warning letters or untitled letters;

clinical holds;

injunctions or the imposition of civil or criminal penalties or monetary fines;

suspension or withdrawal of regulatory approval;

suspension of any ongoing clinical trials;

refusal to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product license approvals;

suspension or imposition of restrictions on operations, including costly new manufacturing requirements; or

product seizure, detention, or refusal to permit the import or export of product.
The occurrence of any event or penalty described above may inhibit our ability to commercialize PAX-101 or any of our other product candidates and generate revenue. Adverse regulatory action, whether pre- or post-approval, can also potentially lead to product liability claims and increase our product liability exposure.
 
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Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our drug candidates and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our drug candidates. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
In the United States, under the Medicare Modernization Act (“MMA”), Medicare Part D provides coverage to the elderly and disabled for outpatient prescription drugs by approving and subsidizing prescription drug plans offered by private insurers. The MMA also authorizes Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. The Part D plans use their formulary leverage to negotiate rebates and other price concessions from drug manufacturers. Also under the MMA, Medicare Part B provides coverage to the elderly and disabled for physician-administered drugs on the basis of the drug’s average sales price, a price that is calculated according to regulatory requirements and that the manufacturer reports to Medicare quarterly.
Both Congress and the Centers for Medicare & Medicaid Services (“CMS”), the agency that administers the Medicare program, from time to time consider legislation, regulations, or other initiatives to reduce drug costs under Medicare Parts B and D. For example, under the 2010 Affordable Care Act, drug manufacturers are required to provide a 50% discount on prescriptions for branded drugs filled while the beneficiary is in the Medicare Part D coverage gap, also known as the “donut hole.” There have been legislative proposals to repeal the “non-interference” provision of the MMA to allow CMS to leverage the Medicare market share to negotiate larger Part D rebates. Further cost reduction efforts could decrease the coverage and price that we receive for our drug candidates and could seriously harm our business. Private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement under the Medicare program may result in a similar reduction in payments from private payors.
The 2010 Affordable Care Act is intended to broaden access to health insurance and reduce or constrain the growth of healthcare spending. Further, the Affordable Care Act imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also increased the amount of the rebates drug manufacturers must pay to state Medicaid programs, required that Medicaid rebates be paid on managed Medicaid utilization, and increased the additional rebate on “line extensions” (such as extended release formulations) of solid oral dosage forms of branded products. The law also contains substantial provisions affecting fraud and abuse compliance and transparency, which may require us to modify our business practices with healthcare practitioners, and incur substantial costs to ensure compliance.
While we are unable to predict what legislation, if any, may potentially be enacted, to the extent that future changes affect how our product candidates could be paid for and/or reimbursed by the government and private payers, our business could be adversely affected.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. For example, the Budget Control Act of 2011 included, among other things, provisions that have led to 2% across-the-board reductions in Medicare payment amounts. Several states have adopted or are considering adopting laws that require pharmaceutical companies to provide notice prior to raising prices and to justify price increases. We expect that additional healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce our profitability.
 
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Our future growth depends, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability will depend, in part, on our ability to commercialize our product candidates in foreign markets for which we intend to rely on collaborations with third parties. If we commercialize PAX-101 or any other product candidates that we may develop in foreign markets, we would be subject to additional risks and uncertainties, including:

our customers’ ability to obtain market access and appropriate reimbursement for our product candidates in foreign markets;

our inability to directly control commercial activities because we are relying on third parties;

the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

different medical practices and customs in foreign countries affecting acceptance in the marketplace;

import or export licensing requirements;

longer accounts receivable collection times;

longer lead times for shipping;

language barriers for technical training;

reduced protection of intellectual property rights in some foreign countries;

foreign currency exchange rate fluctuations; and

the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs, any of which may adversely affect our results of operations.
If we market our product candidates in a manner that violates healthcare fraud and abuse laws, or if we violate government price reporting laws, we may be subject to civil or criminal penalties.
The FDA enforces laws and regulations which require that the promotion of pharmaceutical products be consistent with the approved prescribing information. While physicians may prescribe an approved product for a so-called “off label” use, it is unlawful for a pharmaceutical company to promote its products in a manner that is inconsistent with its approved label and any company which engages in such conduct can subject that company to significant liability. Similarly, industry codes in the E.U. and other foreign jurisdictions prohibit companies from engaging in off-label promotion and regulatory agencies in various countries enforce violations of the code with civil penalties. While we intend to ensure that our promotional materials are consistent with our label, regulatory agencies may disagree with our assessment and may issue untitled letters, warning letters or may institute other civil or criminal enforcement proceedings. In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include the U.S. Anti-Kickback Statute, U.S. False Claims Act and similar state laws. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws.
The U.S. Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. This statute has been interpreted broadly to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formulary managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or
 
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recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Our practices may not, in all cases, meet all the criteria for safe harbor protection from anti-kickback liability. Moreover, recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the U.S. Anti-Kickback Statute and criminal health care fraud statutes; a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the U.S. Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act. Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement to get a false claim paid.
Over the past few years, several pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as: allegedly providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicare or Medicaid for non-covered, off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Most states also have statutes or regulations similar to the U.S. Anti-Kickback Statute and the U.S. False Claims Act, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these federal and state laws may include substantial civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government programs, substantial criminal fines and imprisonment.
We have been and expect to be significantly dependent on our collaborative agreements for the development of our product candidates, which exposes us to the risk of reliance on the performance of third parties.
In conducting our research and development activities, we currently rely, and expect to continue to rely, on collaborative agreements with third parties such as manufacturers, contract research organizations, commercial partners, universities, governmental agencies and not-for-profit organizations for both strategic and financial resources. The loss of, or failure to perform by us or our partners under any applicable agreements or arrangements, or our failure to secure additional agreements for our product candidates, would substantially disrupt or delay our research and development activities, including our in-process and anticipated clinical trials. Any such loss would likely increase our expenses and materially harm our business, financial condition and results of operation.
We expect that we will rely on third parties to conduct clinical trials for our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize PAX-101 or any other product candidates that we may develop or acquire and our business could be substantially harmed.
We expect to enter into agreements with third-party CROs to conduct and manage our clinical programs. We rely heavily on these parties for execution of clinical studies for PAX-101 and our other product candidates and can control only certain and very limited aspects of their activities. Nevertheless, we would be responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on CROs would not relieve us of our regulatory responsibilities. We and our CROs would be required to comply with cGCPs, which are regulations and guidelines enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA enforces these cGCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with cGCPs. In addition, our clinical trials must be conducted with products produced under cGMP regulations and will require a large number of test subjects. Our failure or the failure of our CROs to comply with these regulations
 
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may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action up to and including civil and criminal penalties.
As a result, many important aspects of our drug development programs would be outside of our direct control. In addition, the CROs may not perform all of their obligations under their arrangements with us or in compliance with regulatory requirements. If the CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development and commercialization of PAX-101 or any other product candidates that we may develop or acquire may be delayed or our development program may be materially and irreversibly harmed. We cannot control the amount and timing of resources these CROs would devote to our program or our product candidates. If we are unable to rely on the clinical data collected by our CROs, we could be required to repeat, extend the duration of, or increase the size of our clinical trials, which could significantly delay commercialization and require significantly greater expenditures. If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs. As a result of the foregoing, our financial results and the commercial prospects for PAX-101 and our other product candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed.
Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance of PAX-101 or any other product candidates that we may develop or acquire. If there is not sufficient reimbursement for our future products, it is less likely that such products will be widely used.
Market acceptance and sales of PAX-101 or any other product candidates for which we obtain regulatory approval will depend on reimbursement policies and may be affected by future healthcare reform measures in both the United States and foreign jurisdictions. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which products they will cover and establish payment levels. In addition, government authorities and these third-party payors are increasingly attempting to contain health care costs by demanding price discounts or rebates and limiting both the types and variety of products that they will cover and the amounts that they will pay for these products. In addition, we might need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any future products to such payors’ satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources.
Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products or services, and may reflect budgetary constraints and/or imperfections in Medicare or Medicaid data used to calculate these rates. Net prices for products may be reduced by mandatory discounts or rebates required by government health care programs. Such legislation, or similar regulatory changes or relaxation of laws that restrict imports of products from other countries, could reduce the net price we receive for any future marketed products. As a result, our future products might not ultimately be considered cost-effective.
We cannot be certain that reimbursement will be available for PAX-101 or any other product candidates that we develop or acquire. Also, we cannot be certain that reimbursement policies will not reduce the demand for, or the price paid for, any future products. If reimbursement is not available or is available on a limited basis, we may not be able to successfully commercialize PAX-101 or any other product candidates that we develop or acquire.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the level of reimbursement will be. Reimbursement may impact the demand for, or the price of, any product for which we obtain marketing approval. Obtaining reimbursement for our products may be particularly difficult because of the higher prices
 
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often associated with products administered under the supervision of a physician. If reimbursement is not available or is available only to limited levels, we may not be able to successfully commercialize any product candidate that we successfully develop.
There may be significant delays in obtaining reimbursement for approved products, and coverage may be more limited than the purposes for which the product is approved by the FDA or regulatory authorities in other countries. Moreover, eligibility for reimbursement does not imply that any product will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Payment rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower cost products that are already reimbursed and may be incorporated into existing payments for other services. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of products from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for new products that we develop or acquire could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
While we believe we may be eligible to receive a tropical disease PRV for the use of PAX-101 for the treatment of HAT, there is a risk that we will not receive such PRV, which would require us to find alternative sources of funding for our later stage clinical programs.
We may be eligible to receive a tropical disease PRV for PAX-101, as Human African Trypanosomiasis is defined as a disease qualifying for a tropical disease PRV under Section 524 of the Federal Food, Drug and Cosmetic Act (the “FD&C Act”). The FDA is authorized to award a tropical disease PRV to sponsors of applications for certain products for the prevention or treatment of certain tropical diseases, upon FDA approval of the sponsor’s marketing application. A tropical disease PRV may be used by the sponsor that obtains the tropical disease PRV or may be transferred to another sponsor that may use it to obtain Priority Review for a different application. In order to be eligible for a tropical disease PRV, the application must: (i) be for a tropical disease as defined in Section 524 of the FD&C Act; (ii) be submitted under Section 505(b)(1) of the FD&C Act or Section 351 of the Public Health Service Act (the “PHSA”); (iii) be for a product that contains no active ingredient that has been approved in any other application submitted under Section 505(b)(1) of the FD&C Act or Section 351 of the PHSA; and (iv) qualify for Priority Review; (v) contain reports of one or more new clinical investigations (other than bioavailability studies) that are essential to the approval of the application and conducted or sponsored by the sponsor; and (vi) contain the applicant’s attestation that such report(s) were not submitted as part of an application for marketing approval or licensure by a regulatory authority in India, Brazil, Thailand, or any country that is a member of the Pharmaceutical Inspection Convention or the Pharmaceutical Inspection Cooperation Scheme prior to September 27, 2007. A U.S. approval in HAT would potentially qualify us to earn a tropical disease PRV from the FDA, which we intend to monetize to raise funds to support the later stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, ME/CFS and LCS, the cost of which is estimated to be between $120 million and $140 million to gain FDA approval and commercially launch both indications in the United States, depending on the design of required clinical trial protocols. 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. If we are unable to obtain a PRV, or if we are unable to sell our PRV or if the amount we obtain from its sale is insufficient to fund our operations, we may be required to fund the later stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, ME/CFS and LCS through sales of our equity or debt securities, through strategic collaborations with third parties or other similar transactions. None of these alternative arrangements may be available to us on commercially reasonable terms, or at all, and if we are unable to raise funding to further our clinical and commercial development, our business and stock price will be adversely impacted.
 
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If we do not obtain market exclusivity for our certain of our products, including orphan drug exclusivity, our business may be harmed.
We may seek exclusivity for certain of our product candidates, including PAX-101 and PAX-102. Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States.
Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of market exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same disease for seven years. Orphan drug exclusivity may be lost if the FDA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. Orphan drug designation must be requested before submitting an application for marketing approval.
A company that first obtains FDA approval for a designated orphan drug for the designated rare disease or condition receives orphan drug market exclusivity for that drug for the designated disease for a period of seven years in the United States. This orphan drug exclusivity prevents the FDA from approving another application to market a drug containing the same active moiety for the same orphan indication, except in very limited circumstances, including when the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care within the meaning of FDA regulations and guidance. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.
Even though we received orphan drug designation for PAX-101 and may seek orphan drug designation for PAX-102, we may not be the first to obtain marketing approval for the orphan-designated indication due to the uncertainties associated with developing product candidates. If any of these other pharmaceutical companies obtains approval of an NDA before we are able to receive approval for one or more of our drug candidates with the same active moiety for the same indication, we would be barred from marketing that product in the United States during the seven-year orphan drug exclusivity period, unless we could demonstrate that such drug candidate is clinically superior to the approved products or satisfies one of the other limited exceptions to such orphan drug exclusivity.
In addition, even though we received orphan drug designation for PAX-101 and may seek orphan drug designation for PAX-102, that exclusivity may not effectively protect the product from competition because different drugs with different active moieties can be approved for the same condition or a drug with the same active moiety can be approved for a different indication. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory review or approval process. In addition, even if we seek orphan drug designation for any of our product candidates or indications, we may never receive such designations or obtain orphan drug exclusivity.
Also, overcoming the orphan drug marketing exclusivity is difficult to establish, with limited precedent, and there can be no assurance that the FDA will agree with our position seeking to overcome such marking exclusivity and approve PAX-101 or PAX-102 for U.S. market access with orphan drug exclusivity. If we fail to receive such extensions or exclusive rights, our ability to prevent competitors from manufacturing, marketing and selling competing products will be materially impaired, and our results of operations and financial condition may be significantly adversely affected.
Any failure to comply with applicable data protection and privacy laws and regulations could lead to significant penalties against us, and adversely impact our operating results.
Under the Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, (collectively, “HIPAA”), the U.S. Department of Health and Human Services has issued regulations to protect the privacy and security of protected health information used or disclosed by covered entities including certain healthcare providers, health plans and healthcare clearinghouses. HIPAA also regulates standardization of data content, codes and formats used in healthcare transactions and standardization of identifiers for health plans and providers.
 
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HIPAA and its regulations, including the final omnibus rule published on January 25, 2013, also imposes certain obligations on the business associates of covered entities that obtain protected health information in providing services to or on behalf of covered entities. In addition to federal privacy regulations, there are a number of state laws governing confidentiality and security of health information that are applicable to our business. In addition to possible federal administrative, civil and criminal penalties for HIPAA violations, state attorneys general are authorized to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. Accordingly, state attorneys general have brought civil actions seeking injunctions and damages resulting from alleged violations of HIPAA’s privacy and security rules. New laws and regulations governing privacy and security may be adopted in the future as well.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under such laws, it is possible that some of our current or future business activities, including certain clinical research, sales and marketing practices and the provision of certain items and services to our customers, could be subject to challenge under one or more of such privacy and data security laws. The heightening compliance environment and the need to build and maintain robust and secure systems to comply with different privacy compliance and reporting requirements in multiple jurisdictions could increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements. If our operations are found to be in violation of any of the privacy or data security laws or regulations described above that are applicable to us, or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil and administrative penalties, damages, fines, imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and oversight if we become subject to a consent decree or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any product candidates we may develop, once approved, are sold in a foreign country, we may be subject to similar foreign laws.
Risks Relating to Our Intellectual Property Rights
We depend on data licensed to us by third parties, and the loss of access to this data may terminate or delay the further development of our Human African Trypanosomiasis (HAT) NDA filing.
Our business relies on the license of data from the Ministry of Health, Republic of Malawi and Lwala Hospital (Soroti, Uganda). The loss of our key data may seriously impair our business and future viability, and could result in delays in developing, introducing or maintaining our product candidates and formulations until equivalent data, if available, is identified, licensed and integrated. In addition, any defects in the data we license could prevent the implementation or impair the functionality of our product candidates or formulation, delay new product or formulation introductions or injure our reputation.
It is difficult and costly to protect our intellectual property rights, and we cannot ensure the protection of these rights.
Our commercial success will depend, in part, on maintaining and obtaining patent protection for our technologies, products and processes, successfully defending these patents against third-party challenges and successfully enforcing these patents against third-party competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowable, or whether any claims will be allowed in our pending applications or, the enforceability of our existing and future patents. As part of our intellectual property strategy, we intend to file U.S. nonprovisional, and foreign national and regional stage applications of this PCT application in due course. We also plan to file further patent applications covering our technology and products. We are not aware of any contested proceedings or third-party claims against our pending PCT international patent applications. We cannot predict the outcome of our patent applications related to suramin and its uses, as our pending patent application and future applications may never be approved by United States or foreign patent offices.
 
