Praxis Precision Medicines, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K. An index of those financial statements is found in Item 15, Exhibits and Financial Statement Schedules, of this Annual Report on Form 10-K. Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 97 Consolidated Balance Sheets 99 Consolidated Statements of Operations 100 Consolidated Statements of Comprehensive Loss 101 Consolidated Statements of Stockholders’ Equity 102 Consolidated Statements of Cash Flows 104 Notes to Consolidated Financial Statements 105 96 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Praxis Precision Medicines, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Praxis Precision Medicines, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. The Company's Ability to Continue as a Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has limited financial resources, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 97 Table of Contents Ulixacaltamide Essential1 Accrued and Prepaid Research and Development Costs Description of the Matter The Company’s accrued costs for research and development expenses totaled $10.7 million at December 31, 2022, including accruals related to the Company’s ulixacaltamide Essential1 clinical trial. In addition, the Company’s prepaid expenses and other current assets were $10.4 million, which included amounts that were paid in advance of services incurred pursuant to the ulixacaltamide Essential1 clinical trial. As discussed in Note 2 to the consolidated financial statements, the Company analyzes the progress of the clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued and prepaid balances at the end of any reporting period for the Company’s ulixacaltamide Essential1 clinical trial. The Company is required to estimate such accruals and prepaids using judgment based on certain information, including actual costs incurred or level of effort expended, as provided by its vendors. Payments for such activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheet within accrued or prepaid expenses and other current assets. Auditing the Company’s accrued and prepaid research and development costs for the ulixacaltamide Essential1 clinical trial was complex, as accounting for the costs associated with this clinical trial required subjective estimates of the level of services performed and the associated costs incurred by service providers. Furthermore, due to the duration of the Company’s ulixacaltamide Essential1 clinical trial, and the timing of information received from third parties, the actual amounts incurred are not typically known at the time the consolidated financial statements are issued. How We Addressed the Matter in Our Audit To evaluate the accrued and prepaid research and development costs for the ulixacaltamide Essential1 clinical trial, our audit procedures included, among others, testing the accuracy and completeness of the underlying data used in the estimates and evaluating the significant judgments and estimates made by management to determine the recorded accruals and prepayments. To test the significant judgments and estimates, we corroborated the progress of research and development activities through discussion with the Company’s research and development personnel that oversee the research and development projects and inspected the Company’s contracts with third parties and any pending change orders to assess the impact on amounts recorded. In addition, we reviewed estimates of costs incurred to date provided to the Company from third parties. We also analyzed fluctuations in accruals by vendor and by trial throughout the period subject to audit, evaluated the costs incurred per trial, site and/or patient for reasonableness and tested subsequent invoices received from third parties. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2019. Boston, Massachusetts February 7, 2023 98 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except share and per share data) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 61,615 $ 138,704 Marketable securities 38,874 137,207 Prepaid expenses and other current assets 10,351 11,498 Total current assets 110,840 287,409 Property and equipment, net 971 1,213 Operating lease right-of-use assets 2,901 3,653 Other non-current assets 416 472 Total assets $ 115,128 $ 292,747 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 14,672 $ 10,780 Accrued expenses 15,850 26,844 Operating lease liabilities 1,005 810 Current portion of deferred revenue 2,818 — Total current liabilities 34,345 38,434 Long-term liabilities: Non-current portion of operating lease liabilities 2,495 3,501 Non-current portion of deferred revenue 2,182 — Total liabilities 39,022 41,935 Commitments and contingencies (Note 8) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized and no shares issued or outstanding as of December 31, 2022 and December 31, 2021 — — Common stock, $ 0.0001 par value; 150,000,000 shares authorized; 49,382,453 shares issued and outstanding as of December 31, 2022, and 45,300,514 shares issued and outstanding as of December 31, 2021 5 5 Additional paid-in capital 606,918 567,598 Accumulated other comprehensive loss ( 173 ) ( 176 ) Accumulated deficit ( 530,644 ) ( 316,615 ) Total stockholders’ equity 76,106 250,812 Total liabilities and stockholders’ equity $ 115,128 $ 292,747 The accompanying notes are an integral part of these consolidated financial statements. 99 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except share and per share data) Year Ended December 31, 2022 2021 Operating expenses: Research and development $ 155,040 $ 120,257 General and administrative 59,946 47,075 Total operating expenses 214,986 167,332 Loss from operations ( 214,986 ) ( 167,332 ) Other income: Other income, net 957 271 Total other income 957 271 Net loss $ ( 214,029 ) $ ( 167,061 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 4.64 ) $ ( 3.94 ) Weighted average common shares outstanding, basic and diluted 46,096,737 42,454,055 The accompanying notes are an integral part of these consolidated financial statements. 100 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Amounts in thousands, except share and per share data) Year Ended December 31, 2022 2021 Net loss $ ( 214,029 ) $ ( 167,061 ) Change in unrealized losses on marketable securities, net of tax 3 ( 176 ) Comprehensive loss $ ( 214,026 ) $ ( 167,237 ) The accompanying notes are an integral part of these consolidated financial statements. 