Is PaxMedica Inc. Stock a Good Buy?

Key Highlights:

• Biotechnology firm PaxMedica’s therapeutic for autism-related symptoms could be a game-changer.
• Investors must be careful with the volatile biotech segment.

PaxMedica Inc. (NASDAQ: PXMD), a clinical-stage biotech firm developing therapies for neurodevelopmental disorders launched its initial public offering (IPO) on Aug. 26, 2023. Regulatory authorities have yet to approve any drug for PaxMedica’s core indication.

While the underlying science is incredibly promising with the potential to deliver a unique therapeutic, PaxMedica faces significant fundamental pressures. Even the science is not completely bulletproof as myriad questions remain about viability and safety.

Below are the key pros and cons to consider.

What Does PaxMedica Do?

Specializing in neurological disorders, PaxMedica is a clinical-stage biotechnology firm venturing into currently underserved markets. According to the company’s Form S-1 disclosure filed with the U.S. Securities and Exchange Commission (SEC), PaxMedica focuses on the development of antipurinergic drug therapies (APT) for the treatment of disorders with intractable neurologic symptoms. Catalysts range from neurodevelopmental disorders, including autism spectrum disorder (ASD) to myalgic encephalomyelitis/​chronic fatigue syndrome (ME/CFS).

The latter area has garnered significant interest because of the COVID-19 pandemic. As the Mayo Clinic mentioned, long-term symptoms associated with the SARS-CoV-2 virus include fatigue, fever and respiratory symptoms. In addition, certain conditions can flare up following physical or mental exertion.

Specifically, PaxMedica aims to spark substantive momentum in its APT regimen. To provide a brief background, purines represent chemical compounds that form uric acid when metabolized. These compounds come in two forms: endogenous (or purines produced by the human body) and exogenous (purines absorbed through food consumption).

According to data published by the National Library of Medicine, “both genetic and environmental factors” cause ASDs. Further, mitochondria and other metabolites “communicate cellular health and danger to neighboring cells via purinergic signaling.” Therefore, antipurinergic therapies could modulate these cellular communications, potentially evoking positive health outcomes for ASD patients.

Other bodies of research suggest that APT regimens can correct autism-like features. Thus, PaxMedica’s scientific framework builds off prior investigations into the mechanics of neurological disorders.

The company’s lead therapeutic is PAX-101, an intravenous formulation of suramin. According to UC San Diego Health, suramin “is a 100-year-old drug developed to treat African sleeping sickness and river blindness. Though it has been investigated for other diseases, including cancer, it is not approved for any therapeutic use in the United States.”

However, researchers discovered that suramin in a single intravenous dose produced dramatic but transient improvement of core symptoms of ASD. Currently, the Food and Drug Administration (FDA) has not approved any drug for treating core ASD symptoms, epitomizing both the risk and opportunity behind PaxMedica.

When Was the PaxMedica IPO Date?

PaxMedica debuted on the IPO calendar in August 2023. Shares trade on the Nasdaq exchange under the ticker symbol PXMD.

Based on the terms of the deal, PaxMedica distributed about 1.54 million shares at an estimated price between $4.50 and $6.50 per share. At the midpoint of this range, the company raised about $8.5 million. Craft Capital Management represented the sole bookrunner for the offering.

Prospective participants should be aware that PaxMedica originally filed for an IPO in July 2020. At the time, it planned to raise $16 million through the distribution of 2.6 million shares and warrants. The estimated price range was $5.50 to $6.50 per share before management removed all terms in January of this year.

Also in January 2022, the company submitted a blank filing, proposing a $29 million raise. Later in June, PaxMedica filed for a $15 million raise before eventually settling down to $8.5 million with its Aug. 9, 2022 filing with the SEC. In other words, with the deal trajectory almost consistently getting worse, investors should acknowledge this apparent lack of internal confidence before proceeding with their hard-earned dollars.

Against a broader framework, the debut of PXMD stock is arriving at a unique juncture in the capital markets. According to a Reuters analysis, IPOs “around the world raised a record $594 billion in 2021, riding the coattails of stock market rallies.” At the same time, the news agency that the new listings often disappointed investors “with their subsequent stock performance.”