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The degree of our current and future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect our rights, permit us to gain or keep our competitive advantage, or provide us with any competitive advantage at all. For example, others have filed, and in the future are likely to file, patent applications covering products and technologies that are similar, identical or competitive to our development programs, or important to our business. Furthermore, because patent applications are generally not published until 18 months from their earlier priority date, there is always a moving window of uncertainty as to whether third parties currently have any pending patent applications of which we would not be aware. We cannot be certain that any patents or patent application owned by a third-party will not have priority over patents and patent applications filed by us, or that we will not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices. In addition, even if we are successful in protecting our proprietary rights, generic alternatives to our therapeutic products are, and will likely continue to be, available.
We also rely on trade secrets to protect technology, especially in cases when we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, we may not be able to adequately protect our trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which we may have rights. If we cannot maintain the confidentiality of our proprietary technology and other confidential information, our ability to receive patent protection and our ability to protect valuable information owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
If we fail to maintain or obtain additional patent protection or trade secret protection for PAX-101 or our technologies, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability to generate revenues and attain profitability. In addition, third parties’ patent or trade secret protection could limit or impact our freedom to operate.
We may also rely on the trademarks we may develop to distinguish our products from the products of our competitors. We cannot guarantee that any trademark applications filed by us or our business partners will be approved. Third parties may also oppose such trademark applications, or otherwise challenge our use of the trademarks. In the event that the trademarks we use are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to modifying advertising and marketing for our brands. Further, we cannot provide assurance that competitors will not infringe the trademarks we use, or that we will have adequate resources to enforce these trademarks. See “Business — Intellectual Property.”
PAX-101 and our other product candidates may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and commercialization efforts.
Our success depends in part on avoiding infringement of the proprietary technologies of others. We respect the valid patent rights of third parties of which we are aware. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third-party patent rights that may be relevant to our proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by commercialization of PAX-101 or any of our other product candidates. There may be certain issued patents and patent applications claiming subject matter that we may be required to license in order to research, develop or commercialize PAX-101 or our other product candidates, and we do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may:

result in costly litigation;

divert the time and attention of our technical personnel and management;
 
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prevent us from commercializing a product until the asserted patent expires or is held finally invalid or not infringed in a court of law;

require us to cease or modify our use of the technology and/or develop non-infringing technology; or

require us to enter into royalty or licensing agreements.
Furthermore, we cannot guarantee that we would be successful in defending against these claims of patent infringement. For example, if we were required to modify our use of the technology or develop an alternative non-infringing technology, we cannot be certain that we would be successful in making the modifications or developing the technology and whether it would be economically feasible or practical to do so. Also, it may not be possible to obtain royalty or licensing agreements on favorable terms or to obtain such agreements at all.
Although no third-party has asserted a claim of infringement against us, others may hold proprietary rights that could prevent our product candidates from being marketed (see “Business — Intellectual Property”). Any patent-related legal action against us claiming damages and seeking to enjoin commercial activities relating to our product candidates or our processes could subject us to potential liability for damages and require us to obtain a license to continue to manufacture or market PAX-101 or any other product candidates. We cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, we cannot be sure that we could redesign PAX-101 or any other product candidates or processes to avoid infringement, if necessary.
We are aware of PCT international patent application PCT/US2018/017674, titled “Methods for Autism Spectrum Disorder Pharmacotherapy”, which lists Perfect Daylight Limited and The Regents of the University of California as Applicants, filed on February 9, 2018, published as WO 2018/148580 on August 16, 2018, and claiming priority to U.S. provisional patent application no. 62/457,120, filed on February 9, 2017. The patent application describes compositions of antipurinergic agents, such as suramin, and methods of use for treating cognitive developmental disorders and autism spectrum disorder. From publicly available databases, we are aware that a U.S. national phase application of this PCT patent application, U.S. application Serial No. 16/537,397, was filed in the United States and is currently pending. The European equivalent of the application was granted as EP3579836 on December 15, 2021, which commenced a 9-month period for public opposition. A Chinese application, CN201880024535.9, is also pending.
We are also aware of PCT international patent application PCT/ US2018/017200, titled “Antipurinergic Compounds and Uses thereof,” which lists CSP Pharma, Inc. as Applicant, filed on February 7, 2018, published as WO 2018/148262 on August 16, 2018, and claiming priority to U.S. provisional patent application no. 62/456,438, filed on February 8, 2017. The patent application describes compositions and methods for treating neurodevelopmental disorders. The compositions contain an APT, such as suramin, and a carrier formulated for non-intravenous administration. The neurodevelopmental disorders include ASD. From publicly available databases, we are aware that a national phase application of this PCT patent application, U.S. application Serial No. 16/484,284 was filed in the United States. However, the US Patent Office issued a Notice of Abandonment on August 12, 2021 for applicant’s failure to respond to the office action of January 14, 2021. No further child applications are listed as pending.
We are also aware of PCT international patent application PCT/US2017/041932, titled “Diagnostic and Methods of Treatment for Chronic Fatigue Syndrome and Autism Spectrum Disorders,” which lists The Regents of the University of California as Applicant, filed on July 13, 2017, published as WO 2018/013811 on January 18, 2018, and claiming priority to U.S. provisional patent application nos. 62/464,369, filed on February 27, 2017 and 62/362,564, filed on July 14, 2016. The patent application describes biomarkers for diagnosing and predicting the development of chronic fatigue syndrome and methods of treating a mitochondrial disease or disorder, such as ASD, by administering an effective amount of an APT, such as suramin. Publicly available databases show no pending national or regional phase patent applications.
Because national phase applications of PCT/US2018/017674 are still pending at least in the United States and China, it is not certain if any patents will ultimately issue from these applications nor is it possible to predict the resultant claim scope of any such issued patent. We will continue to monitor the prosecution of these patent applications from publicly available documents.
 
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As discussed above, our success depends in part on avoiding infringement of the proprietary technologies of others. We are aware of the risks associated with the valid patent rights of third parties, however, identification of these third party proprietary technologies and patent rights is difficult because patent searching is imperfect. Also, because patent applications are maintained in secrecy until publication, we may be unaware of third-party patents that may be infringed by commercialization of PAX-101 or any of our other product candidates. Based on as yet unforeseen activities associated with the intellectual property of such third parties we may have to make modifications to our development plans, the filing of new patent applications and the prosecution of our patent portfolio, and our business.
A number of companies, including several major pharmaceutical companies, have conducted research on APTs and their effect on purinergic receptors and potential therapies which resulted in the filing of many patent applications related to this research. If we were to challenge the validity of these or any issued United States patent in court, we would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the patent’s claims.
If we were to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the United States Patent and Trademark Office, we would have to prove that the claims are unpatentable by a preponderance of the evidence. Moreover, even if we were successful in such an invalidity challenge, the decision could be appealed by the other party to the Court of Appeals for the Federal Circuit, which could involve significant resources to litigate and we cannot predict whether we would prevail on appeal. There is no assurance that a jury and/or court would find in our favor on questions of infringement, validity or enforceability.
Accordingly, if patents exist or are in the future granted that conflict with our patents, and if we face an adverse determination in a judicial or administrative proceeding, or if we are unable to obtain necessary licenses, we could be prevented from developing and commercializing PAX-101 or another product candidate, which in turn would harm the viability of our company and our business, prospects, financial condition and operating results.
We may be subject to claims that we have wrongfully hired an employee from a competitor or that we or our employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.
As is commonplace in our industry, we employ individuals who were previously employed at other pharmaceutical companies, including our competitors or potential competitors. Although no claims against us are currently pending, we may be subject in the future to claims that our employees or prospective employees are subject to a continuing obligation to their former employers (such as non-competition or non- solicitation obligations) or claims that our employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
We may be subject to claims challenging the inventorship of our patents and other intellectual property.
Although we are not aware of any asserted third-party claims challenging inventorship of our patents or ownership of our intellectual property, we may in the future be subject to claims that former employees, strategic partners, commercial counterparties or other third parties associated with us or one of our predecessors in ownership of PAX-101 have an interest in our patents or other intellectual property as an inventor or co-inventor. While it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we cannot fully control the enforcement of these policies by third parties with which we contract, nor can we be certain that assignment agreements between us and our employees, between us and our counterparties, or between our counterparties and their employees or between our predecessors of ownership and their employees and counterparties, will effectively protect our interests as to any party who conceives or develops intellectual property that we regard as our own. Among other issues, the assignment of intellectual property rights may not be self-executing, the assignment agreements may be breached, or we may have disputes arise from conflicting obligations of consultants or others who are involved in developing
 
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our product candidates. As we approach potential commercialization of our product candidates, we will need to more closely analyze the facts that we believe might be used to assert an inventorship claim against us. Determinations like these involve complex sets of facts and the application of sometimes-unsettled patent law, resulting in inherent uncertainties regarding ownership rights.
If claims challenging inventorship are made against us, we may need to resort to litigation to resolve those claims. If we fail in defending against any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of valuable intellectual property rights or the right to assert those rights against third-parties marketing competing products. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
There are risks to our intellectual property based on our international business operations.
We may face risks to our technology and intellectual property as a result of our conducting business outside of the United States, including as a result of our license of clinical data from the Ministry of Health, Republic of Malawi and Lwala Hospital (Soroti, Uganda), as certain jurisdictions may not have comparable levels of protection of corporate proprietary information and assets such as intellectual property, trademarks, trade secrets, know-how and customer information and records. While these risks are common to many companies, conducting business in certain foreign jurisdictions, housing technology, data and intellectual property abroad, or licensing technology to or from foreign partners may have more significant exposure.
General Company-Related Risks
Since certain of our directors and officers are employed by and/or consult for other companies, their other activities could compete for time on, or create conflicts of interest with, our activities.
Certain of our officers are not required to work exclusively for us. For example, Michael Derby, our Executive Chairman of the Board and Zachary Rome, our Chief Operating Officer and a director, are partners at TardiMed Sciences, LLC (“Tardimed”) and Stephen D. Sheldon, our Chief Financial Officer, is the Chief Executive Officer of Indochina Healthcare Co. Ltd. Pursuant to the agreements we have entered into with these individuals, Messrs. Derby and Rome are obligated to devote only 20 hours per week, and Mr. Sheldon is obligated to devote only 6 hours per week, to activities related to our Company. Therefore, it is possible that a conflict of interest with regard to an officer’s time may arise based on their other employment and/or business operations. As we progress, if the full-time services of these individuals are required and the current directors and officers cannot provide that level of commitment, we will need to identify suitable individuals who can dedicate such time to our Company. We can provide no assurance that we will be able to successfully identify and retain qualified candidates for these positions.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
We have two full-time employees and three part-time employees. As our development and commercialization plans and strategies develop, we will need to expand the size of our employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, our management may have to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial performance and our ability to commercialize our drug candidates and our ability to compete effectively will depend, in part, on our ability to effectively manage our future growth.
If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy. In addition, the loss of the services of certain key employees, including Howard J. Weisman, our Chief Executive Officer, would adversely impact our business prospects.
Our ability to compete in the highly competitive pharmaceuticals industry depends in large part upon our ability to attract highly qualified managerial, scientific and medical personnel. In order to induce valuable
 
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employees to remain with us, we intend to provide employees with stock-based compensation that vests over time. The value to employees of stock-based compensation that vests over time will be significantly affected by movements in the price of our common stock that we will not be able to control and may at any time be insufficient to counteract more lucrative offers from other companies.
Our management team has expertise in many different aspects of drug development and commercialization. However, we will need to hire additional personnel as we further develop our drug candidates. Competition for skilled personnel in our market is intense and competition for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. Despite our efforts to retain valuable employees, members of our management, scientific and medical teams may terminate their employment with us on short notice. We have entered into employment agreements with our executive officers. However, these employment arrangements provide for at-will employment, which means that any of our employees could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees could potentially harm our business, operating results or financial condition. In particular, we believe that the loss of the services of Howard J. Weisman, our Chief Executive Officer, would have a material adverse effect on our business. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
Other pharmaceutical companies with which we compete for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can develop and commercialize product candidates would be limited.
We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change. We have competitors in a number of jurisdictions, many of which have substantially greater name recognition, commercial infrastructures and financial, technical and personnel resources than we have. Established competitors may invest heavily to quickly discover and develop novel compounds that could make PAX-101 or any other product candidates we may develop or acquire obsolete or uneconomical. Any new product that competes with an approved product may need to demonstrate compelling advantages in efficacy, cost, convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic competition, could force us to lower prices or could result in reduced sales. In addition, new products developed by others could emerge as competitors to PAX-101 or any of our other product candidates. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.
We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions. We face competition with respect to our current product candidates and we will face competition with respect to any product candidates that we may seek to develop or commercialize in the future. Our current and potential competitors in ASD include CureMark LLC, which is in Phase 3 studies for CM-AT for ASD, Yamo Pharmaceuticals, which is in Phase 2 studies for LI-79 for ASD, GW Pharmaceuticals, which is in Phase 2 studies for Cannabidivarin for ASD, Zynerba Pharmaceuticals, which is in Phase 2 studies for Cannabidiol (“CBD”) gel for ASD, QBioMed, which is developing a preclinical asset called QBM-001 for rare pediatric nonverbal autism and Kuzani Therapeutics, Inc., which has announced that it is in clinical development for the treatment of the core symptoms of ASD in children. There are two treatments that have been approved by FDA to treat the non- core symptom of irritability in ASD: Risperdal® (Risperidone) and Abilify® (Aripiprazole). Axial Therapeutics is in Phase 2 studies for AB-2004 for irritability in ASD. For ME/CFS, AIM ImmunoTech has an approval for rintatolimod in Argentina, and is in development for the drug in the US. For LCS, Tonix Pharmaceuticals is in Phase 2 studies for TNX-102 SL.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our drug candidates.
We face a potential risk of product liability as a result of the clinical testing of our drug candidates and will face an even greater risk if we commercialize our drug candidates. For example, we may be sued if any
 
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product we develop or acquire or any materials that we use in our products allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our drug candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

decreased demand for our drug candidates;

injury to our reputation;

withdrawal of clinical trial participants;

costs to defend the related litigation;

a diversion of management’s time and our resources;

substantial monetary awards to trial participants or patients;

product recalls, withdrawals or labeling, marketing or promotional restrictions;

the inability to commercialize our drug candidates; and

a decline in the value of our stock.
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop or acquire. We intend to obtain product liability insurance covering our clinical trials. Although we will maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
We may acquire businesses, assets or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.
We may acquire additional businesses, assets or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new businesses, assets or products we may acquire, and any delay in their integration may delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.
Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced a cyber-attack to date, there can be no assurance that we will not experience cyber-attacks in the future, suffer indirect consequences from cyber-attack on a third-party, or fail to anticipate, identify or offset such threats of potential cyber-attacks or security breaches in a timely manner. This is especially so considering the nature of cyber-attack techniques, which change frequently, can be difficult to detect for extended periods of time and often are not recognized until they succeed. System failures, accidents or security breaches could cause interruptions in our operations and could result in a material disruption of our product development and clinical activities and business operations, in addition to possibly requiring
 