101 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Amounts in thousands, except share data) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balance at December 31, 2021 45,300,514 $ 5 $ 567,598 $ ( 316,615 ) $ ( 176 ) $ 250,812 Stock-based compensation expense — — 7,886 — — 7,886 Issuance of common stock from at-the-market public offerings 70,410 — 1,368 — — 1,368 Vesting of restricted stock units 81,130 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 17,850 ) — ( 230 ) — — ( 230 ) Issuance of common stock upon exercise of stock options 72,278 — 333 — — 333 Change in unrealized loss on marketable securities, net of tax — — — — ( 430 ) ( 430 ) Net loss — — — ( 68,717 ) — ( 68,717 ) Balance at March 31, 2022 45,506,482 $ 5 $ 576,955 $ ( 385,332 ) $ ( 606 ) $ 191,022 Stock-based compensation expense — — 7,611 — — 7,611 Issuance of common stock under employee stock purchase plan 51,645 — 454 — — 454 Vesting of restricted stock units 6,361 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 2,225 ) — ( 17 ) — — ( 17 ) Issuance of common stock upon exercise of stock options 13,143 — 67 — — 67 Change in unrealized loss on marketable securities, net of tax — — — — ( 74 ) ( 74 ) Net loss — — — ( 60,194 ) — ( 60,194 ) Balance at June 30, 2022 45,575,406 $ 5 $ 585,070 $ ( 445,526 ) $ ( 680 ) $ 138,869 Stock-based compensation expense — — 6,730 — — 6,730 Issuance of common stock from at-the-market public offerings, net of issuance costs of $ 109 1,105,006 — 2,962 — — 2,962 Vesting of restricted stock units 5,312 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 1,638 ) — ( 6 ) — — ( 6 ) Issuance of common stock upon exercise of stock options 180,241 — 409 — — 409 Change in unrealized loss on marketable securities, net of tax — — — — 144 144 Net loss — — — ( 43,945 ) — ( 43,945 ) Balance at September 30, 2022 46,864,327 $ 5 $ 595,165 $ ( 489,471 ) $ ( 536 ) $ 105,163 Stock-based compensation expense — — 6,366 — — 6,366 Issuance of common stock under employee stock purchase plan 89,739 — 163 — — 163 Issuance of common stock from at-the-market public offerings 2,419,857 — 5,231 — — 5,231 Vesting of restricted stock units 12,000 — — — — — Shares withheld for taxes for vesting of restricted stock units ( 3,470 ) — ( 7 ) — — ( 7 ) Change in unrealized loss on marketable securities, net of tax — — — — 363 363 Net loss — — — ( 41,173 ) — ( 41,173 ) Balance at December 31, 2022 49,382,453 $ 5 $ 606,918 $ ( 530,644 ) $ ( 173 ) $ 76,106 The accompanying notes are an integral part of these consolidated financial statements. 102 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued) (Amounts in thousands, except share data) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Amount Balance at December 31, 2020 38,268,543 $ 4 $ 437,007 $ ( 149,554 ) $ — $ 287,457 Stock-based compensation expense — — 4,666 — — 4,666 Issuance of common stock upon exercise of stock options 352,506 — 851 — — 851 Change in unrealized loss on marketable securities, net of tax — — — — ( 86 ) ( 86 ) Net loss — — — ( 27,373 ) — ( 27,373 ) Balance at March 31, 2021 38,621,049 $ 4 $ 442,524 $ ( 176,927 ) $ ( 86 ) $ 265,515 Stock-based compensation expense — — 5,400 — — 5,400 Issuance of common stock from follow-on public offering, net of offering costs of $ 229 5,750,000 1 98,412 — — 98,413 Issuance of common stock upon exercise of stock options 322,113 — 809 — — 809 Change in unrealized loss on marketable securities, net of tax — — — — 36 36 Net loss — — — ( 36,401 ) — ( 36,401 ) Balance at June 30, 2021 44,693,162 $ 5 $ 547,145 $ ( 213,328 ) $ ( 50 ) $ 333,772 Stock-based compensation expense — — 6,521 — — 6,521 Issuance of common stock upon exercise of stock options 90,909 — 309 — — 309 Change unrealized loss on marketable securities, net of tax — — — — 25 25 Net loss — — — ( 44,705 ) — ( 44,705 ) Balance at September 30, 2021 44,784,071 $ 5 $ 553,975 $ ( 258,033 ) $ ( 25 ) $ 295,922 Stock-based compensation expense — — 6,106 — — 6,106 Issuance of common stock from at-the-market public offerings, net of offering costs of $ 598 391,997 — 7,039 — — 7,039 Issuance of common stock upon exercise of stock options 124,446 — 478 — — 478 Change in unrealized loss on marketable securities, net of tax — — — — ( 151 ) ( 151 ) Net loss — — — ( 58,582 ) — ( 58,582 ) Balance at December 31, 2021 45,300,514 $ 5 $ 567,598 $ ( 316,615 ) $ ( 176 ) $ 250,812 The accompanying notes are an integral part of these consolidated financial statements. 103 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) Year Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 214,029 ) $ ( 167,061 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 419 182 Stock-based compensation expense 28,593 22,693 Non-cash operating lease expense 752 1,412 Amortization of premiums and discounts on marketable securities, net 1,003 2,087 Changes in operating assets and liabilities: Prepaid expenses and other current assets 547 ( 5,780 ) Accounts payable 3,892 7,267 Accrued expenses ( 10,465 ) 15,450 Operating lease liabilities ( 811 ) ( 763 ) Deferred revenue 5,000 — Other 56 ( 41 ) Net cash used in operating activities ( 185,043 ) ( 124,554 ) Cash flows from investing activities: Purchases of property and equipment ( 444 ) ( 1,050 ) Purchases of marketable securities ( 83,022 ) ( 164,170 ) Maturities of marketable securities 180,355 24,700 Net cash provided by (used in) investing activities 96,889 ( 140,520 ) Cash flows from financing activities: Proceeds from at-the-market offerings, net of issuance costs 9,561 7,301 Proceeds from follow-on public offering, net of issuance costs — 98,413 Payment of issuance costs for at-the-market offerings and initial public offering ( 262 ) ( 575 ) Payments of tax withholdings related to vesting of restricted stock units ( 260 ) — Proceeds from exercise of options and employee stock purchase plan contributions 1,426 2,447 Net cash provided by financing activities 10,465 107,586 Decrease in cash, cash equivalents and restricted cash ( 77,689 ) ( 157,488 ) Cash, cash equivalents and restricted cash, beginning of period 139,720 297,208 Cash, cash equivalents and restricted cash, end of period $ 62,031 $ 139,720 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents 61,615 138,704 Restricted cash 416 1,016 Total cash, cash equivalents and restricted cash $ 62,031 $ 139,720 Supplemental disclosures of non-cash activities: Operating lease right-of-use assets obtained in exchange for operating lease liabilities $ — $ 4,068 Offering costs included in accrued expenses $ — $ 262 Purchases of property and equipment included in accrued expenses $ — $ 267 The accompanying notes are an integral part of these consolidated financial statements. 104 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of the Business Praxis Precision Medicines, Inc. (“Praxis” or the “Company”) is a clinical-stage biopharmaceutical company translating insights from genetic epilepsies into the development of therapies for central nervous system, or CNS, disorders characterized by neuronal excitation-inhibition imbalance. Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, can lead to abnormal function and both rare and more prevalent neurological disorders. The Company is applying genetic insights to the discovery and development of therapies for neurological disorders through two proprietary platforms, using its understanding of shared biological targets and circuits in the brain. Each platform has multiple programs currently, with significant potential for additional program and indication expansion: • Cerebrum ™, the Company's small molecule platform, utilizes deep understanding of neuronal excitability and neuronal networks and applies a series of computational and experimental tools to develop orally available precision therapies • Solidus ™, the Company's antisense oligonucleotide, or ASO, platform, is an efficient, targeted precision medicine discovery and development engine anchored on a proprietary, computational methodology The Company's platforms utilize a deliberate, pragmatic and patient-guided approach, leveraging a suite of translational tools, including novel transgenic and predictive translational animal models and electrophysiology markers, to enable an efficient path to proof-of-concept in patients. Through this approach, the Company has established a diversified, multimodal CNS portfolio with four clinical-stage product candidates across movement disorders and epilepsy. For the Company's most advanced product candidate under the Cerebrum™ platform, ulixacaltamide (formerly known as PRAX-944), it expects to announce topline results from the Phase 2b Essential1 clinical trial in essential tremor in the first quarter of 2023. The Company also plans to initiate an ulixacaltamide Phase 2 clinical trial in Parkinson's disease in the first quarter of 2023 and expects topline results in the fourth quarter of 2023. The Company plans to initiate its PRAX-562 Phase 2 EMBOLD study in the first quarter of 2023, with initial cohorts in SCN2A-DEE and SCN8A-DEE, and expects to announce topline results for both cohorts in the second half of 2023. The Company also initiated a Phase 1 healthy volunteer study of PRAX-628 in the fourth quarter of 2022 and expects to report topline results in mid-2023. For the Company's most advanced product candidate under the Solidus™ platform, PRAX-222, it expects to announce topline results from the first dose cohort of its EMBRAVE study in mid-2023. Praxis was incorporated in 2015 and commenced operations in 2016. The Company has funded its operations primarily with proceeds from the issuance of redeemable convertible preferred stock, and from the sale of common stock through an initial public offering ("IPO"), a follow-on public offering and at-the-market offerings under its shelf registration statement. From inception through December 31, 2022, the Company raised $ 526.0 million in aggregate cash proceeds from these transactions, net of issuance costs. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales. Liquidity In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , 105 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company has incurred recurring losses since its inception, including a net loss of $ 214.0 million for the year ended December 31, 2022. In addition, as of December 31, 2022, the Company had an accumulated deficit of $ 530.6 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company expects that its cash, cash equivalents and marketable securities as of December 31, 2022, together with net proceeds raised under the Open Market Sale Agreement ("the Sales Agreement") subsequent to December 31, 2022, may not be sufficient to fund operations for at least the next twelve months from the date of issuance of these consolidated financial statements which raises substantial doubt about the Company's ability to continue as a going concern, and the Company will need to obtain additional funding. The Company expects to finance its operations through potential public or private equity financings, debt financings, collaboration agreements or other capital sources. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The consolidated 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. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and ASUs of the FASB. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Praxis Security Corporation and Praxis Precision Medicines Australia Pty Ltd. All intercompany transactions have been eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, accrued and prepaid research and development expense, stock-based compensation expense and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates. Segments 106 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company has one operating segment. The Company’s chief operating decision maker, its Chief Executive Officer, manages the Company’s operations on a consolidated basis for the purposes of assessing performance and allocating resources. The majority of the Company’s long-lived assets are held in the United States. Cash, Cash Equivalents and Restricted Cash The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include cash held in banks and amounts held in interest-bearing money market funds. Cash equivalents are carried at cost, which approximates their fair market value. Restricted cash comprises letters of credit for the benefit of the landlord in connection with the Company’s lease facilities. Restricted cash is classified as either current or non-current based on the terms of the underlying lease arrangement. The following table presents cash and cash equivalents and restricted cash as reported on the consolidated balance sheets that equal the total amounts on the consolidated statements of cash flows (in thousands): December 31, 2022 2021 Cash and cash equivalents $ 61,615 $ 138,704 Restricted cash 416 1,016 Total cash, cash equivalents and restricted cash as shown on the consolidated statements of cash flows $ 62,031 $ 139,720 Marketable Securities The Company invests its excess cash in money market funds and debt instruments of the U.S. Treasury, financial institutions, corporations and U.S. government agencies with strong credit ratings and an investment grade rating at or above A-1 or P-1 by two of the three nationally recognized statistical rating organizations. The Company does not believe that it is exposed to more than a nominal amount of credit risk in its marketable securities. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity, and periodically reviews and modifies these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity. The Company classifies its investments in debt instruments as available-for-sale. Available-for-sale investments are reported at fair value at each balance sheet date, and include any unrealized holding gains and losses in accumulated other comprehensive loss, a component of stockholders’ equity. Realized gains and losses are included in the Company's consolidated statements of operations. All of the Company's available-for-sale securities are available for use in its current operations. As a result, the Company has categorized all of these securities as current assets even though the stated maturity of some individual securities may be one year or more beyond the balance sheet date. The Company evaluates securities for impairment at the end of each reporting period. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include whether a decline in fair value below the amortized cost basis is due to credit-related factors or non-credit-related factors, the financial condition and near-term prospects of the Company, and the Company's intent and ability to hold the investment to allow for an anticipated recovery in fair value. A credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings. Any impairment that is not credit-related is recognized in other comprehensive loss, net of applicable taxes unless deemed other than temporary. Concentrations of Credit Risk and Significant Suppliers and License Agreements Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and marketable securities. The Company's investment portfolio comprises money market funds, marketable debt securities, including debt securities issued by U.S. government agencies and corporations, and commercial paper. The Company investments are limited to investment-grade securities with strong credit ratings with the objective of maintaining safety and liquidity. The Company also maintains deposits in 107 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) accredited financial institutions in excess of federally insured limits. Bank accounts in the United States are insured by the Federal Deposit Insurance Corporation (the “FDIC”) up to $250,000. As of December 31, 2022 and 2021, the Company’s primary operating accounts significantly exceeded the FDIC limits. The Company deposits its cash in financial institutions that it believes have high credit quality, and has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company is dependent on third-party manufacturers to supply materials for research and development activities of its programs, including preclinical and clinical testing. In particular, the Company relies, and expects to continue to rely, on a small number of third-party manufacturers to produce and process its current and potential product candidates and to manufacture supply of its current and potential product candidates for preclinical and clinical activities. These programs could be adversely affected by a significant interruption in the supply of the necessary materials. The Company is also dependent on third parties who provide license rights used in the development of certain programs. The Company could experience delays in the development of its programs if any of these license agreements are terminated, if the Company fails to meet the obligations required under its arrangements, or if the Company is unable to successfully secure new strategic alliances or licensing agreements. Off-Balance Sheet Risk As of December 31, 2022 and 2021, the Company had no off-balance sheet risk such as foreign exchange contracts, option contracts or other hedging arrangements. Fair Value Measurements Certain assets and liabilities of the Company are carried at fair value under GAAP. The fair values of the Company’s financial assets and liabilities reflects the Company’s estimate of the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable: • Level 1: Quoted prices in active markets for identical assets or liabilities. • Level 2: Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3: Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. An entity may choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. Items measured at fair value on a recurring basis include cash equivalents and marketable securities (Note 4 and Note 5). The carrying amounts reflected in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. 108 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Property and Equipment Property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets: Estimated Useful Life Office furniture and equipment 5 years Laboratory equipment 3 years Computer equipment 3 years Upon disposal, retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Expenditures for repairs and maintenance that do not improve or extend the lives of the respective assets are charged to expense as incurred. Impairment of Long-Lived Assets Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows. The Company did no t record any impairment losses on long-lived assets during the years ended December 31, 2022 and 2021. Leases The Company accounts for leases in accordance with ASC 842. The Company determines if an arrangement is a lease at contract inception. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating right-of-use assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised. The Company uses the implicit rate when readily determinable and uses its incremental borrowing rate when the implicit rate is not readily determinable, based upon the information available at the commencement date in determining the present value of the lease payments. The incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease. The lease payments used to determine operating lease right-of-use assets may include lease incentives and stated rent increases. The Company’s lease agreements may include both lease and non-lease components, which the Company accounts for as a single lease component when the payments are fixed, for all classes of underlying assets. Variable payments included in the lease agreement are expensed as incurred. The Company’s operating leases are reflected in operating lease right-of-use assets and in current operating lease liabilities and long-term operating lease liabilities in its consolidated balance sheets. The Company’s operating lease right-of-use asset as of December 31, 2022 and 2021 did not include any lease incentives. Lease expense for future lease payments is recognized on a straight-line basis over the lease term. Collaboration Agreements 109 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements (" ASC 808"), to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards that are dependent on the commercial success of such activities. To the extent the arrangement is within the scope of ASC 808, the Company assesses whether aspects of the arrangement between the Company and its collaboration partner are within the