What caused a pop-and-drop in PaxMedica (NASDAQ:PXMD) stock today? PaxMedica is in the headlines due to an arrangement that will reportedly generate over $3 million for the company. However, this capital infusion isn’t free money and investors should read the fine print.
Based in New York, PaxMedica is a clinical-stage biopharmaceutical company that develops drug therapies, including ones to treat autism spectrum disorder (ASD) and myalgic encephalomyelitis/chronic fatigue syndrome (ME/CFS).
PaxMedica’s lead program, PAX-101, is an intravenous formulation of suramin to be used in the treatment of ASD, among other potential applications. Naturally, it requires a great deal of capital to advance a clinical program such as PAX-101.
To that end, PaxMedica signed an agreement with investment fund Lind Global Partners II, LP, which is owned by institutional fund manager The Lind Partners. Per the agreement, Lind Global Partners II will provide funding resulting in net proceeds of $3.2 million to PaxMedica.
What’s Happening with PXMD Stock?
The response to this development was immediate and swift, as traders pushed PXMD stock up 15% in early-session trading today. However, shares pulled back after a while and were up only 4% as of 11:00 a.m. Eastern.
Possibly, investors needed some time to read the rest of the story. Granted, a $3.2 million capital infusion is nothing to sneeze at. PaxMedica CEO Howard Weisman stated the funding will give his company “the flexibility to progress on the work we are doing for the development of the autism spectrum disorder (ASD) indication for PAX-101.”
Fair enough, but don’t assume the $3.2 million is a gift to PaxMedica. It’s actually a loan, in the “form of a $3.68 million convertible note with an 18-month maturity.”
Furthermore, 180 days after funding, PaxMedica will have to “make principal payments in 12 equal monthly installments.” It’s not a foregone conclusion that PaxMedica will easily be able to repay the $3.2 million.
Still, at least the company now has millions of dollars to help advance its ASD treatment. Now, it’s up to PaxMedica to use those funds wisely. It’s up to PXMD stock traders to decide whether to buy or sell their shares.
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On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.