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substantial expenditures of resources to remedy. The loss of product development or clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our development programs and the development of our product candidates could be delayed.
Risks Related to Our Common Stock and this Offering
No public market for our common stock currently exists, and an active trading market may not develop or be sustained following this offering.
Prior to this offering, there has been no public market for our common stock. An active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair market value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire additional intellectual property assets by using our shares as consideration.
The prices of our shares may be volatile, which could subject us to securities class action litigation and prevent you from being able to sell your shares at or above the offering price.
The initial public offering price for our shares will be determined by negotiations between us and the underwriters based on several factors. This price may vary from the market price of our common stock after this offering. You may be unable to sell your shares of common stock at or above the initial offering price. The market price for our common stock may be volatile and subject to wide fluctuations in response to factors including the following:

actual or anticipated fluctuations in our quarterly or annual operating results;

actual or anticipated changes in the pace of our corporate achievements or our growth rate relative to our competitors;

failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public;

issuance of new or updated research or reports by securities analysts;

share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; additions or departures of key management or other personnel;

disputes or other developments related to proprietary rights, including patents, litigation matters, and our ability to obtain patent protection for our technologies;

announcement or expectation of additional debt or equity financing efforts;

sales of our common stock by us, our insiders or our other stockholders; and

general economic, market or political conditions in the United States or elsewhere (including, without limitation, conditions arising out the COVID-19 pandemic).
In particular, the market prices of early clinical-stage companies like ours have been highly volatile due to factors, including, but not limited to:

any delay or failure in a clinical trial for our product candidates or receive approval from the FDA and other regulatory agents;

developments or disputes concerning our product’s intellectual property rights;

our or our competitors’ technological innovations;

fluctuations in the valuation of companies perceived by investors to be comparable to us;

announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies or patents;
 
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failure to complete significant transactions or collaborate with vendors in manufacturing our product; and

proposals for legislation that would place restrictions on the price of medical therapies.
These and other market and industry factors may cause the market price and demand for our common stock to fluctuate substantially, regardless of our actual operating performance, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, the stock market in general, and Nasdaq Capital Markets and emerging growth companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. In the past, when the market price of a security has been volatile, holders of that security have instituted securities class action litigation against the company that issued the security. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management.
After this offering, our officers, directors, and principal stockholder (which is an affiliate of our Executive Chairman) will continue to exercise significant control over our company, and will control our company for the foreseeable future, including the outcome of matters requiring stockholder approval.
When this offering is completed our officers, directors, entities controlled by our officers and directors, and principal stockholders who beneficially own more than 5% of our common stock after this offering will in the aggregate, beneficially own shares representing approximately 87.8% of our outstanding capital stock immediately after this offering. In particular, TardiMed, which is controlled by Michael Derby, our Executive Chairman, and which provides office space and important administrative services to us pursuant to the Rent and Administrative Services Agreement, will beneficially own shares representing approximately 67.2% of our outstanding capital stock immediately after this offering (prior to this offering, TardiMed owns approximately 85.5% of our outstanding capital stock (assuming the Series Seed Exchange)). As a result, such entities and individuals will have the ability, acting together, to control the election of our directors and the outcome of corporate actions requiring stockholder approval, such as: (i) a merger or a sale of our company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our certificate of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to our other stockholders and be disadvantageous to our stockholders with interests different from those entities and individuals. These individuals also have significant control over our business, policies and affairs as officers and directors of our company. Therefore, you should not invest in reliance on your ability to have any control over our company.
Future sales of shares by existing stockholders could cause our stock price to decline.
If our existing stockholders sell, or indicate an intent to sell, substantial amounts of our common stock in the public market after the 180-day contractual lock-up and other legal restrictions on resale discussed in this prospectus lapse, the trading price of our common stock could decline significantly and could decline below the initial public offering price. Based on shares outstanding as of the date of this prospectus, upon the completion of this offering, we will have 10,016,381 outstanding shares of common stock, assuming the Series Seed Exchange. Of these shares, 3,112,042 shares of common stock, plus any shares sold pursuant to the underwriters’ option to purchase additional shares will be immediately freely tradable, without restriction, in the public market.
In addition, (i) 1,342,666 shares of our common stock are reserved for issuance upon settlement of restricted stock units granted as of March 31, 2022 pursuant to the 2020 Plan, (ii) 419,000 shares of our common stock are reserved for issuance upon settlement of restricted stock units granted since March 31, 2022 pursuant to the 2020 Plan, (iii) 738,334 shares of our common stock will be reserved for future issuance under the 2020 Plan, (iv)  284,176 shares of common stock issuable upon the exercise of the 2020 Warrants to purchase shares of common stock at an exercise price of $3.00, (v) 195,140 shares of common stock issuable upon the exercise of the 2022 Warrants to purchase shares of common stock at an exercise price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus),
 
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(vi) 334,441 shares of common stock issuable upon conversion of the 2022 Notes at a conversion price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus), and (vii) 1,876,375 shares of common stock issuable upon conversion of the Series X Preferred Stock, in each case may become eligible for sale in the public market in the future, subject to certain legal and contractual limitations. If our existing stockholders sell substantial amounts of our common stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business.
We will have broad discretion in how we use the net proceeds of this offering. We may not use these proceeds effectively, which could affect our results of operations and cause our stock price to decline.
Our management will have broad discretion over the use of proceeds from this offering, including for any of the purposes described in the section entitled “Use of Proceeds,” and we could spend the proceeds from this offering in ways our stockholders may not agree with or that do not yield a favorable return, if at all. We intend to use substantially all of the net proceeds of this offering to further our product development activities and for working capital and general corporate purposes. However, our use of these proceeds may differ substantially from our current plans. If we do not invest or apply the proceeds of this offering in ways that improve our operating results, we may fail to achieve expected financial results, which could cause our stock price to decline. You will be relying on the judgment of our management concerning these uses and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The failure of our management to apply these funds effectively could result in unfavorable returns and uncertainty about our prospects, each of which could cause the price of our common stock to decline.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.
Investors in this offering will pay a higher price than the book value of our common stock.
If you purchase common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. You will incur immediate and substantial dilution of $5.05 per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering, the Series Seed Exchange, the Series X Private Placement, the SAFE Conversion, the Series X Conversion, the Warrant Exchange and the 2022 Convertible Note Conversion Agreement, and an initial public offering price of $5.50 per share, the midpoint of the estimated price range set forth on the cover page of this prospectus. In the past, we issued stock options to acquire shares of our common stock at prices significantly below the initial public offering price. To the extent any outstanding options are ultimately exercised, you will sustain further dilution. For further information on this calculation, see the section entitled “Dilution.”
We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we
 
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become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
We intend to take advantage of these reporting exemptions described above until we are no longer an “emerging growth company.” Under the JOBS Act, “emerging growth companies” can also delay adopting new or revised accounting standards 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.
We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and the price of our common stock may be more volatile.
We will incur significantly increased costs and devote substantial management time as a result of operating as a public company particularly after we are no longer an “emerging growth company.”
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. For example, we will be required to comply with certain of the requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as amended, as well as rules and regulations subsequently implemented by the SEC, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time consuming and costly. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. In addition, after we no longer qualify as an “emerging growth company,” as defined under the JOBS ACT we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We are just beginning the process of compiling the system and processing documentation needed to comply with such requirements. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. In that regard, we currently do not have an internal audit function, and we will need to hire or contract for additional accounting and financial staff with appropriate public company experience and technical accounting knowledge.
We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.
Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock.
If, after listing, we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, 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 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.
 
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There may be limitations on the effectiveness of our internal controls, and a failure of our control systems to prevent error or fraud may materially harm our company.
Proper systems of internal controls over financial accounting and disclosure controls and procedures are critical to the operation of a public company. As we are a start-up company, we have a part-time Chief Financial Officer and one contractor with responsibility over our finance and accounting functions, which may result in a lack of segregation of duties. We are also at the very early stages of establishing, and we may be unable to effectively establish such systems, especially in light of the fact that we expect to operate as a publicly reporting company. This would leave us without the ability to reliably assimilate and compile financial information about our company and significantly impair our ability to prevent error and detect fraud, all of which would have a negative impact on our company from many perspectives. Furthermore, our Chief Financial Officer only is required to contribute a limited number of hours per week to our affairs, which could have a negative impact on our ability to establish and maintain our finance and accounting functions.
Moreover, we do not expect that disclosure controls or internal control over financial reporting, even if established, will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Failure of our control systems to prevent error or fraud could materially adversely impact us.
We have identified material weaknesses in our internal control over financial reporting and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.
In the course of preparing our financial statements for the year ended December 31, 2020 and the three months ended March 31, 2022, 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 March 31, 2022. 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 our 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.
To remediate the above material weaknesses, we intend to develop 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
 
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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.
We cannot assure you, however, that any actions we may take in the future will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods.
Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our internal control over financial reporting is documented, designed, or operating. Any failure to implement and maintain effective internal control over financial reporting also could adversely affect the results of periodic management evaluations and annual independent registered public accounting firm attestation reports regarding the effectiveness of our internal control over financial reporting that we will eventually be required to include in our periodic reports that are filed with the Commission. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq Capital Market.
We do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
We have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
Upon dissolution of our company, you may not recoup all or any portion of your investment.
In the event of a liquidation, dissolution or winding-up of our company, whether voluntary or involuntary, the proceeds and/or assets of our company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities and distributions required to be made to holders of any outstanding preferred stock will then be distributed to the stockholders of our common stock on a pro rata basis. There can be no assurance that we will have available assets to pay to the holders of our common stock, or any amounts, upon such a liquidation, dissolution or winding-up of our Company. In this event, you could lose some or all of your investment.
Our operations expose us to litigation, tax, environmental and other legal compliance risks.
We are subject to a variety of litigation, tax, environmental, health and safety and other legal compliance risks. These risks include, among other things, possible liability relating to product liability matters, intellectual property rights, contract-related claims, taxes, health and safety liabilities, environmental matters and compliance with U.S. and foreign laws, competition laws and laws governing improper business practices. We may be subject to claims from vendors, licensees, licensors and securityholders (including our current securityholders), including with respect to alleged breaches of agreements, material misstatements in our public filings and other reasons. We could be charged with wrongdoing as a result of such matters. We have not received any notice of any such claims and believe such claims would be without merit and would vigorously defend ourselves, however the risk of such claims is uncertain and there can be no assurance that
 
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our Company will not be liable for damages, the amount of which cannot be predicted. Further, in connection with any such claims, a court may grant other remedies that will have a material adverse effect on our Company’s financial condition or results of operations, or that will result in changes to our liquidity or capitalization. Changes in laws or regulations could result in higher expenses and payments, and uncertainty relating to laws or regulations may also affect how we conduct our operations and structure our investments and could limit our ability to enforce our rights.
Anti-takeover provisions contained in our Certificate of Incorporation and our bylaws to be adopted upon the closing of this offering (our ‘‘Bylaws’’), as well as provisions of Delaware law, could impair a takeover attempt.
Our Certificate of Incorporation, Bylaws and Delaware law contain or will contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include or will include provisions:

classifying our board of directors into three classes;

authorizing “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain voting, liquidation, dividend, and other rights superior to our common stock;

limiting the liability of, and providing indemnification to, our directors and officers;

limiting the ability of our stockholders to call and bring business before special meetings;

requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and

providing our board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.
Any provision of our Certificate of Incorporation, Bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
Our certificate of incorporation that will be in effect upon the completion of this offering (together with any amendments thereto, our “Certificate of Incorporation”) designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Our Certificate of Incorporation requires that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

any derivative action or proceeding brought on our behalf;

any action asserting a claim for breach of any fiduciary duty owed by any director, officer or other employee of ours to the Company or our stockholders, creditors or other constituents;

any action asserting a claim against us or any director or officer of ours arising pursuant to, or a claim against us or any of our directors or officers, with respect to the interpretation or application of any provision of, the DGCL, our Certificate of Incorporation or Bylaws; or
 
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any action asserting a claim governed by the internal affairs doctrine;
provided, that, if and only if the Court of Chancery of the State of Delaware dismisses any of the foregoing actions for lack of subject matter jurisdiction, any such action or actions may be brought in another state court sitting in the State of Delaware.
The exclusive forum provision is limited to the extent permitted by law, and it will not apply to claims arising under the Exchange Act or for any other federal securities laws which provide for exclusive federal jurisdiction, though it may apply to other state and federal law claims including actions arising under the Securities Act (although our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder).
However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our Certificate of Incorporation provides that the Court of Chancery for the State of Delaware will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, there is uncertainty as to whether a court would enforce such a forum selection provision as written in connection with claims arising under the Securities Act. In addition, a stockholder may nevertheless seek to bring such a claim arising under the Securities Act against us, our directors, officers, or other employees in a venue other than the Court of Chancery for the State of Delaware. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our Certificate of Incorporation.
Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, this provision may limit or discourage a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our Certificate of Incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.
We note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business,” contains forward-looking statements. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning the following:

our lack of operating history;

the expectation that we will incur significant operating losses for the foreseeable future and will need significant additional capital following this offering;

the effects of the COVID-19 pandemic on our business and operations;

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;

our relationship with TardiMed, an affiliated entity that provides office space and important administrative services 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;

interpretations of current laws and the passages of future laws;

acceptance of our business model by investors;

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

our ability to adequately support organizational and business growth.
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in our forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee
 
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that the future results, levels of activity, performance or events and circumstances described in the forward-looking statements will be achieved or will occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations, except as required by law.
You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission (the “Commission”) as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
 
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USE OF PROCEEDS
We estimate that we will receive net proceeds of approximately $6.6 million from the sale of the shares of common stock offered in this offering, or approximately $7.8 million if the underwriters exercise their over-allotment option in full, based on an assumed initial public offering price of $5.50 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our financial flexibility, create a public market for our common stock and to facilitate our access to the public equity markets. We currently expect to use the net proceeds from this offering for product development activities, including clinical and regulatory research and development for our product candidates, and the remainder for working capital and other general corporate purposes, including the payment of accrued but unpaid salaries and the associated costs of operating as a public company. We currently expect to use the net proceeds from this offering as follows:

approximately $2.5 million for drug-substance procurement and supply-chain activities;

approximately $2.5 million for the clinical and regulatory development activities related to the HAT, ASD, ME/CFS and LCS indications;

up to $50,000 to repay the outstanding amounts due under the 2022 Notes that are not subject to the 2022 Convertible Note Conversion Agreements, to the extent they are not converted; and

approximately $2.0 million for working capital and general corporate purposes.
Based on our current projections, we believe the net proceeds of this offering will fund our operations through 2023. At that time, we expect the net proceeds from this offering to have funded the completion of the necessary clinical data and supply chain validation to file an NDA for PAX-101 in the HAT indication. We may also use a portion of the net proceeds of this offering for the acquisition or licensing, as the case may be, of additional technologies, other assets or businesses, or for other strategic investments or opportunities, although we currently have no understandings, agreements or commitments to do so.
Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. The amounts and timing of our actual expenditures will depend upon numerous factors, including our sales and marketing and commercialization efforts, demand for our products, our operating costs and the other factors described under “Risk Factors” in this prospectus. Accordingly, our management will have flexibility in applying the net proceeds from this offering. An investor will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions on how to use the proceeds.
The 2022 Notes bear interest at a rate of 10% per year and mature between April and July 2023. The use of proceeds of the issuance of the 2022 Notes, to the extent applied, has been for working capital and general corporate purposes, including fees associated with this offering.
Each $1.00 increase (decrease) in the assumed initial public offering price of $5.50 per share (the midpoint of the estimated price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $1.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) the net proceeds to us from this offering, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $5.0 million, assuming the initial public offering price stays the same. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.
Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments and U.S. government securities.
 
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DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future.
 