scope of other accounting literature, including ASC Topic 606, Revenue from Contracts with Customers (" ASC 606"). If it is concluded that some or all aspects of the arrangement represent a transaction with a customer, the Company will account for those aspects of the arrangement within the scope of ASC 606. ASC 808 provides guidance for the presentation and disclosure of transactions in collaborative arrangements, but it does not provide recognition or measurement guidance. Therefore, if the Company concludes a counterparty to a transaction is not a customer or otherwise not within the scope of ASC 606, the Company considers the guidance in other accounting literature as applicable or by analogy to account for such transaction. The classification of transactions under the Company’s arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants. Revenue Recognition The Company enters into collaboration agreements which are within the scope of ASC 606 under which the Company may license or provide options to license certain development or product candidates and, in certain cases, may perform research and development services. The terms of these agreements may include payment of non-refundable, upfront fees, option exercise fees, development and commercial milestone payments and royalties on net sales of licensed products. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for agreements determined to be within the scope of ASC 606, the Company performs the following five steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. The Company then assesses whether each promised good or service is distinct. When the Company offers options for additional goods or services, such as an option to obtain a license, it evaluates whether such options are material rights that should be treated as separate performance obligations. The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include fixed consideration or variable consideration. At the inception of each agreement that includes variable consideration, the Company evaluates the amount of potential payments and the likelihood that the payments will be received to estimate the amount expected to be received. The amount of variable consideration included in the transaction price may be constrained and is included in the transaction price only to the extent that it is probable that a significant reversal of the cumulative revenue recognized will not occur in a future period. The Company recognizes as revenue the amount of the transaction price that it allocated to the respective performance obligation when or as each performance obligation is satisfied, either at a point in time or over time. If the performance obligation is satisfied over time, the Company recognizes revenue based on the use of an output or input method. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. For example, f or research and development services that are recognized over time, the Company measures its progress using an input method. The input methods used are based on the effort the Company expends or costs it incurs toward the satisfaction of its performance obligation. 110 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company estimates the amount of effort it expends, including the time it estimates it will take to complete the activities, or costs it incurs in a given period, relative to the estimated total effort or costs to satisfy the performance obligation. This results in a percentage that is multiplied by the transaction price to determine the amount of revenue recognized each period. If the estimates or judgements change over the course of the collaboration, they may affect the timing and amount of revenue that is recognized in the current and future periods. Upfront payments are recorded as contract liabilities within deferred revenue on the consolidated balance sheets until the Company performs its obligations under these agreements. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional. As of December 31, 2022, the Company had one collaboration, option and license agreement with UCB Biopharma SRL ("UCB"), which it entered into in December 2022. The accounting accounting related to the collaboration agreement is outlined in Note 9, UCB Option and License Agreement. Research and Development Costs Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, third-party license fees, and external costs of outside vendors engaged to conduct preclinical development activities and clinical trials as well as to manufacture research and development materials. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed or until it is no longer expected that the goods will be delivered or the services rendered. Costs incurred to obtain licenses are recognized as research and development expense as incurred if the technology licensed has no alternative future uses. The Company has entered into various research and development related contracts with parties both inside and outside of the United States. These agreements are cancellable, and related fees are recorded as research and development expenses as incurred. The Company records accrued liabilities and prepaid expenses for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities and prepaid expenses, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued and prepaid balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical estimates have not been materially different from the actual costs. Patent-Related Costs Patent-related costs incurred in connection with patent applications are expensed as incurred due to the uncertainty about the recovery of the expenditure. Amounts incurred are classified as general and administrative expenses in the accompanying consolidated statement of operations. Stock-Based Compensation The Company accounts for all stock-based awards granted to employees and non-employees as stock-based compensation expense at fair value in accordance with FASB ASC Topic 718, Compensation—Stock Compensation (" ASC 718"). For stock-based awards issued to employees, non-employees and members of the Company’s board of directors (the “Board”) for their services on the Board, the Company measures the estimated fair value of the stock-based award on the date of the grant. The Company recognizes compensation expense for those awards granted to employees and members of the Board over the requisite service period, which is generally the vesting period of the respective award. For non-employee awards, compensation expense is recognized as the services are provided, which is generally ratably over the vesting period. The Company issues stock-based awards with service-based vesting conditions and records the expense for these awards on a straight-line basis over the vesting period. To date, the Company has not issued any stock-based awards with performance or market-based vesting conditions. The Company accounts for forfeitures as they occur. The Company classifies stock-based compensation expense in its consolidated statement of operations in the same manner in which the award recipient’s salary or service payments are classified. 