If investors suffered frustrations in 2021, public debuts went downright moribund in 2022. Outside circumstances that no one could control – particularly Russia’s invasion of Ukraine – contributed the most to the wider disruption. However, it’s also fair to point out that large listings have been slow to enter the frame.

Instead, market participants have largely only had access to smaller fare like PXMD stock. However, with PaxMedica incurring its own drama before opening day, the development speaks to broader concerns about equity sector sentiment.

What Analysts Are Saying About PaxMedica 

As a nano-capitalization offering, Wall Street analysts have not weighed in on PXMD stock. However, the fundamental pros and cons of the underlying business are reasonably easy to decipher.

On the optimistic front, PaxMedica fuels its aspirational narrative with the fact that the FDA has yet to approve a therapeutic for treating the core symptoms of ASD. Therefore, the company that first commercializes an ASD drug could accrue massive profitability.

For one thing, the total addressable market is quite large. According to the Centers for Disease Control and Prevention, an “estimated 5,437,988 (2.21%) adults in the United States have ASD.” Moreover, approximately 1% of the world’s population — over 75 million people — suffer from the disorder. Thus, a scientific breakthrough could be life-changing for people on the spectrum.

The economic picture also justifies investments in ASD drugs. For instance, Fortune Business Insights reports that the market size for ASD treatment and management was $1.85 billion in 2021. By 2029, experts project that this market could reach a valuation of $3.17 billion, representing a compound annual growth rate (CAGR) of 7.4% from 2022 to the end of the forecasted period.

Of course, every investment thesis features a countervailing perspective. Fundamentally, clinical-stage biotech firms are risky. While PaxMedica has made encouraging progress in its clinical trials, no guarantees exist that it will progress to the commercialization stage. The business graveyard is filled with aspirational biotechs that couldn’t cross the finish line before the money ran out.

On the scientific level, while these studies support the hypothesis that “autism and other chronic conditions are fundamentally driven by metabolic dysfunction — and thus treatable,” the head researcher of suramin’s applicability toward ASD — Robert Naviaux, MD, PhD — proposed larger, longer clinical trails to truly assess its viability.

To be sure, larger, longer clinical trials cost money, which biotechs can run short of if they disappoint shareholders.

Finally, suramin-based therapeutics for neurological disorders might not be a panacea. As UC San Diego Health explained, suramin administered improperly can cause harm. In fact, the Mayo Clinic lists a range of side effects that intravenous suramin regimens can cause.

PaxMedica Financial History

As intriguing as the science undergirding PXMD stock may sound, the financials of an investment opportunity typically reveal the steepest hurdle. Here, market participants will want to conduct thorough due diligence before putting their capital at risk.

First off, PaxMedica is a pre-revenue enterprise. According to its statement of operations for 2021, PaxMedica generated zero revenue. However, it incurred $4.97 million in general and administrative expenses and $2.22 million in research and development costs, totaling a loss from operations of nearly $7.2 million.

Overall, net loss came to $10.2 million, an unfavorable expansion of red ink from a loss of $7.8 million in 2020.

On the balance sheet, PaxMedica, as of Dec. 31, 2021, held total assets of $648,866. However, the company’s total liabilities measured $10.76 million, translating to a total stockholders’ deficit of $10.1 million. 

PaxMedica Potential

While certain stocks appear more robust than others, the reality is that the free market represents the final arbiter of their valuation. Regarding PXMD stock, the underlying company commands a feel-good narrative, one that could easily corral the meme-stock crowd.

On the other hand, the cream tends to rise to the top over time. Put another way, the fundamentals eventually matter. Considering that PaxMedica is venturing into uncharted clinical territory, it will likely require future funding initiatives. However, if these initiatives center on dilutive actions such as equity sales, long-term shareholders of PXMD stock could suffer the most.

Where to Buy PaxMedica Stock

If you want to participate in PaxMedica’s story, you’ll need to know to buy stocks. But before you take that step, you must sign up for a brokerage account. Below is a list of the best brokers to consider.

Invest with Caution

PaxMedica Inc. is a biotech firm that offers a potential breakthrough therapy for autism symptoms. However, investors should be cautious because of the volatile nature of the biotech sector and uncertainties surrounding the company's viability and safety. Market conditions and the financial profile of the company should be carefully considered before investing.

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