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CAPITALIZATION
The following table sets forth our cash and capitalization as of March 31, 2022:

on an actual basis;

on a pro forma basis to give effect to (i) the Series Seed Exchange, (ii) the Series X Private Placement, (iii) the SAFE Conversion, (iii) the Series X Conversion, (iv) the Warrant Exchange, (v) the issuance of the 2022 Convertible Notes and 2022 Warrants (vi) the 2022 Convertible Note Conversion Agreements, (vii) the reclassification of the 2022 Warrants from a current liability to stockholders’ equity due to the establishment of a fixed exercise price at the time of this offering and (viii) the filing and effectiveness of our Certificate of Incorporation, which will occur upon closing of this offering; and

on a pro forma as adjusted basis, to give effect to the pro forma adjustments described above as well as the sale and issuance by us of 1,545,454 shares of our common stock in this offering at an assumed initial public offering price of $5.50 per share (the midpoint of the price range set forth on the cover page of this prospectus), and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, net of $0.7 million recorded in accrued expenses and other current liabilities and other assets at March 31, 2022.
As of
March 31, 2022
(unaudited)
Actual
Pro Forma
Pro
Forma as
Adjusted
Cash(1) $ 49,383 $ 1,820,939 $ 8,446,511
2022 Convertible Note Liability
216,000 216,000
SAFE liability
3,190,000
Warrant liability
2,282,719
Stockholders’ equity (deficit):
Series X Preferred Stock, none issued and outstanding (actual); 0
issued and outstanding (pro forma and pro forma as adjusted)
Preferred Stock, 2,696,439 issued and outstanding at March 31, 2022; aggregate liquidation preference of $2,808,148 as of March 31, 2022 (actual); none issued and outstanding (pro forma and pro forma adjusted)
270
Common Stock, 6,913,492 shares issued and outstanding; 11,308,097 shares issued and outstanding (pro forma); 12,853,551 issued and outstanding (pro forma as adjusted)
691 1,095 1,254
Additional paid in capital
9,009,619 23,985,792 30,611,205
Accumulated deficit
(17,074,787) (25,022,819) (25,022,819)
Total stockholders’ equity (deficit)(1)
(8,064,207) (1,035,932) 5,589,641
Total capitalization(1)
$ (2,591,488) $ (819,932) $ 5,805,641
(1)
For the period since March 31, 2022, we have incurred additional expenses in the amount of $0.9 million, which would decrease our cash balance and stockholders’ equity by $0.9 million as compared to what is presented above.
(2)
The number of shares of our common stock to be outstanding upon completion of this offering and the calculations above are based on the number of shares of our common stock outstanding as of March 31, 2022 and also reflects the Series Seed Exchange and the conversion of 1,922,829 shares of common stock issuable upon the conversion of our Series X Preferred Stock (including 46,465 shares of common stock issuable upon the conversion of Series X Preferred Stock issuable upon the completion of this offering pursuant to one of the 2022 Convertible Note Conversion Agreements), and excludes:

284,176 shares of our common stock issuable upon the exercise of the 2020 Warrants to purchase shares of common stock at an exercise price of $3.00;
 
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1,342,666 shares of our common stock reserved for issuance upon settlement of restricted stock units granted as of March 31, 2022 pursuant to the 2020 Plan;

419,000 shares of our common stock reserved for issuance upon settlement of restricted stock units granted since March 31, 2022 pursuant to the 2020 Plan;

108,181 shares of our common stock underlying the Representative’s Warrants to be issued to the underwriters in connection with this offering;

738,334 shares of our common stock available for issuance under the 2020 Plan;

49,090 shares of our common stock issuable upon conversion of certain of the 2022 Notes (those 2022 Notes not subject to the 2022 Convertible Note Conversion Agreements) at a conversion price equal to the lesser of 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus); and

195,140 shares of our common stock issuable upon exercise of the 2022 Warrants at an exercise price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus).
You should read this information together with our financial statements and related notes appearing elsewhere in this prospectus and the information set forth under the headings “Summary Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
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DILUTION
If you invest in our common stock in this offering, your interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the net tangible book value per share of our common stock after this offering. As of March 31, 2022, we had a historical net tangible book value of $(8.1) million, or $(1.17) per share of common stock. Our net tangible book value represents total tangible assets less total liabilities divided by the number of shares of common stock outstanding on March 31, 2022. Our pro forma net tangible book value as of March 31, 2022, before giving effect to this offering, but after giving effect to (i) the Series Seed Exchange, (ii) the Series X Private Placement, (iii) the SAFE Conversion, (iii) the Series X Conversion, (iv) the Warrant Exchange, (v) the issuance of the 2022 Convertible Notes and 2022 Warrants (vi) the 2022 Convertible Note Conversion Agreements, and (vii) the reclassification of the 2022 Warrants from a current liability to stockholders’ equity due to the establishment of a fixed exercise price at the time of this offering, was approximately $(1.0) million, or $(0.09) per share of our common stock.
After giving effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $5.50 per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting the estimated underwriting discount and estimated offering expenses payable by us, net of $0.7 million recorded in accrued expenses and other current liabilities and other assets at March 31, 2022 our pro forma as adjusted net tangible book value as of March 31, 2022, would have been approximately $5.6 million, or $0.45 per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.54 per share to existing stockholders and an immediate dilution of $5.05 per share to new investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share
$ 5.50
Tangible book value per share of common stock at March 31, 2022
$ (1.17)
Pro forma adjustments to tangible book value per share of common stock
1.08
Pro forma tangible book value per share of common stock at March 31, 2022
(0.09)
Increase in net tangible book value per share of common stock attributable to this offering
0.54
Pro forma adjusted tangible book value per share of common stock after this offering
0.45
Dilution per share of common stock to new investors in this offering
$ 5.05
A $1.00 decrease in the assumed initial public offering price of $5.50 per share (the midpoint of the price range set forth on the cover page of this prospectus) would decrease our pro forma as adjusted net tangible book value as of March 31, 2022 after this offering by approximately $1.4 million, or approximately $0.12 per share, and would decrease dilution to investors in this offering by approximately $0.88 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discount and estimated offering expenses payable by us. A $1.00 increase in the assumed initial public offering price of $5.50 per share (the midpoint of the price range set forth on the cover page of this prospectus) would increase our pro forma as adjusted net tangible book value as of March 31, 2022 after this offering by approximately $1.4 million, or approximately $0.11 per share, and would increase dilution to investors in this offering by approximately $0.89 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, after deducting the estimated underwriting discount and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. An increase of 1,000,000 in the number of shares we are offering would increase our pro forma as adjusted net tangible book value as of March 31, 2022 after this offering by approximately $5.1 million, or approximately $0.34 per share, and would decrease dilution to investors in this offering by approximately $0.34 per share, assuming the assumed initial public offering price per share remains the same, after deducting the estimated underwriting discount and estimated offering expenses payable by us. A decrease of 1,000,000 in the number of shares we are offering would decrease our pro forma as adjusted net tangible book value as of March 31, 2022 after this offering by approximately $5.1 million, or approximately $0.40 per share, and would increase dilution to investors in this
 
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offering by approximately $0.40 per share, assuming the assumed initial public offering price per share remains the same, after deducting the estimated underwriting discount and estimated offering expenses payable by us.
The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.
If the underwriters exercise their over-allotment option in full, the pro forma as adjusted net tangible book value per share after giving effect to this offering would be $0.53 per share, which amount represents an immediate increase in net tangible book value of $0.62 per share of our common stock to existing stockholders and an immediate dilution in net tangible book value of $4.97 per share of our common stock to new investors purchasing shares of common stock in this offering.
To the extent that outstanding options with an exercise price per share that is less than the pro forma as adjusted net tangible book value per share are exercised, new investors will experience further dilution. In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.
The following table shows, as of March 31, 2022, on a pro forma as adjusted basis, the number of shares of common stock purchased from us, the total consideration paid to us and the average price paid per share by existing stockholders and by new investors purchasing common stock in this offering at an assumed initial public offering price of $5.50 per share (the midpoint of the price range set forth on the cover page of this prospectus), before deducting the estimated underwriting discount and estimated offering expenses payable by us (in thousands, except share and per share amounts and percentages):
Shares Purchased
Total Consideration
Average Price
Per Share
Number
Percent
Amount
Percent
Existing stockholders
8,470,927 84.6% $ 4,107,500 33% $ 0.48
Investors participating in this offering
1,545,454 15.4% $ 8,499,997 67% $ 5.50
Total
10,016,381 100% $ 12,607,497 100%
The number of shares of our common stock to be outstanding upon completion of this offering and the calculations above are based on the number of shares of our common stock outstanding as of March 31, 2022 and also reflects the Series Seed Exchange and the conversion of 1,922,829 shares of common stock issuable upon the conversion of our Series X Preferred Stock (including 46,465 shares of common stock issuable upon the conversion of Series X Preferred Stock issuable upon the completion of this offering pursuant to one of the 2022Convertible Note Conversion Agreements), and excludes:

284,176 shares of our common stock issuable upon the exercise of the 2020 Warrants to purchase shares of common stock at an exercise price of $3.00;

1,342,666 shares of common stock reserved for issuance upon settlement of restricted stock units granted as of March 31, 2022 pursuant to the 2020 Plan;

419,000 shares of our common stock reserved for issuance upon settlement of restricted stock units granted since March 31, 2022 pursuant to the 2020 Plan;

108,181 shares of our common stock underlying the Representative’s Warrants to be issued to the underwriters in connection with this offering;

738,334 shares of our common stock available for issuance under the 2020 Plan;

46,465 shares of our common stock issuable upon conversion of certain of the 2022 Notes (those 2022 Notes not subject to the 2022 Convertible Note Conversion Agreement) at a conversion price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus); and
 
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195,140 shares of our common stock issuable upon exercise of the 2022 Warrants at an exercise price equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus).
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes thereto and the financial information appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis here and throughout this prospectus contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” and elsewhere in this prospectus.
Overview
We are a clinical stage biopharmaceutical company focusing on the development of APT for the treatment of disorders with intractable neurologic symptoms, ranging from neurodevelopmental disorders, including ASD, to 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 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 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 an NDA for PAX-101 under the FDA’s Tropical Disease Priority Voucher Program for the treatment of 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 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.
We have not generated any revenue to date and, through March 31, 2022, we had an accumulated deficit of approximately $17.1 million. To date, we have financed our operations through contributions from our prior members, the issuance of our convertible notes, and the issuance of our SAFE and Series X Preferred Stock. 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.
 
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Between April and July 2022, we issued the 2022 Notes with a principal balance totaling approximately $1.5 million. The 2022 Notes contain an original issue discount totaling $0.2 million and we received net proceeds of approximately $1.3 million. The 2022 Notes bear interest at 10% per annum and mature 12 months from the issuance date. The 2022 Notes are secured by all assets and personal property of the Company. The note holders have the right to convert all or any portion of the outstanding principal balance and accrued interest into shares of the Company’s common stock, up to a beneficial ownership limitation of 9.99% of the number of shares of common stock outstanding at the time of conversion. The per-share conversion price is equal to 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus). In connection with the 2022 Notes, the Company issued the 2022 Warrants to purchase 171,998 shares of the Company’s common stock. The 2022 Warrants have an exercise price of 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus), and expire five years from the issuance date.
Financial Operations Overview
Revenue
To date, we have not generated any revenue. Our ability to generate product revenue, which we do not expect will occur in the near term, if ever, 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 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, 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.
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.
Fair Value of Restricted Stock Units Granted
On January 1, 2022, we granted 1,342,667 RSUs with a fair value of approximately $14.6 million to certain employees, officers and directors of the Company. The restricted stock unit grants provide that 33.34% of each of the restricted stock unit grants would vest on May 1, 2022, with an additional 8.3325% of each grant vesting each quarter thereafter, provided that if neither (i) the expiration of the 6-month period
 
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following an initial public offering nor (ii) a change in control has occurred prior to the applicable vesting date, any restricted stock units that would have vested shall not vest until such expiration of the 6-month period following an initial public offering or change in control occurs (provided further that if neither an initial public offering nor a change in control occurs on or prior to December 31, 2022, then all of the restricted stock units will be forfeited). Vesting in all cases generally is subject to the grantee’s continued employment with the Company or a subsidiary thereof on the applicable vesting date. 255,814 of these RSUs were forfeited in connection with the retirement of one of our executive officers.
During the three months ended March 31, 2022 and 2021, we recorded stock-based compensation expense of approximately $0.2 million and $0.5 million, respectively. The unamortized stock-based compensation expense as of March 31, 2022 is approximately $0.5 million.
Impact of COVID-19
Based on our current assessment, we do not expect any material impact on our long-term development timeline and our liquidity due to the worldwide COVID-19 pandemic. However, the COVID-19 pandemic could adversely impact our clinical trial operations, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 if an outbreak worsens in their geography, or have other adverse effects on our business, results of operations and financial condition. We are continuing to assess the effect on our operations by monitoring the spread of COVID-19 and the resulting global pandemic and the actions implemented to combat the virus throughout the world.
Material Weaknesses in Internal Control over Financial Reporting
In the course of preparing our financial statements for the year ended December 31, 2020 and March 31, 2022, 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 March 31, 2022. 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.
To remediate the above material weaknesses, we intend to develop 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.
 
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Results of Operations
Comparison of the Three Months Ended March 31, 2022 to the Three Months Ended March 31, 2021
Three Months Ended March 31,
2022
2021
Operating expenses
General and administrative
$ 933,817 $ 1,286,992
Research and development
1,070,704 427,955
Total operating expenses
2,004,521 1,714,947
Loss from operations
(2,004,521) (1,714,947)
Other income (expense), net
3,867,983 (5,505,304)
Net income (loss)
$ 1,863,462 $ (7,220,251)
Operating expenses
General and administrative
General and administrative expenses were approximately $1.0 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively. The $0.3 million decrease in general and administrative expenses was primarily due to decreases of $0.3 million of stock-based compensation and $0.2 million of payroll and related expenses, offset by an increase of $0.2 million for legal and professional fees.
Research and Development
Research and development expenses were approximately $1.1 million for the three months ended March 31, 2022 and approximately $0.4 million for the three months ended March 31, 2021. The $0.7 million increase in research and development expenses was primarily attributable to costs incurred in connection with our research activities and include costs associated with clinical trials, consultants, clinical trial materials, regulatory filings, facilities, laboratory expenses and other supplies.
Of the $1.1 million in research and development expenses incurred during the three months ended March 31, 2022, $1.0 million was associated with activities related to the HAT indication, and $0.1 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 $0.4 million in research and development expenses incurred during the three months ended March 31, 2021, approximately $0.3 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 $11.8 million, which we expect to fund with the proceeds of this offering and future capital raising activities, if necessary.
Other Income (Expenses), net
Other income was approximately $3.9 million for the three months ended March 31, 2022 compared with other expenses of $5.5 million for the three months ended March 31, 2021. The increase of $9.4 million was comprised of a decrease of $2.7 million for the change in fair value of our warrant liability and $3.9 million for the change in fair value of our SAFE investment, offset by a decrease of $2.8 million of interest expense recorded in connection with the conversion of our senior secured convertible promissory notes in 2021.
 
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The change in fair value of our warrant liability of $2.7 million was primarily due to a lower valuation of our stock price as of March 31, 2022 ($5.26 per share) compared to December 31, 2021 ($10.87 per share). The change in fair value of our SAFE investment was primarily due to challenging market conditions, which resulted in a lower probability that the SAFE would convert to shares of common stock or that the investor would be repaid. The primary driver of the lower valuation was due to a lower probability of IPO as a result of challenging market conditions. As of December 31, 2021 the probability of an IPO was 95% and as of March 31, 2022 the probability of an IPO was 20%.
Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020
Years Ended December 31,
2021
2020
Operating expenses
General and administrative
$ 4,973,245 $ 4,629,070
Research and development
2,224,555 936,776
Total operating expenses
7,197,800 5,565,846
Loss from operations
(7,197,800) (5,565,846)
Other expense, net
(3,031,171) (2,260,162)
Net loss
$ (10,228,971) $ (7,826,008)
Operating expenses
General and administrative
General and administrative expenses were approximately $5.0 million and $4.6 million for the years ended December 31, 2021 and 2020, respectively. The $0.4 million increase in general and administrative expenses for the year ended December 31, 2021, as compared to the prior period, was primarily due to an increase of $1.2 million in payroll and related expenses and $0.1 million of other operating expenses, offset by a decrease of $0.9 million for stock-based compensation.
Certain general and administrative expenses have been allocated by TardiMed, an affiliate of ours. These expenses are primarily comprised of TardiMed personnel and related expenses, rent and other office expenses. We consider the allocation methodologies used to allocate expenses as reasonable and appropriate based on historical TardiMed expenses attributable to us and our operations. For the year ended December 31, 2021, no expenses were allocated from Tardimed. For the year ended December 31, 2020, approximately $25,000 was allocated to general and administrative expenses.
Research and Development
Research and development expenses were approximately $2.2 million for the year ended December 31, 2021 and approximately $0.9 million for the year ended December 31, 2020. The increase in research and development expenses for the year ended December 31, 2021 as compared to the prior period was primarily attributable to costs incurred in connection with our research activities and include costs associated with clinical trials, consultants, clinical trial materials, regulatory filings, facilities, laboratory expenses and other supplies.
Of the $2.2 million in research and development expenses incurred during the year ended December 31, 2021, $1.5 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 ongoing ASD trial.
Of the approximately $0.9 million in research and development expenses incurred during the year ended December 31, 2020, approximately $0.2 million was associated with activities related to the HAT indication, and approximately $0.6 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.
 