111 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model, which requires inputs of subjective assumptions, including: (i) the expected volatility of the Company’s stock; (ii) the expected term of the award; (iii) the risk-free interest rate; (iv) expected dividends; and (v) the fair value of common stock. Due to the lack of Company-specific historical and implied volatility data, the Company determines the volatility for awards granted based on an analysis of reported data for a group of guideline publicly-traded companies that issued options with substantially similar terms. For this analysis, the Company selects companies with comparable characteristics including enterprise value, risk profiles, and with historical share price information sufficient to meet the expected life of the stock-based awards. The Company determines expected volatility using a weighted average of the historical volatilities of the guideline group of companies. The Company expects to continue to apply this process until such time as it has adequate historical data regarding the volatility of its own traded stock price. As permitted under ASC 718, the Company has elected to use the contractual term as the expected term for certain non-employee awards, on an award-by-award basis. For all other awards, the expected term of the Company’s stock options has been determined utilizing the “simplified” method whereby the expected term equals the average of the vesting term and the original contractual term of the option, on a weighted basis based on the vesting of each tranche. The Company utilizes this method as it has insufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for instruments with a term commensurate with the expected term assumption. The expected dividend yield is assumed to be zero as the Company has never paid dividends, and does not have current plans to pay any dividends on its common stock. Subsequent to the IPO, the fair value of the common stock underlying the Company's stock-based awards is the closing price of the Company's common stock on the date of grant. The grant date fair value of restricted stock units is estimated based on the fair value of the Company's underlying common stock on the date of grant. Foreign Currency The functional currency of the Company’s wholly owned foreign subsidiary in Australia is the U.S. dollar. Monetary assets and liabilities resulting from transactions denominated in currencies other than the functional currency are remeasured into the functional currency at exchange rates prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are measured using historical exchange rates prevailing at the date of the transaction and are not subsequently remeasured. Exchange gains or losses arising from foreign currency transactions are included in the determination of net loss. There were no material foreign currency gains or losses for the years ended December 31, 2022 and 2021. Income Taxes Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent that it believes based upon the weight of available evidence it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established. The Company accounts for uncertain tax positions recognized in the consolidated financial statements by prescribing a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Comprehensive Loss Comprehensive loss includes net loss and certain changes in stockholders’ equity that are excluded from net loss. For the years ended December 31, 2022 and 2021,comprehensive loss consists of net loss and changes in unrealized losses on marketable securities. Net Loss per Share 112 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period, which excludes shares of restricted common stock that are not vested. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period, after giving consideration to the dilutive effect of potentially dilutive common shares. For purposes of this calculation, outstanding options to purchase shares of common stock, unvested restricted common stock and potential shares issuable under the employee stock purchase plan are considered potentially dilutive common shares. The Company has generated a net loss in all periods presented so the basic and diluted net loss per share are the same as the inclusion of the potentially dilutive securities would be anti-dilutive. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The ASU simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes, related to the approach for allocating income tax expense or benefit for the year to continuing operations, discontinued operations, other comprehensive income, and other charges or credits recorded directly to shareholders’ equity; the methodology for calculating income taxes in an interim period; and the recognition of deferred tax liabilities for outside basis differences. On January 1, 2021, the Company early adopted ASU 2019-12 on a prospective basis, with no material impact on its consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326)—Measurement of Credit Losses on Financial Instruments, which has been subsequently amended by ASU No. 2018-19, ASU No. 2019-04, ASU No. 2019-05, ASU No. 2019-10, ASU No. 2019-11 and ASU No. 2020-03 (“ASU 2016-13”). The provisions of ASU 2016-13 modify the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology and require a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. On October 1, 2021, the Company early adopted ASU 2016-13 and its related amendments using a modified retrospective approach. Given the composition of the Company's investment portfolio, there was no material impact on the Company's consolidated financial statements and related disclosures. Recently Issued Accounting Pronouncements N one. 3. Restricted Cash As of December 31, 2022 and 2021 the Company had restricted cash of $ 0.4 million and $ 1.0 million, respectively, held as letters of credit for the benefit of its current and former landlords. The Company's Boston, Massachusetts sublease expires on January 31, 2026, and the related letter of credit of $ 0.4 million was classified within other non-current assets on the consolidated balance sheet as of December 31, 2022 and 2021. The Company's Cambridge, Massachusetts sublease expired on December 31, 2021, and the related letter of credit of $ 0.6 million was classified within prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2021. 4. Marketable Securities The following is a summary of the Company's investment portfolio as of December 31, 2022 and 2021 (in thousands): 113 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2022 Gross Unrealized Estimated Cost Gains Losses Fair Value Available-for-sale securities: Corporate debt securities $ 35,042 $ — $ ( 163 ) $ 34,879 Debt securities issued by U.S. government agencies 4,005 — ( 10 ) 3,995 Total securities with a maturity of one year or less $ 39,047 $ — $ ( 173 ) $ 38,874 Total available-for-sale securities $ 39,047 $ — $ ( 173 ) $ 38,874 As of December 31, 2021 Gross Unrealized Estimated Cost Gains Losses Fair Value Available-for-sale securities: Corporate debt securities $ 52,214 $ — $ ( 31 ) $ 52,183 Commercial paper 34,993 — — 34,993 Debt securities issued by U.S. government agencies 12,111 — ( 8 ) 12,103 Other debt securities 6,398 1 — 6,399 Total securities with a maturity of one year or less $ 105,716 $ 1 $ ( 39 ) $ 105,678 Corporate debt securities 31,667 — ( 138 ) 31,529 Total securities with a maturity of one to two years $ 31,667 $ — $ ( 138 ) $ 31,529 Total available-for-sale securities $ 137,383 $ 1 $ ( 177 ) $ 137,207 As of December 31, 2022, the Company had 7 securities with a total fair market value of $ 38.9 million in an unrealized loss position. The Company believes that any unrealized losses associated with the decline in value of its securities is temporary and is primarily related to the change in market interest rates since purchase, and believes that it is more likely than not that it will be able to hold its debt securities to maturity. Therefore, the Company anticipates a full recovery of the amortized cost basis of its debt securities at maturity and an allowance for credit losses was not recognized. Securities are evaluated for impairment at the end of each reporting period. The Company did not record any impairment related to its available-for-sale securities during the years ended December 31, 2022 and 2021. 5. Fair Value of Financial Assets The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of December 31, 2022 and 2021 (in thousands): 114 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As of December 31, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 34,181 $ — $ — $ 34,181 Marketable securities: Corporate debt securities — 34,879 — 34,879 Debt securities issued by U.S. government agencies 3,995 — — 3,995 $ 38,176 $ 34,879 $ — $ 73,055 As of December 31, 2021 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 131,372 $ — $ — $ 131,372 Marketable securities: Corporate debt securities — 83,712 — 83,712 Commercial paper — 34,993 — 34,993 Debt securities issued by U.S. government agencies 12,103 — — 12,103 Other debt securities — 6,399 — 6,399 $ 143,475 $ 125,104 $ — $ 268,579 The Company estimates the fair value of its marketable securities classified as Level 2 by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. The Company validates the prices provided by its third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances. 6. Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): December 31, 2022 2021 Computer equipment $ 689 $ 579 Office furniture and equipment 545 545 Laboratory equipment 309 242 Total property and equipment 1,543 1,366 Less: Accumulated depreciation ( 572 ) ( 153 ) Property and equipment, net $ 971 $ 1,213 Depreciation expense was $ 0.4 million and $ 0.2 million for the years ended December 31, 2022 and 2021, respectively. 115 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. Accrued Expenses Accrued expenses consisted of the following (in thousands): December 31, 2022 2021 Accrued external research and development expenses $ 10,734 $ 17,763 Accrued personnel-related expenses 2,803 7,180 Accrued other expenses 2,313 1,901 Total accrued expenses $ 15,850 $ 26,844 8. Commitments and Contingencies Leases In May 2021, the Company entered into a sublease agreement for office space located in Boston, Massachusetts. The sublease expires on January 31, 2026, with no option to renew or terminate early. The base rent increases by approximately 2 % annually. The Company issued a letter of credit to the landlord related to the security deposit, secured by restricted cash (Note 3). This lease qualifies as an operating lease. At inception, the Company recorded an operating lease right-of-use asset and operating lease liability of $ 4.1 million. In October 2018, the Company entered into a sublease agreement for office space located in Cambridge, Massachusetts which expired on December 31, 2021. The base rent increased by approximately 1 % annually. The Company issued a letter of credit to the landlord related to the security deposit, secured by restricted cash (Note 3). This lease qualified as an operating lease. The following table summarizes the presentation of the operating leases in the Company’s consolidated balance sheets (in thousands): As of December 31, 2022 2021 Assets: Operating lease right-of-use assets $ 2,901 $ 3,653 Liabilities: Current operating lease liabilities $ 1,005 $ 810 Non-current portion of operating lease liabilities 2,495 3,501 Total lease liabilities $ 3,500 $ 4,311 The following table summarizes total lease costs recognized in the Company’s consolidated statements of operations (in thousands): For the year ended December 31, 2022 2021 Operating lease cost $ 1,102 $ 1,412 Variable lease costs 37 34 Total lease costs $ 1,139 $ 1,446 Variable lease costs were primarily related to operating expenses, taxes and insurance associated with the operating leases, which were assessed based on the Company’s proportionate share of such costs for the leased premises. As these costs are generally variable in nature, they were not included in the measurement of the operating lease right-of-use asset and related lease liability. Total lease costs are included as operating expenses in the Company’s consolidated statements of operations and comprehensive loss. 116 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Future lease payments under non-cancelable lease agreements as of December 31, 2022 were as follows (in thousands): Year Ended December 31, Future Lease Payments 2023 $ 1,270 2024 1,296 2025 1,321 2026 110 Total future lease payments $ 3,997 Less: interest ( 497 ) Present value of operating lease liabilities $ 3,500 The weighted average remaining lease term and weighted average incremental borrowing rate of the Company’s operating lease were as follows: As of December 31, 2022 2021 Weighted average remaining lease term (in years) 3.1 4.1 Weighted average incremental borrowing rate 9.0 % 9.0 % Legal Proceedings The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the years ended December 31, 2022 and 2021, and no material legal proceedings