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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 $11.8 million, which we expect to fund with the proceeds of this offering and future capital raising activities, if necessary.
Certain research and development expenses have been allocated by TardiMed. These expenses are primarily comprised of TardiMed personnel and related expenses. We consider the allocation methodologies used to allocate expenses as reasonable and appropriate based on historical TardiMed expenses attributable to us and our operations. For the year ended December 31, 2021, no expenses were allocated from Tardimed. For the year ended December 31, 2020, approximately $25,000 was allocated to research and development expenses.
Other Expenses, net
Other expenses, net were approximately $3.0 million for the year ended December 31, 2021 and $2.3 million for the year ended December 31, 2020. The increase of $0.7 million was comprised of an increase of $2.2 million of interest expense recorded in connection with the conversion of our senior secured convertible promissory notes, offset by a decrease of $1.1 million for the change in fair value of our warrant liability, $0.2 million for the change in fair value of our SAFE investment, and $0.2 million related to the issuance, extinguishment and conversion of our convertible notes.
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 March 31, 2022, we had an accumulated deficit since inception of approximately $17.1 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 March 31, 2022, we have funded our operations through contributions from TardiMed, the issuance of senior secured convertible promissory notes of approximately $2.9 million, and our SAFE of $5.0 million.
Between April and July 2022, we issued the 2022 Notes with a principal balance totaling approximately $1.5 million. The 2022 Notes contain an original issue discount totaling $0.2 million and we received net proceeds of approximately $1.3 million. The 2022 Notes bear interest at 10% per annum and mature 12 months from the issuance date. The note holders have the right to convert all or any portion of the outstanding principal balance and accrued interest into shares of our common stock, up to a beneficial ownership limitation of 9.99% of the number of shares of common stock outstanding at the time of conversion. The per-share conversion price is 80% of the initial offering price, or $4.40 (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus. In connection with the 2022 Notes, we also issued the 2022 Warrants to purchase 195,140 shares of our common stock. The 2022 Warrants have an exercise price of 80% of the initial offering price, or $4.40 per share (based on the assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus) and expire five years from the issuance date. On August 3, 2022, we entered into conversion agreements with certain holders of our 2022 Notes, pursuant to which (i) certain holders agreed to convert an aggregate of $1.0 million of principal amount of the 2022 Notes at the consummation of this offering at the conversion price set forth in the 2022 Notes at 80% of the initial offering price (which, based on an assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, is $4.40) and (ii) a certain holder agreed to convert an aggregate of $255,555 of principal amount of its 2022 Notes at the consummation of this offering into an aggregate of 2,555 shares of Series X Preferred Stock.
On August 2, 2022, we issued and sold an aggregate of 3,200 shares of our Series X Preferred Stock to an “accredited investor” in a private placement at a purchase price of $100 per share, for aggregate proceeds of approximately $320,000 and net proceeds to us of approximately $300,000, after deducting expenses. Upon the closing of this offering, all outstanding shares of Series X Preferred Stock will automatically convert into shares of common stock at the initial offering price, subject to the beneficial ownership restrictions contained in the certificate of designations for the Series X Preferred.
 
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Operating activities
During the three months ended March 31, 2022 , net cash used in operating activities was $0.4 million, which primarily included our net income of approximately $1.9 million, adjusted for non-cash expenses of approximately $3.7 million, including stock-based compensation of approximately $0.2 million, offset by the change in fair value of our SAFE liability of $1.6 million and change in fair value of our warrant liability of $2.2 million. The net change in operating assets and liabilities was approximately $1.4 million due to increases in accounts payable and accrued expenses.
During the three months ended March 31, 2021, net cash used in operating activities was approximately $0.8 million which primarily included our net loss of approximately $7.2 million, adjusted for non-cash expenses of approximately $6.0 million including amortization of the debt discount of $2.6 million related to our convertible promissory notes, the change in fair value of our SAFE liability of $2.3 million, stock-based compensation of approximately $0.5 million, the change in fair value of our warrant liability of $0.5 million, and interest expense of $0.2 million incurred with our convertible promissory notes, offset by a $0.1 million gain on conversion of our promissory notes. The net change in operating assets and liabilities was approximately $0.4 million and was primarily due to increases in accounts payable and accrued expenses.
During the year ended December 31, 2021, net cash used in operating activities was $5.5 million, which primarily included our net loss of approximately $10.2 million, adjusted for non-cash expenses of approximately $4.4 million, including the amortization of the debt discount associated with our convertible notes of $2.6 million, stock-based compensation of approximately $1.3 million, the change in fair value of our warrant liability of $0.5 million, and non-cash interest expense of approximately $0.3 million, offset by the change in fair value of our SAFE liability of $0.2 million, and a $0.1 million gain recorded with the conversion of our notes. The net change in operating assets and liabilities was approximately $0.4 million due to increases in accounts payable and accrued expenses.
During the year ended December 31, 2020, net cash used in operating activities was approximately $2.3 million which primarily included our net loss of approximately $7.8 million, adjusted for non-cash expenses of approximately $4.5 million including stock-based compensation of approximately $2.3 million, thee change in fair value of our warrant liability of $1.6 million, amortization of the debt discount of $0.5 million related to our convertible promissory notes, and loss on issuance and extinguishment of debt of $0.1 million. The net change in operating assets and liabilities was approximately $1.0 million and was primarily due to increases in accounts payable and accrued expenses.
Investing Activities
There were no investing activities for the three months ended March 31, 2022 and 2021.
There were no investing activities for the years ended December 31, 2021 and 2020.
Financing activities
There were no financing activities during the three months ended March 31, 2022.
During the three months ended March 31, 2021, net cash provided by financing activities was $5.0 million, consisting of proceeds received from our SAFE agreement.
During the year ended December 31, 2021, net cash provided by financing activities was $4.8 million, consisting of proceeds received from our SAFE agreement of $5.0 million, offset by payment of deferred offering costs of approximately $0.2 million.
During the year ended December 31, 2020, net cash provided by financing activities was approximately $3.4 million, primarily consisting of $2.9 million from this issuance of our senior secured convertible promissory notes and $0.5 million of contributions from TardiMed.
2020 Notes Issuance
In July 2020, we issued convertible promissory notes, or the July 2020 Notes, in an aggregate principal amount of approximately $0.1 million with an interest rate of 8% per annum, and in October 2020, we issued
 
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unsecured convertible promissory notes, or the October 2020 Notes, and together with the July 2020 Notes, the 2020 Notes, in an aggregate principal amount of approximately $3.0 million with an interest rate of 10% per annum until July 26, 2021, and 15% thereafter.
During the year ended December 31, 2021, all of the 2020 Notes were converted in accordance with their terms into an aggregate of 1,137,594 shares of common stock. In connection with the October 2020 Notes, we also issued an aggregate of 1,034,176 warrants to purchase shares of common stock, which are exercisable at an exercise price of $3.00.
SAFE
In March 2021, we entered into a simple agreement for future equity, or SAFE, with an investor, pursuant to which we received gross proceeds in an aggregate amount equal to $5.0 million. The Series X Private Placement in August 2022 constituted a qualified offering under the terms of the SAFE and the SAFE automatically converted into 100,000 shares of Series X Preferred Stock which are convertible into 1.818,182 shares of common stock upon the consummation of this offering.
Funding requirements
As of March 31, 2022, we had a cash balance of approximately $49,000. Our financial statements appearing elsewhere in this prospectus 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, following the completion of our initial public offering, we expect 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.
We believe our current cash and cash equivalents, together with the net proceeds from this offering, will be sufficient to meet our anticipated cash requirements over at least the next 12 months. Following this offering, we will likely need substantial additional financing to fund our operations and to develop and commercialize our drug candidates.
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 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 the date of this prospectus, we have the 2022 Notes outstanding with a principal balance totaling approximately $1.5 million. The notes bear interest at 10% per annum and mature between April and July 2023. We have entered into conversion agreements with certain holders of our 2022 Notes, pursuant to which (i) certain holders agreed to convert an aggregate of $1.0 million of principal amount of the 2022 Notes at the consummation of this offering at the conversion price set forth in the 2022 Notes of 80% of the initial offering price (which, based on an assumed initial public offering price of $5.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, is $4.40) and (ii) a certain holder
 
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agreed to convert an aggregate of $255,555 of principal amount of its 2022 Notes at the consummation of this offering into an aggregate of 2,555 shares of Series X Preferred Stock.
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 valuation of common stock. 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 appearing elsewhere in this prospectus, 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 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.
 
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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 do not have any 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
There has been no public market for our common stock to date. As such, the estimated fair value of our common stock and underlying stock options has been determined at each grant date by our board of directors, with input from management, based on the information known to us on the grant date.
Beginning in May 2020, we determined the estimated fair value of our common stock using the Hybrid Method, which incorporated the Option Pricing Model (“OPM”) and the Probability Weighted Expected Return Method (“PWERM”), estimating the probability- weighted value across multiple scenarios by using the OPM to estimate the allocation of value within one or more of those scenarios. The Hybrid Method was utilized given there was transparency into one or more near- term potential exits but there existed uncertainty regarding what would occur if the near-term exit plans did not materialize. Under the PWERM, the values of the various equity interests were estimated based upon an analysis of future values for our company, assuming various potential future outcomes. Share value was based upon the probability-weighted present value of expected future investment returns, considering each of the possible future outcomes available to us, as well as the rights of each share class. The future outcomes modeled included an initial public offering, a dissolution or continued operation as a private company until a later exit date. To estimate our total equity value, a combination of the Backsolve Methodology (“backsolving” the implied enterprise value based on the price paid for each new preferred security sold), a discounted cash flow analysis and a guideline publicly traded company method was used for scenario options, based on the fact pattern that existed as of the particular valuation date. After deriving the indicated values of equity under the scenario options, the present value of the class specific equity allocations were calculated. After calculating the present values as applicable to the scenarios, the probability of each scenario occurring was multiplied by the indications of value under each scenario. The sum of the probability-weighted values for our common stock was then divided by our total common stock outstanding as of the relevant valuation date.
In addition to considering the results of these third-party valuation reports, our board of directors used assumptions based on various objective and subjective factors, combined with management judgment, to determine the fair value of our common stock as of the grant date, including:

the prices at which we sold shares of preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;

external market conditions affecting the life sciences research and development industry and trends within the industry;

our stage of development and business strategy;

our financial condition and operating results, including our levels of available capital resources and forecasted results;

developments in our business;

the progress of our research and development efforts;

equity market conditions affecting comparable public companies; and

general market conditions and the lack of marketability of our common stock.
 
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Application of these approaches involves the use of estimates, judgment and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses and future cash flows, discount rates, market multiples, the selection of comparable companies and the probability of possible future events. Changes in any or all of these estimates and assumptions or the relationships between the assumptions impact our valuations as of each valuation date and may have a material impact on the valuation of our common stock.
Once a public trading market for our common stock has been established in connection with the closing of this offering, it will no longer be 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.
Warrant Liability
We account for certain common stock warrants outstanding as a liability at fair value and adjust the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. The fair value of the warrants issued by us have been estimated using the Monte Carlo simulation.
Simple Agreement for Future Equity
The Company accounts for a SAFE as a liability at fair value and adjusts the instrument to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until a triggering event, equity financing or a liquidity/dissolution occurs, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the SAFE has been estimated using the Backsolve method which utilizes the Option Pricing Method.
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 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
 
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in development (prior to marketing approval). Our expenses related to clinical trials are primarily related to activities at contract research organizations 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 beginning on page F-1 of this prospectus for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company and Smaller Reporting 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 this 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. In particular, in this prospectus, we have provided only two years of audited financial statements and have not included all of the executive compensation-related information that would be required if we were not an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
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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BUSINESS
Overview
We are a clinical stage biopharmaceutical company focusing on the development of APT for the treatment of disorders with intractable neurologic symptoms, ranging from neurodevelopmental disorders, including ASD, to 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 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 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 an NDA for PAX-101 under the FDA’s Tropical Disease Priority Voucher Program for the treatment of 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 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.
Autism Spectrum Disorder (ASD)
ASD refers to a group of complex neurodevelopmental disorders characterized by repetitive and characteristic patterns of behavior and difficulties with social communication and interaction. According to the National Institute of Neurological Disorders and Stroke, these symptoms are present from early childhood and affect daily functioning of individuals with ASD. The term “spectrum” refers to the wide range of symptoms, skills, and levels of functional disability that can occur in people with ASD. Some children and adults with ASD are able to perform activities of daily living with normal proficiency, while others require substantial support to successfully perform basic activities. The DSM-5 includes Asperger syndrome, childhood disintegrative disorder, and PDD-NOS as part of ASD rather than as separate disorders.
A diagnosis of ASD includes an assessment of intellectual disability and language impairment. ASD occurs in every racial and ethnic group, across all socioeconomic levels, and in both males and females, although boys are significantly more likely to develop ASD than girls. The latest analysis from the Centers for Disease Control and Prevention estimates that 1 in 44 eight-year-old children in the U.S. has ASD.
The core features of ASD include:

impairments in social communication;

impairments in language and related cognitive skills; and

behavioral and emotional challenges.
These core features are significantly influenced by the developmental level of language acquisition (e.g., pre-symbolic, emerging language, and conversational language) and the severity level of the disorder. In
 
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addition to these core features, sensory and feeding challenges may also be present. There are no therapies for the core symptoms of ASD approved by the FDA, and current treatments include dietary, pharmacologic and behavioral modifications aimed at managing the symptoms of the disorder.
ME/CFS and LCS
Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (ME/CFS)
ME/CFS is a disabling, complex, chronic neuroimmune disease that limits the functioning, health, productivity and quality of life of patients. The Institute of Medicine report from 2015 estimated that between 836,000 and 2.5 million Americans suffer from ME/CFS and about 90% of people with the disorder have not been diagnosed (IOM, 2015). ME/CFS can last for years and sometimes leads to serious disability. It is characterized by core symptoms of post-exertional malaise, difficulty with concentration and attention, sleep disturbance, orthostatic hypotension and dizziness, and decreased functioning as well as many associated symptoms.
Diagnosis is a challenge as symptoms can vary significantly between individuals. ME/CFS is often seen as a diagnosis of exclusion, which also can lead to delays in diagnosis. There is no specific diagnostic test to establish the diagnosis; however, there are many commonly followed published criteria. Common symptoms in each set of criteria include severe fatigue and post-exertional malaise, unrefreshing and disrupted sleep, cognitive impairment (commonly called “brain fog,” consisting of difficulty with memory and concentration), muscle and joint pain and swelling, and autonomic dysfunction (typically dizziness when standing). The four main criteria for ME/CFS specify a minimum number of symptoms ranging from three through eight and a minimum duration of symptoms which is greater than six months.
The exact cause of the ME/CFS is presently unknown. There are several possible causes that have been described in the medical literature. ME/CFS could be an auto-immune disorder responding to an as yet unknown antigen. Symptoms often occur shortly after a viral infection and several viruses have been implicated (e.g., Epstein-Barr virus, Human Herpes Virus-6, and others). There may also be a virus initiating the disorder that is yet unidentified. The disorder may be caused by a virus that has damaged the CNS or immune system (e.g., virus has caused epigenetic changes in immune functioning, disrupted signaling, or led to different gene expression). Finally, ME/CFS patients may have a chronic low-grade infection, likely in their nervous system, that is resulting in continued inflammation. Mitochondrial dysfunction or increased neuroinflammation may play a role in the pathogenesis of ME/CFS. Suramin is a purinergic antagonist, that may restore normal mitochondrial function due to the overexpression of adenosine triphosphate (ATP) in the CNS and also plays a role in reducing neuroinflammation through P2X7 receptor antagonism.
Long COVID-19 Syndrome (LCS)
LCS is a disabling, heterogenous, and complex multi-system disorder characterized by core symptoms of fatigue, shortness of breath, difficulty with concentration and attention, sleep disturbance, orthostasis and dizziness, and decreased functioning as well as many associated symptoms such as joint and muscle pain, depression and anxiety.
A history of COVID-19 infection prior to symptom onset is required for diagnosis of LCS patients. Beyond that, the diagnosis of LCS is challenging, as there are no specific tests to establish the diagnosis. Although there are many different definitions being proposed in the medical literature, many researchers are defining LCS as a syndrome encompassing a protracted course of various physical and neuropsychiatric symptoms that persist for more than 12 weeks without an alternative explanation.
The precise incidence of LCS is not known and reported rates have varied based on the time interval studied after the acute infection. Given the more than 500 million people worldwide who have been infected with COVID-19, there may be millions of individuals who will be affected by persistent and debilitating symptoms of LCS. One study by researchers in Rome of 143 hospitalized COVID-19 patients who were followed for post-acute care (mean age 56.5 years and 37% women) found that, approximately 60 days after discharge, only 12.6% were COVID-19 symptom free, 32% had 1 or 2 symptoms of COVID-19 and 55% had 3 or more symptoms of COVID-19. The UK Office of National Statistics performed a study in over
 
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20,000 patients who tested positive for COVID-19 since April 2020 and found that 13.7% still reported having COVID-19 symptoms after at least 12 weeks.
The etiology of the LCS is presently unknown; however, there are a number of hypotheses including persistent viral infection, profound inflammation and cytokine storm, post-viral infectious particles that lead to continued immune activation, a viral-induced immune system dysregulation, continued oxidative stress, and autoimmunity. Given that LCS is a multi-system disorder and has a variable presentation involving a high number of symptoms, it is unlikely that there is one single, clear explanation for the disorder. There is a growing consensus in the scientific and medical community that additional resources are needed to research the causes of LCS, its impact on individuals, and the best treatment approaches. Given the high number of reported symptoms involving multiple organ systems in affected individuals, it is likely that an inter-disciplinary diagnostic and treatment approach will be required.
Human African Trypanosomiasis (HAT)
HAT, a tropical disease commonly known as African sleeping sickness, is endemic to regions of sub-Saharan Africa. The disease is rare outside of Africa, where few cases have been reported, and is almost always related to travel to or migration from endemic regions. HAT is caused by infection with protozoan parasites of the species Trypanosoma brucei and is vector-borne (transmitted through the bite of the tsetse fly). HAT is a serious disease that is fatal if not adequately treated.
The clinical course of HAT has two stages. In “Stage 1,” the parasite is found in the peripheral circulation, but it has not yet infiltrated the CNS. After the parasite crosses the blood-brain barrier and infects the CNS, the disease enters “Stage 2.” The symptoms of Stage 1 include fever, headaches, pain in the joints and often irritation of the skin at the site of infection. The symptoms of Stage 2 include confusion and poor coordination, tremors, general motor weaknesses, irritability and aggressive behavior. If not treated during the early stages of the disease or treated inadequately, HAT infections can result in death. The subspecies of Trypanosoma brucei, T.b. gambiense or West African HAT, or T.b. rhodesiense or East African HAT, determines whether a trypanosomiasis infection is acute or chronic in nature.
West African HAT is the chronic form of the infection. It is endemic in 24 countries of west and central Africa and causes more than 97.6% of reported cases of sleeping sickness. It is characterized by a chronic progressive course of disease, leading to death if untreated, typically over a few years.
East African HAT is endemic in 13 countries of eastern and southern Africa and is believed to represent about 2.4% of cases, although there is evidence that this figure might be significantly underreported. It is classically described as an acute disease, progressing to Stage 2 within a few weeks and death within six months. The clinical presentation of East African HAT is similar to that of West African HAT but, in the former, the disease course is accelerated.
While epidemics of HAT (including both West African and East African forms) have occurred from time to time over the past century, the incidence of both forms of the disease has decreased, as many African nations have been able to effectively control the transmission of the disease in recent years. In 2019, there were fewer than 1,000 cases of HAT reported to the WHO. While the WHO has launched an effort to eliminate the West African HAT, experts caution that, although East African HAT may be controlled, it will likely never be eliminated, as it is endemic in wildlife typical in West and East Africa.
Treatment for HAT varies based on the form of the disease and the stage of the disease at diagnosis. For West African HAT, commonly used medications include pentamidine for Stage 1 treatment, and eflornithine for Stage 2 treatment, and a new drug, Fexinidazole Winthrop, developed by Sanofi, recently received a positive endorsement from the EMA for use in non-European markets for the treatment of both stages of West African HAT. For East African HAT, suramin is the standard of care for Stage 1 treatment, while Melarsoprol is commonly used to treat Stage 2 of the disease.
Suramin in HAT
Suramin has been in continuous use as the standard of care for the treatment of Stage 1 East African HAT for about 100 years. Suramin, however, has never been approved for use in any markets outside of Africa for any indication. There is currently one manufacturer of suramin, Bayer, which does not manufacture
 
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suramin on a regular basis and, when it does, generally only manufactures small quantities in response to outbreaks of HAT and donates those to the WHO for use by patients in Africa and globally.
Our Development Strategy
Our clinical development plan seeks to obtain initial U.S. approval of PAX-101 for the treatment of East African HAT, which is caused by the parasite Trypanosome brucei rhodesiense, and, using the FDA’s 505(b)(2) regulatory pathway, leverage such approval, if achieved, to facilitate an accelerated development program for PAX-101 for certain neurologic indications including ASD, ME/CFS and LCS. Based on our pre-IND meeting with the FDA in March 2021 and, in part, on an analysis of the data that we have exclusively licensed from the Ministry of Health, Republic of Malawi and Lwala Hospital (Soroti, Uganda) relative to East African HAT patients treated with suramin, we believe we have created a strong development strategy that we plan to employ in seeking the approval of PAX-101 for the treatment of East African HAT. Based on our prior interactions with the FDA, including our pre-IND meeting with the FDA, we further believe that an approval in East African HAT, if any, could confer upon us the potential receipt of a PRV by the FDA, which we could potentially monetize to fund our future clinical programs. We expect further clinical studies of PAX-101 for the treatment of ASD , ME/CFS and LCS will be required and similar clinical development is needed for PAX- 102 to reach the commercial stage. In November 2020, the FDA granted orphan drug designation to PAX-101 for the treatment of East African HAT. However, there can be no assurance that we will receive FDA approval for PAX-101 for the treatment of East African HAT and, even if PAX-101 is approved by the FDA, there can be no assurance that we will receive a PRV. For more information on the PRV process and how we may benefit from it, see the section of this prospectus captioned, “Business—The Priority Review Voucher Program.”
Our Market
Market for ASD
According to the CDC, ASD affects between 1% and 2% of the world’s population, including more than 3.5 million people in the United States. Prevalence of autism in eight-year-old U.S. children increased by approximately 243% from 2000 (1 in 150) to 2018 (1 in 44). Autism is the fastest-growing developmental disability, and the annual cost of autism services to U.S. citizens was an estimated $236 to $262 billion in 2016.
No pharmacological therapies exist for the treatment of the core symptoms of ASD, such as lethargy/social withdrawal, stereotypy, or repetitive or ritualistic behaviors, and inappropriate speech. Pharmacological therapies that have been approved to date, such as aripiprazole and risperidone, only treat the non-core symptom of irritability associated with ASD. There are also a number of new therapies for ASD in development by small and large companies with variable levels of clinical data, although none has proven efficacy and safety in large, randomized and controlled trials.
The global ASD therapeutics market size was valued at $3.3 billion in 2018, and is expected to reach $4.6 billion by 2026, according to a research report by Fortune Business Insights. We believe a drug that can demonstrate strong safety and efficacy in the treatment of the core symptoms of ASD would generate strong market demand because there are no comprehensive treatment options available to address these important aspects of this condition.
Market for ME/CFS and LCS
It has been estimated by the UK Office of Health Statistics that 13.7% of those who have been confirmed as having been infected with COVID-19 suffer from continuing neurologic symptoms that persist for more than 12 weeks after the viral infection has passed. Some of these LCS symptoms, including fatigue, “brain fog,” pain, sleep disturbances, headaches, anxiety and depression, can become debilitating and recent headlines in the United States and Europe indicate that the population suffering from LCS presents a potential public health crisis that will extend beyond the current COVID-19 pandemic.
Prior to the COVID-19 pandemic, little attention had been paid to a potentially related post-acute infection disorder known as ME/CFS which, in light of the recent observation and identification of LCS,
 
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has received renewed interest in the medical and patient advocacy community. Like LCS, ME/CFS sufferers have nearly identical physical symptoms which in extreme cases have been documented to last for years, resulting in affected individuals becoming house-, if not bed-bound. Suicidality is also a common concern of clinicians who care for these patients. The cause of ME/CFS is unknown but research points to the possibility that many cases of ME/CFS resulted from a prior viral infection, which may or may not have had overt physical symptoms at the time, and an immune response to this infection that continues to induce an inflammatory response, despite the lack of any virus or similar infectious invader. Although some ME/CFS sufferers can and do tolerate some ME/CFS symptoms, many seek help through various unproven diets, supplements and prescription drugs. In some cases, complex spinal fusion therapy has been shown to be beneficial for ME/CFS patients whose symptoms may be related to recovery from physical trauma.
There is significant opportunity within the global ME/CFS market. ME/CFS can cause significant impairment and disabilities that have negative economic consequences at both the individual and the societal level. At least one-quarter of ME/CFS patients are house- or bed-bound at some point in their lives. The direct and indirect economic costs of ME/CFS to society have been estimated at $17 to $24 billion annually, $9.1 billion of which has been attributed to lost household and labor force productivity.
The size of the market for LCS is not known. In January 2021, the WHO revised its guidelines for COVID-19 treatment to include a recommendation that all patients should have access to follow-up care in case of LCS. As noted above, the UK Office of National Statistics performed a study in over 20,000 patients who tested positive for COVID-19 since April 2020 and found that 13.7% still reported having COVID-19 symptoms after at least 12 weeks. On February 23, 2021, the US National Institutes of Health announced that it would spend $1.15 billion over four years on research on LCS.
Market for East African HAT
The market for using PAX- 101 to treat East African HAT is expected to be largely restricted to Sub-Saharan Africa where suramin is already in use for Stage 1 East African HAT. Further, we may donate product for use in this indication to the WHO , either as a replacement for current limited supplies or as a supplementary source of suramin, if the WHO requests us to do so. If we obtain a U.S. approval for PAX-101 to be used in the treatment of East African HAT, we could potentially qualify to earn a tropical disease PRV from the FDA, which we would intend to monetize to raise funds to support the later-stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, ME/CFS and LCS. The estimated total cost to gain FDA approval, if any, for the HAT indication and qualify for the PRV is estimated to be between $8.0 to $10.0 million, with some portion of these expenses shared across our pipeline indications and formulations programs that would extend beyond the initial HAT approval, if any. There can be no assurance that we will receive a PRV, and even if we do obtain a PRV, there can be no assurance that we will receive sufficient funds from its sale to fund the clinical and commercial development of our drug candidates. If we are unable to obtain a PRV, or if the amount we obtain from its sale is insufficient to fund our operations, we may be required to fund the later stage development and commercialization of PAX-101 and PAX-102 in the treatment of ASD, ME/CFS and LCS through sales of our equity or debt securities, strategic collaborations with third parties or other similar transactions.
Mitochondrial Dysfunction and Implications for the Use of Suramin for Management of ASD, ME/CFS and LCS
Mitochondria are the seat of several important cellular functions, including essential pathways of oxidative energy metabolism (production of ATP), intermediate metabolism, amino acid biosynthesis, fatty acid oxidation, steroid metabolism, and apoptosis. Neurons are highly dependent on oxidative energy metabolism for multiple processes, including neurodevelopment. Impairment of mitochondrial energy metabolism has been identified as the key pathogenic factor in a number of neurodegenerative disorders, and specifically in ASD, which is often associated with clinical, biochemical, or neuropathological evidence of altered mitochondrial function. Mitochondrial function may play a critical role not just in causing the disease, but also in determining to what extent different prenatal triggers will derange neurodevelopment and yield abnormal postnatal behavior. A substantial percentage of ASD patients display peripheral markers of mitochondrial energy metabolism dysfunction.
 
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Mitochondrial dysfunction, as a leading cause of neurodevelopmental disorders such as ASD and a cause of certain symptoms in post-infection disorders such as ME/CFS and LCS, has recently been advanced in peer-reviewed scientific publications by many academic laboratories. Researchers at the University of California, San Diego have described what they call the Cell Danger Response Hypothesis as a series of naturally occurring cellular response mechanisms, hypothesized to cause sustained changes in cellular mitochondria. These changes are thought to result in excess purinergic signaling and over production of ATP, which is both the main energy molecule in all living cells and a peripheral and central nervous system neurotransmitter. In healthy individuals, a complex system of inter- and intra-cellular signaling pathways govern organ function, and these systems maintain homeostasis using critical molecules like ATP. Chronic disruption of these chemical pathways resulting uninhibited production of ATP and related biochemical reactions may arise due to several genetic and environmental factors that are believed to be responsible for significant cognitive deficits and behavioral changes observed in ASD, ME/CFS, LCS and other related disorders.
This interest in mitochondrial dysfunction and its potential impact on neurodevelopmental disorders has motivated some early work on the use of suramin as an APT and a potential therapeutic option in the treatment of ASD. In several of our preclinical models of ASD, we have studied the effects of suramin, as a systemic treatment as well as in our proprietary intranasal formulation (PAX-102), and have evaluated its effects on anxiety-like behavior, restoration of exploratory activity, learning of spatial parameters, and increased social activity. Furthermore, in a double blind, placebo controlled phase 1/2 clinical trial involving 10 boys with ASD, conducted previously by a third party, a single dose of suramin was studied for its effects on language and social interaction.
In addition, in other conditions where metabolic stressors are known to be implicated (such as in ME/CFS, LCS and post-traumatic stress disorder), mitochondrial dysfunction may play a role and could benefit from APTs such as suramin. We may evaluate such conditions for the potential expansion of our APT pipeline into new indications with a known element of metabolic disruption.
Development Pipeline
The following table summarizes our current product candidate and indication pipeline.
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PAX-101 (intravenous suramin)
Our lead product candidate under development is PAX-101, an intravenous formulation of suramin, which we are developing for multiple indications, including East African HAT, ASD, ME/CFS, and LCS.
The most advanced indication for which we are developing PAX-101 is for treatment of “Stage 1” Trypanosoma brucei rhodesiense (East African) HAT, the stage of the clinical course of HAT in which the parasite is found in the peripheral circulation, but it has not yet infiltrated the CNS. We maintain exclusively licensed worldwide rights to patient-level data on the use of suramin in the treatment of Stage 1 East African HAT, which we intend to leverage for demonstration of the safety and efficacy of PAX-101. We
 
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have met with the FDA in two formal meetings regarding the execution and development of PAX-101 for this indication. Pursuant to those conversations, and to satisfy the FDA’s requirement of demonstrating substantial effectiveness, rather than conducting new prospective clinical trials, we intend to complete an analysis and presentation of retrospective data from East African HAT patients previously treated with suramin from 2000 to 2020, for which we have the exclusive license. In addition to these retrospective data, we will also conduct preclinical and clinical safety studies to support submission of an NDA for PAX-101’s East African HAT indication. We expect that such work will be completed over the next 16 months, with the intention of filing an NDA in 2023. Additionally, we are developing a proprietary supply chain of drug substance and drug product which will form the bases of our NDA filing. In November 2020, the FDA granted orphan drug designation to PAX-101 for the treatment of East African HAT. It is expected that PAX-101, if approved by the FDA for the East African HAT indication, will qualify for new chemical entity exclusivity (providing sole marketing rights in the United States to the Company with respect to any product that contains suramin for up to seven years), in addition to orphan drug exclusivity, and potentially a tropical disease PRV. However, even if PAX-101 is approved by the FDA for the East African HAT indication, there can be no assurance that we will receive a tropical disease PRV.
Phase 2 Clinical Trial
Our lead neurologic indication for PAX-101 is for use in treating core symptoms of ASD. In 2021, we conducted the Phase 2 Trial at six sites in South Africa with respect to this indication. The trial was a randomized, double-blind, placebo-controlled design, where we studied two doses of drug versus placebo over a 14-week treatment period. Dosing was at baseline and at the end of weeks 4 and 8. The study population included a patient population with diverse ethnicity and a mean age of approximately 8.4 years. Forty-four of the fifty-two enrolled subjects completed the study, with five withdrawals due to COVID-19 lockdowns, one for an adverse event and three for other reasons. The study evaluated a number of different clinically validated endpoints used in the assessment of the core symptoms of ASD. The primary endpoint of the study was the change between baseline and Week 14 in the ABC composite score of ABC Core symptoms including ABC-II (lethargy/social withdrawal), ABC-III (stereotypy) and ABC-V (inappropriate speech).
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PAX-101 10 mg/kg demonstrated greater improvement through the 14-week treatment period compared to placebo in several assessment measures, including the ABC Core and CGI-I. At Week 14, there was a mean improvement from baseline of 12.3 points in the ABC Core in subjects on 10 mg/kg vs. 8.4 points in subjects on placebo (p=0.37). The study was not fully powered for efficacy. However, at Week 14, the subjects treated with 10 mg/kg of PAX-101 demonstrated a mean improvement from baseline in the CGI-I overall symptom severity score of 2.8 points versus 1.7 points on placebo. This change in CGI-I was statistically significant (p=0.016). An improvement in the CGI-I overall symptom severity score of 2 points or more is generally considered to be a clinically relevant change. Certain key subpopulations demonstrated even further improvements on these and other assessments. This trial was designed as a robust dose-ranging study to confirm and expand upon the initial data from a prior-published single dose, single site, pilot study, but was not designed to demonstrate statistical significance across all efficacy endpoints.
 
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We were selected to present the results of the Phase2 Trial at the American Academy of Child and Adolescent Psychiatry conference Research Pipeline Presentation on October 27, 2021 and are preparing a manuscript with 11 co-authors to submit such data for publication in a peer-reviewed scientific journal. The full analysis will include data from primary, secondary, and exploratory endpoints evaluated in the trial, safety and laboratory data, and an analysis of the pharmacokinetic data. In July 2021, we completed a pre-IND meeting with the FDA to review the results of this trial where we agreed to obtain additional information about the pharmacokinetic profile of PAX-101 in children in different age groups. We intend to meet with the EMA and refine the program’s development plan for global registration based on additional work required. We plan to start a pharmacokinetic study in South Africa to develop additional data in younger female subjects for the ASD indication and to submit an IND to the FDA in the second half of 2023 following completion of pre-clinical and other required toxicologic studies.
We are also exploring development of PAX-101 in the treatment of LCS. We have discussed these indication and development plans with our outside scientific advisors and have designed a dose-ranging proof of concept trial design, which we plan to initiate in 2023. We received approval from the South African Health Products Regulatory Authority and the South African National Health Research Ethics Council for our clinical trial application for a Phase 1B, prospective, randomized, placebo-controlled, double-blind, multiple-dose study and expect to enroll patients in the second half of 2022.
Clinical Trial of Suramin for Management of ASD
In 2017, the Suramin Autism Treatment (“SAT-1”) trial, a double-blind, placebo-controlled, translational pilot study to examine the safety and activity of low-dose suramin in children with ASD, was completed by Naviaux et al. (2017) at the University of California, San Diego. The study included 10 boys aged 4-17 who lived in the San Diego, California area. None of the boys were less than the 5th percentile
 
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in weight for their age, on prescription medications, or had laboratory evidence of liver, kidney, heart, or adrenal abnormalities. Additionally, boys who lived more than 90 minutes from the testing site were excluded from the study to prevent bias due to aberrant behavior resulting from extended travel to and from the University. Boys who had ASD due to a DNA mutation or a chromosomal copy number variation were also excluded from the study. The boys’ parents were instructed to maintain the boys’ current therapies (e.g. supplements, speech, and behavioral therapies) throughout the course of the study.
The trial consisted of a treatment arm of five boys and a placebo arm of five boys. All 10 boys received a 50 mg test dose of suramin in 5 mL of saline or 5 mL of saline only, followed by a 10 mL saline flush. One hour later, boys in the treatment arm received 20 mg/kg of suramin, less the 50 mg test dose, in 50mL of saline, up to a maximum of 1 g, and boys in the placebo arm received 50 mL of saline, each administered intravenously. A 10 mL saline flush followed the second dose’s administration as well.
In the SAT-1 study, the mean age was 9.1 years (range: 5-14 years), the mean nonverbal Leiter IQ was 80 (range: 66-92), and the mean ADOS-2 comparison score was 9.0 (range: 7-10).
No serious toxicities (common terminology criteria for adverse events grades three through five) were encountered. Peripheral neuropathy was not noted in the subject patients. Free cortisol, hemoglobin, white blood cell count, platelets, liver transaminases, creatinine, and urine protein levels were not statistically significantly different among the boys in the treatment arm and those in the placebo arm.
All five boys who received suramin experienced a self-limited, evanescent, asymptomatic, fine macular, patchy, morbilliform rash over 1%-20% of their body that peaked one day after infusion and disappeared without intervention between days two and four after infusion. No serious adverse events were encountered. On review by an independent data and safety monitoring board, no safety concerns were noted.
Outcome
Suramin
Placebo
Instruments
Factor or
behavior
Time after
Treatment
(days)
Difference from
baseline (mean ± SD)
95% CI
d(1)
N
P(2)
P(3)
Difference from
baseline (mean ± SD)
95% CI
d(1)
N
P(2)
p(3)
Primary outcomes
ADOS-2
Comparison 45
-1.6 ± 0.55
-2.3 to -0.9
2.9 5 0.0028 0.038
-0.4 ± 0.55
-1.1 to + 0.28
0.7 5 0.18 0.16
Raw 45
-4.6 ± 1.9
-7.0. to -2.2
2.4 5 0.0062 0.039
-0.4 ± 1.8
-2.7 to +1.9
0.22 5 0.65 0.58
Social 45
-3.2 ± 1.9
-5.6 to -0.8
2.4 5 0.020 0.043
0.0 ± 1.7
-2.2 to +2.2
0 5 0.99 0.71
Rest/Rep 45
-1.4 ± 0.89
-2.5 to -0.29
1.6 5 0.025 0.059
-0.4 ± 2.1
-3.0 to +2.2
0.19 5 0.69 0.58
EOWPVT
Vocabulary 45
-4.2 ± -8.3
-14.50 to +6.1
-0.51 5 0.32 0.50
+2.0 ± 4.6
-3.8 to +7.8
0.43 5 0.39 0.50
Secondary Outcomes
ABC
Stereotypy 7
36 ± 2.1
-6.2 to -1.0
1.7 5 0.018 0.043
+0.4 ± 1.9
-2.0 to +2.5
-0.21 5 0.67 0.68
Stereotypy 45
-4.0 ± 2.3
-6.9 to -1.1
1.7 5 0.019 0.042
+1.0 ± 4.3
4.3 to +6.3
-0.23 5 0.63 0.69
ATEC
Total 7
-10 ± 7.7
-20 to -0.46
1.3 5 0.044 0.043
+7.2 ± 14
-10 to +25
-0.51 5 0.32 0.35
Language 7
-2.2 ± 1.5
-4.0 to -0.36
1.4 5 0.021 0.059
0.0 ± 4.1
-5.0 to +5.0
0 5 0.99 0.89
Sociability 7
-3.6 ± 2.6
-6.8 to -0.36
1.4 5 0.025 0.063
-0.8 ± 2.8
4.3 to +2.6
0.29 5 0.55 0.58
Language 45
-2.0 ± 1.4
-2.7 to -0.49
1.4 5 0.034 0.059
-0.2 ± 2.9
-3.8 to +3.4
0.07 5 0.88 0.79
CGI
Overall ASD
45
-1.8 ± 1.04
-3.4 to -0.15
1.7 5 0.05 n/a
0.0 ± 0.34
-0.55 to +0.55
0 5 0.99 n/a
E. Language
45
-2.0 ± 1.04
-3.6 to -0.35
1.9 5 0.01 n/a
0.0 ± 0.34
-0.55 to +0.55
0 5 0.99 n/a
Social Inter.
45
-2.0 ± 1.04
-3.6 to -0.35
1.9 5 0.01 n/a
0.0 ± 0.34
-0.55 to +0.55
0 5 0.99 n/a
RBQ
Total 45
-3.2 ± 5.8
-10.4 to +4.0
0.55 5 0.28 0.22
-0.8 ± 3.3
-4.9 to 3.3
0.24 5 0.62 0.47
ADOS-2, autism diagnostic observation schedule, 2nd edition; EOWPVT, Expressive One-Word Picture Vocabulary Test; ABC, aberrant behavior checklist; ATEC, autism treatment evaluation checklist; CGI, clinical global impression survey; RBQ, repetitive behavior questionnaire; Restr/Rep, restricted or repetitive behaviors; Overall ASD Sx, overall ASD symptoms; E. Language, expressive language; Social Inter., social interaction. Analysis. ADOS, EOWPVT, ABC, ATEC, and RBQ scores were analyzed by paired analysis before and after treatment using each subject as their own control. CGI was analyzed by two-way ANOVA (symptom x time before and after treatment) with post hoc correction. Nonparametric P values were not calculated (n/a). Interpretation. ADOS, ABC, ATEC, CGI, and RBQ are severity score; negative differences from baseline reflect decreased severity, that is, improvement. EOWPVT is a performance score; negative differences reflect a decrease.
 
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(1)
A positive Cohen’s d reflects improvement, and a negative d reflects a decrease by convention. Cohen’s d is likely an overestimate of the actual treatment effect based on the large mean differences and small standard deviations found before and after treatment in this small study.
(2)
p value from parametric paired t-test analysis.
(3)
p value from nonparametric paired Wilcoxon signed-rank sum analysis.
Parents reported that, after suramin treatment, the rate of language, social, behavioral, and developmental improvements increased over three weeks, then gradually decreased toward baseline over the next three weeks. ADOS-2 comparison scores at six weeks improved by an average of -1.6 +/- 0.55 points (mean +/- SD; n = 5; 95% CI = -2.3 to -0.9; Cohen’s d = 2.9; P = 0.0028) (note: lower score associated with less concern). The mean ADOS comparison score in the suramin-treated group was 8.6 +/- 0.4 at baseline and 7.0 +/- 0.3 at six weeks. An improvement in ABC, Autism Treatment Evaluation Checklist, and Clinical Global Impression of Improvement scores was also noted among boys who received suramin.
PAX-102 (intranasal suramin)
PAX-102, a proprietary intranasal formulation of suramin, is also being developed for neurologic indications. The rationale for this program is the potential to better target the suramin molecule to the CNS, which may potentially allow us to deliver similar potency to that achieved using PAX-101 and reduce the dose needed and improve the tolerability profile of the drug, ultimately offering patients a more convenient delivery system versus intravenous infusion. We have developed a proprietary intranasal formulation, and based on our in vitro nasal membrane permeation studies using the cultured EpiAirway (Mattek) membrane model, as well as more targeted CNS delivery in vivo, we believe our intranasal formulation has the potential to demonstrate rapid and efficient uptake across the nasal membrane. We continue to optimize this formulation and expect to open an IND application on PAX-102 in 2023.
Suramin is not orally bioavailable and has historically been administered intravenously and at very high doses separated by a few days between infusions. Suramin intravenously administered in high doses for treatment and eradication of the parasite that causes East African HAT can cause significant side effects, including rash, nausea, vomiting, diarrhea, abdominal pain, and a feeling of general discomfort. Other side effects include skin sensations such as crawling or tingling sensations, tenderness of the palms and soles, numbness of the extremities, watery eyes, and photophobia. In addition, when administered in high doses or as a continuous infusion, suramin has been shown to cause nephrotoxicity and peripheral neuropathy. Regarding pharmacokinetics, suramin is approximately 99-98% protein bound in the serum and has a half-life of 41-78 days, with an average of 50 days. Also, it is not extensively metabolized and is eliminated by the kidneys.
Despite strong early results from early animal and human studies, we believe more research is needed to provide safe and effective delivery of APTs, such as suramin, for treating neurologic conditions. We believe it may be necessary to deliver appropriate levels of the drug in brain tissue while also minimizing blood and other tissue levels. While it is difficult to deliver drugs across the BBB, which is a natural protective mechanism of most mammals, including humans, such delivery is even more challenging for higher molecular weight compounds, such as suramin. A possible route to maximize delivery across the BBB is to use intranasal delivery to provide higher levels of a drug to the upper nasal mucosa to allow for nose-to-brain transport along the olfactory and trigeminal nerves. We believe our proprietary intranasal formulations and methods of delivering suramin to mammals have been shown, in in-vivo preclinical studies, to deliver suramin to the brain in ways that may reduce systemic exposure, and our development plan calls for clinical trials to test this potential for reduced systemic exposure in humans.
The PAX-101 and PAX-102 development programs in neurologic disorders may be filed with the FDA as a supplement to the initial 505(b)(2) NDA, assuming PAX-101 is approved for the treatment of East African HAT. As discussed in more detail below, a 505(b)(2) NDA is a special type of NDA that enables the applicant to rely, in part, on the FDA’s findings of safety and efficacy of an existing or previously approved product, or published literature, in support of its application. 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Using a 505(b)(2) NDA, we expect to reduce the cost, time and risk that would otherwise be associated with bringing these programs to market. See “The 505(b)(2) NDA Regulatory Pathway” below for more information.
 
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Early Program in Selective APTs
In addition to the PAX-101 and PAX-102 development programs, we have begun an early discovery program targeting the development of highly selective APTs. We have identified multiple compounds that are selective for certain purinergic receptor subtypes and have engaged in preclinical work with these compounds in an animal model of ASD. We expect to complete additional preclinical work and open an IND with respect to one or more of these compounds in 2023 or 2024. In the future, we intend to pursue opportunities to develop products, either alone or in partnership with other pharmaceutical companies, related to these APTs.
Manufacturing Activities
The synthesis of PAX-101 is a complex multi-step process and involves a global supply chain. We do not own or operate manufacturing facilities for the production of PAX-101, nor do we have plans to develop our own manufacturing facility for clinical or commercial manufacture of PAX-101 in the foreseeable future. We depend on third-party Contract Manufacturers (“CMOs”) and Contract Laboratories (“CLOs”) to manufacture and test all our critical intermediates, as well as our active pharmaceutical ingredients. We will utilize clinical service organizations to package, label and distribute clinical trial quantities of PAX-101. In 2019 and 2020, we entered into multiple agreements with CMOs for the development and cGMP-compliant production of suramin for use in our clinical trials and to support the future commercial supply chain of PAX-101. Pursuant to these agreements, we have paid upfront fees to our CMOs and will be required to make additional payments upon various milestones throughout the project.
There is no readily available source of suramin for use in clinical trials in the United States. There is currently one manufacturer of suramin, Bayer, which does not manufacture suramin on a regular basis and, when it does, generally only manufactures small quantities in response to outbreaks of HAT. We have engaged two independent contract development manufacturing organizations to develop, validate and scale our supply chain for suramin and the shelf stable drug product that is ultimately distributed to pharmacies. We have completed the necessary steps to begin producing suramin in early 2022 and began the final development phase in April 2022, including the production and final release testing process, that will produce suramin for both clinical and registrational purposes. We have produced suramin API and delivered initial batches for animal testing and we anticipate delivering suramin API for final drug product development in the third quarter of 2022. Development, validation and scaling of the final drug product manufacturing and release process is expected to be completed in the fourth quarter of 2022 and drug product is expected to be placed in stability testing by the end of 2022. We estimate expenses required to complete these activities in 2022 to be between $1.8 million and $2.0 million. We continue to explore alternative manufacturing sources in an effort to ensure that we will have an uninterrupted supply chain and maintain sufficient manufacturing capacity in order to meet potential demand for any of our product candidates. We plan to work with our CMOs to establish and safeguard our supply chain for any products we successfully develop. We cannot guarantee, however, that our efforts to develop and maintain such an uninterrupted supply chain will be successful.
To comply with FDA requirements for approval of our pharmaceutical products, we will audit all of our CMOs and CLOs to ensure they are compliant with cGMP, including with respect to their document control procedures, manufacturing facilities, environment, and equipment, quality control procedures, quality assurance procedures, and personnel management policies (together, “Quality Systems”). These Quality Systems must be qualified and approved by the FDA prior to approval and release of product on an ongoing basis.
Sales and Marketing
We currently have no marketing, sales or distribution capabilities. In order to market and sell products that are approved for commercial sale, we must either develop our own sales, marketing and distribution infrastructure or collaborate with third parties that have such commercial infrastructure and relevant marketing and sales experience. We will consider the merits of developing our own sales, marketing and distribution infrastructure for the U.S. market. If we elect to develop our own sales and marketing organization, we do not intend to begin to hire sales and marketing personnel unless and until any of our product candidates are in Phase 3 clinical trials or closer to NDA submission, and we do not intend to
 
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establish our own sales organization in the United States unless and until shortly prior to FDA approval of PAX-101 or any of our other product candidates for neurologic indications. We do not intend to establish a sales organization for selling PAX-101 as a treatment for East African HAT in any market. Therefore, at the time of our anticipated commercial launch of PAX-101, assuming regulatory approval of the drug by the FDA for neurologic indications, any sales and marketing team, if we decide to have one, will have worked together for only a limited period of time.
Competition
The pharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face competition from many different sources, including commercial pharmaceutical and biotechnology enterprises, academic institutions, government agencies and private and public research institutions. Many of these competitors have far greater human and financial resources and may have product candidates in more advanced stages of development. Furthermore, these competitors’ products will likely reach the market before our product candidates. Competitors may also develop products that are more effective or safe, less expensive or that have better tolerability or provide for more convenient administration. Although we believe that our intellectual property, experience and knowledge in our areas of focus provide us with competitive advantages, these potential competitors could reduce our commercial opportunities.
Competition for PAX-101 in ASD
There is currently no known cure for ASD, and no FDA approved medication to treat the core symptoms of ASD. We are aware, however, of several companies that are working to develop drugs that might compete against our product candidates. Our current and potential competitors in ASD include CureMark LLC, which is in Phase 3 studies for CM-AT for ASD, Yamo Pharmaceuticals, which is in Phase 2 studies for LI-79 for ASD, GW Pharmaceuticals, which is in Phase 2 studies for Cannabidivarin for ASD, Zynerba Pharmaceuticals, which is in Phase 2 studies for CBD gel for ASD, QBioMed, which is developing a preclinical asset called QBM-001 for rare pediatric nonverbal ASD, Kuzani Therapeutics, Inc., which has announced that it is in clinical development for the treatment of the core symptoms of ASD in children, and Axial Therapeutics, which is in Phase 2 studies for AB-2004 for irritability in ASD. There are two treatments that have been approved by FDA to treat the non-core symptom of irritability in ASD: Risperdal® (risperidone) and Abilify® (aripiprazole). Both risperidone and aripiprazole are generic medications. For more information relating to competition risks, please see the risk factor with the heading “We face competition from other biotechnology and pharmaceutical companies and our operating results will suffer if we fail to compete effectively.”
Competition for PAX-101 in East African HAT
We are not aware of any active development plans by any other companies to slow the progression of, or cure, East African HAT.
Competition for PAX-101 in ME/CFS and LCS
For treatment of ME/CFS, AIM ImmunoTech has an approval for rintatolimod in Argentina, and is in development for the drug in the US. For LCS, Tonix Pharmaceuticals is in Phase 2 studies for TNX-102 SL.
Research and Development
We spent approximately $1.1 million and $2.2 million during the three months ended March 31, 2022 and the fiscal year ended December 31, 2021, respectively, on research and development activities, which activities have been undertaken by our CROs and other third-party vendors. These expenses include cash and non-cash expenses related to the development of our clinical and pre-clinical programs. From time to time, as needed, we will employ consultants to support our various business and research and development activities.
Intellectual Property
Our commercial success depends in part on our ability to obtain and maintain proprietary protection for product candidates and any of our future product candidates, novel discoveries, product development
 
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technologies and know-how; to operate without infringing on the proprietary rights of others; and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing on or in-licensing U.S. and foreign patents and patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation, regulatory and marketing exclusivity such as orphan drug exclusivity, and potential in-licensing opportunities to develop and maintain our proprietary position.
As of the date of this prospectus, we own rights to at least four families of patent applications (discussed further in the following three paragraphs). Our patent applications related to our product development candidates currently in development are projected to expire no earlier than 2040, not including any patent term adjustments, patent term extensions, supplementary protection certificates, or other term extensions that might be available in a particular jurisdiction. We also plan to file further patent applications covering our technology and products. Additionally, we own the exclusive rights to patient data in certain East African hospitals that is necessary for our HAT NDA filing.
On May 2, 2020 we filed PCT international patent Application No. PCT/US2020/031217 entitled Compositions and Methods for Treating Central Nervous System Disorders. This application claims priority to US Provisional Patent Application Serial No. 62/858,621, filed on June 7, 2019. The PCT application published as WO 2020/247127 on December 10, 2020. The PCT patent application relates to compositions and methods for treating cognitive, social, or behavioral disabilities, and neurodevelopmental disorders. These disabilities and disorders include, ASD and other central nervous system disorders such as fragile X syndrome (FXS), fragile X-associated tremor/ataxia syndrome (FXTAS), chronic fatigue syndrome (CFS), and post-traumatic stress syndrome (PTSD). The patent application also includes further embodiments of ASD selected from autistic disorder, childhood disintegrative disorder, PDD-NOS, and Asperger syndrome. This patent application also relates to compositions for delivering a therapeutically effective amount of an APT, for example suramin, and pharmaceutically acceptable salts, esters, solvates, and prodrugs of these agents. In some embodiments, the APT is delivered by intranasal administration. All designated states (all PCT treaty member countries) were selected upon filing of the PCT patent application. National stage applications have been filed in the United States, Canada, Israel, and Japan. We also intend to file national stage applications in Australia and China, and a regional stage application with the European Patent Office prior to the final deadlines for doing so.
On October 20, 2021 we filed two PCT international patent applications. The first of these two PCT patent applications is PCT international patent Application No. PCT/US2021/55908 which is entitled Intranasal Administration of Suramin for Treating Nervous System Disorders. This application claims priority to US Provisional Patent Application Serial No. 63/104,350, filed on October 22, 2020. This PCT patent application relates to methods and compositions for the intranasal administration of suramin for treating cognitive, social, or behavioral disabilities, and neurodevelopmental disorders. The second of these two PCT patent applications is PCT international patent Application No. PCT/US2021/55911 which is entitled Administration of Antipurinergic Compositions for Treating Nervous System Disorders. This application claims priority to US Provisional Patent Application Serial No. 63/104,357, filed on October 22, 2020. This PCT patent application relates to methods and compositions for the administration of antipurinergic compositions for treating cognitive, social, or behavioral disabilities, and neurodevelopmental disorders. These two PCT patent applications have not yet published, because PCT patent applications generally publish 18 months from the earliest priority date, which in this instance would be after April 22, 2022. All designated states (all PCT treaty member countries) were selected upon filing of these two PCT patent applications. Various national phase patent applications have not yet been filed, because the 30-month national stage filing deadline for doing so is not until April 22, 2023. As part of our intellectual property strategy, we intend to file U.S. nonprovisional and foreign national and regional stage applications of these two PCT applications in due course.
On August 23, 2021 we filed a US provisional patent application relating to methods for treating nervous systems disorders with antipurinergic agents. The application relates to further aspects of our work for the administration of the antipurinergic agents based on pharmaco-kinetic/pharmaco-dynamic parameters and other learnings from our pre-clinical and clinical work. US provisional patent applications do not publish, but expire one year from the filing date, by which any US nonprovisional, PCT international,
 
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and/or foreign patent applications claiming priority to the provisional patent application would have to be filed. As part of our intellectual property strategy, we intend to file a PCT international application and U.S. nonprovisional, and foreign national and regional stage applications in due course.
While we seek broad coverage under our existing patent applications, there is always a risk that an alteration to our products or processes may provide sufficient basis for a competitor to avoid infringing our patent claims. In addition, patents, if granted, expire and we cannot provide any assurance that any patents will be issued from our pending or any future applications or that any potentially issued patents will adequately protect our products or product candidates.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a period due to delay by the USPTO in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective non- provisional filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies for our products or processes, or to obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future products may have an adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the USPTO to determine priority of invention. For more information, please see “Risk Factors  —  Risks Related to Our Intellectual Property.”
We are aware of PCT international patent application PCT/US2018/017674, titled “Methods for Autism Spectrum Disorder Pharmacotherapy”, which lists Perfect Daylight Limited and The Regents of the University of California as Applicants, filed on February 9, 2018, published as WO 2018/148580 on August 16, 2018, and claiming priority to U.S. provisional patent application no. 62/457,120, filed on February 9, 2017. The patent application describes compositions of antipurinergic agents, such as suramin, and methods of use for treating cognitive developmental disorders and autism spectrum disorder. From publicly available databases, we are aware that a U.S. national phase application of this PCT patent application, U.S. application Serial No. 16/537,397, was filed in the United States and is currently pending. The European equivalent of the application was granted as EP3579836 on December 15, 2021, which commenced a 9-month period for public opposition. A Chinese application, CN201880024535.9, is also pending.
We are also aware of PCT international patent application PCT/US2018/017200, titled “Antipurinergic Compounds and Uses thereof,” which lists CSP Pharma, Inc. as Applicant, filed on February 7, 2018, published as WO 2018/148262 on August 16, 2018, and claiming priority to U.S. provisional patent application no. 62/456,438, filed on February 8, 2017. The patent application describes compositions and methods for treating neurodevelopmental disorders. The compositions contain an APT, such as suramin, and a carrier formulated for non-intravenous administration. The neurodevelopmental disorders include ASD. From publicly available databases, we are aware that a national phase application of this PCT patent application, U.S. application Serial No. 16/484,284 was filed in the United States. However, the US Patent Office issued a Notice of Abandonment on August 12, 2021 for applicant’s failure to respond to the office action of January 14, 2021. No further child applications are listed as pending.
We are also aware of PCT international patent application PCT/US2017/041932, titled “Diagnostic and Methods of Treatment for Chronic Fatigue Syndrome and Autism Spectrum Disorders,” which lists The Regents of the University of California as Applicant, filed on July 13, 2017, published as WO 2018/
 
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013811 on January 18, 2018, and claiming priority to U.S. provisional patent application nos. 62/ 464,369, filed on February 27, 2017 and 62/362,564, filed on July 14, 2016. The patent application describes biomarkers for diagnosing and predicting the development of chronic fatigue syndrome and methods of treating a mitochondrial disease or disorder, such as ASD, by administering an effective amount of an APT, such as suramin. Publicly available databases show no pending national or regional phase patent applications.
Because national phase applications of PCT/US2018/017674 are still pending at least in the United States and China, it is not certain if any patents will ultimately issue from these applications nor is it possible to predict the resultant claim scope of any such issued patent. We will continue to monitor the prosecution of these patent applications from publicly available documents.
License Agreements
On October 10, 2018 and November 9, 2018, we obtained the rights to worldwide, exclusive licenses to the patient data from the Ministry of Health, Republic of Malawi (the “Malawi License Agreement”) and Lwala Hospital (Soroti, Uganda) (the “Lwala License Agreement”), respectively, in connection with the treatment of East African HAT patients.
Under each of the Malawi License Agreement and the Lwala License Agreement (collectively, the “License Agreements”), we obtained an exclusive worldwide license to the medical data and information (in the form of patient medical files) related to patients who have been diagnosed with and/or treated for East African HAT. We intend to use these data to support our PAX-101 regulatory filings in the United States and Europe for the treatment of Stage 1 East African HAT. Pursuant to each of the License Agreements, we pay a fee to each licensor for its services in facilitating our access to, and analysis of, these data and we are obligated to make additional payments in the future based on the level of each licensor’s participation. To date, we have paid an aggregate of $7,375 under the License Agreements. Each of the License Agreements has an indefinite term, but may be terminated by each party thereto upon material breach of the other party, if such breach is not remedied by the breaching party within 30 days after being given notice of such breach by the non-breaching party. We anticipate that we will pay a total of approximately $50,000 during the life of the Malawi License Agreement, and a total of approximately $50,000 during the life of the Lwala License Agreement.
Governmental Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of products such as those we are developing. The pharmaceutical drug product candidates that we develop or acquire must be approved by the FDA before they may be marketed and distributed in the United States.
In the United States, the FDA regulates pharmaceutical products under the Federal Food, Drug, and Cosmetic Act, and implementing regulations. Pharmaceutical products are also subject to other federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to administrative or judicial sanctions. FDA and related enforcement activity could include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The process required by the FDA before a pharmaceutical product may be marketed in the United States generally involves the following:

Completion of preclinical laboratory tests, animal studies and formulation studies according to Good Laboratory Practices or other applicable regulations;

Submission to the FDA of an IND, which must become effective before human clinical studies may begin;
 
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Performance of adequate and well-controlled human clinical studies according to the FDA’s GCP, to establish the safety and efficacy of the proposed pharmaceutical product for its intended use;

Submission to the FDA of an NDA for a new pharmaceutical product;

Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the pharmaceutical product is produced, to assess compliance with cGMP, to assure that the facilities, methods and controls are adequate to preserve the pharmaceutical product’s identity, strength, quality and purity;

Potential FDA audit of the preclinical and clinical study sites that generated the data in support of the NDA; and

FDA review and approval of the NDA.
The lengthy process of seeking required approvals and the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial resources and approvals, and continued compliance is inherently uncertain.
Before testing any compounds with potential therapeutic value in humans, the pharmaceutical product candidate enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety and activity of the pharmaceutical product candidate. These early proof-of-principle studies are done using sound scientific procedures and thorough documentation. The conduct of the single and repeat dose toxicology and toxicokinetic studies in animals must comply with federal regulations and requirements including good laboratory practices. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA has concerns and notifies the sponsor. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical study can begin. If resolution cannot be reached within the 30-day review period, either the FDA places the IND on clinical hold or the sponsor withdraws the application. The FDA may also impose clinical holds on a pharmaceutical product candidate at any time before or during clinical studies for various reasons. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical studies to begin, or that, once begun, issues will not arise that suspend or terminate such clinical study.
Clinical studies involve the administration of the pharmaceutical product candidate to healthy volunteers or patients under the supervision of qualified investigators, generally physicians not employed by or under the clinical study sponsor’s control. Clinical studies are conducted under protocols detailing, among other things, the objectives of the clinical study, dosing procedures, subject selection and exclusion criteria, how the results will be analyzed and presented and the parameters to be used to monitor subject safety. Each protocol must be submitted to the FDA as part of the IND. Clinical studies must be conducted in accordance with GCP. Further, each clinical study must be reviewed and approved by an independent IRB at, or servicing, each institution at which the clinical study will be conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals participating in the clinical studies are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each clinical study subject or his or her legal representative and must monitor the clinical study until completed.
Human clinical studies are typically conducted in three sequential phases that may overlap or be combined:
Phase 1: The pharmaceutical product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases such as cancer, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing is often conducted in patients, with a goal of characterizing the safety profile of the drug and establishing a maximum tolerable dose (“MTD”).
Phase 2: With the maximum tolerable dose established in a Phase 1 trial, the pharmaceutical product is evaluated in a limited patient population at the MTD to identify possible adverse effects and safety risks, to
 
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preliminarily evaluate the efficacy of the product for specific targeted diseases, to determine dosage tolerance, optimal dosage and dosing schedule and to identify patient populations with specific characteristics where the pharmaceutical product may be more effective