are currently pending or threatened. Purchase Orders The Company has agreements with third parties for various services, including services related to research, preclinical and clinical operations and support, for which the Company is not contractually able to terminate for convenience to avoid future obligations to the vendors. Certain agreements provide for termination rights subject to termination fees or wind down costs. Under such agreements, the Company is contractually obligated to make certain payments to vendors, primarily to reimburse them for their unrecoverable outlays incurred prior to cancellation. The actual amounts the Company could pay in the future to the vendors under such agreements may differ from the purchase order amounts due to cancellation provisions. Indemnification Agreements The Company enters into indemnification agreements and agreements containing indemnification provisions in the ordinary course of business. Pursuant to these agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual upon execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. Agreements The Company has entered into multiple agreements with third parties under which it may be obligated to make future development, regulatory and commercial milestone payments and royalty payments on future sales of specified product candidates. Payments under these agreements generally become due and payable upon achievement of such milestones and sales. When the achievement of these milestones or sales have not occurred, such contingencies are not recorded in the Company's financial statements. 117 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 9. UCB Option and License Agreement In December 2022, the Company entered into an Option and License Agreement (“the Collaboration Agreement”) with UCB for the discovery of small molecule therapeutics as potential treatments of KCNT1 related epilepsies. Under the terms of the Collaboration Agreement, the Company has agreed to perform general biology-related research services as part of a mutually agreed upon research plan in exchange for a $ 5.0 million upfront payment. In addition, the Company provided UCB an exclusive option to in-license global development and commercialization rights to any resulting KCNT1 small molecule development candidate identified as part of the research plan. If UCB exercises its option to in-license global development and commercialization rights, the Collaboration Agreement stipulates that UCB will assume research, development, manufacturing and commercialization responsibilities and costs. Under the terms of the Collaboration Agreement, the Company will be eligible to receive an option fee and future success-based development and commercialization milestone payments, totaling up to $ 98.5 million, in addition to tiered royalties on net sales of any resulting products from the Collaboration Agreement. At the commencement of the Collaboration Agreement, the Company identified one performance obligation, which was to perform the research services for UCB. The Company determined the transaction price to be $ 5.0 million, comprised of the upfront payment it received. The option provided to UCB was determined not to be a material right. The Company will recognize revenue for its research services performance obligation over time using an input method over the duration of the research services. During the year ended December 31, 2022, the Company did not recognize any collaboration revenue related to the Collaboration Agreement as no services had been provided. As of December 31, 2022, the $ 5.0 million upfront payment is included in deferred revenue in the consolidated balance sheet. 10. Common Stock and Preferred Stock Common Stock On May 18, 2021, the Company completed a follow-on public offering in which the Company issued and sold 5,750,000 shares of its common stock at a public offering price of $ 18.25 per share, including 750,000 shares of common stock issued and sold pursuant to the underwriters' exercise, in full, of their option to purchase additional shares of common stock, for aggregate gross proceeds of $ 104.9 million. The Company received approximately $ 98.4 million in net proceeds after deducting discounts, commissions and offering expenses payable by the Company. On November 3, 2021, the Company filed an automatic shelf registration with the Securities and Exchange Commission, which was automatically declared effective on November 3, 2021 in relation to the registration of common stock, preferred stock, debt securities, warrants and units or any combination thereof. The Company also simultaneously entered into the Sales Agreement with Jefferies LLC ("Jefferies"), to provide for the offering, issuance and sale of up to an aggregate amount of $ 125.0 million of common stock from time to time in at-the-market offerings under the shelf registration and subject to the limitations thereof. Jefferies is entitled to compensation at a commission rate of 3 % of the gross sales price of common stock sold under the Sales Agreement. During the year ended December 31, 2022, the Company issued and sold 3,595,273 shares under the Sales Agreement for aggregate net proceeds of $ 9.6 million after deducting commissions and offering expenses payable by the Company. As of December 31, 2022, the Company issued and sold a total of 3,987,270 shares under the Sales Agreement for net proceeds of $ 16.6 million after deducting commissions and offering expenses payable by the Company. As of December 31, 2022 and 2021, the authorized capital stock of the Company included 150,000,000 shares of common stock, $ 0.0001 par value, pursuant to the Amended and Restated Certificate of Incorporation effective upon the completion of the IPO. Holders of such shares of common stock have the exclusive right to vote for the election of the Company's directors and are entitled to one vote per share. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to a pro 118 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) rata distribution of the Company's net assets. Dividends may be declared and paid to such holders only when, as, and if declared by the Board or an authorized committee thereof. A s of December 31, 2022, the Company did no t hold any treasury shares. Shares Reserved for Future Issuance The Company had reserved the following shares of common stock for future issuance: December 31, 2022 2021 Shares reserved for exercise of outstanding stock options 8,838,028 6,468,501 Shares reserved for future awards under the 2020 Stock Option and Incentive Plan 1,650,955 2,667,780 Shares reserved for future awards under the 2020 Employee Stock Purchase Plan 839,922 654,204 Shares reserved for vesting of restricted stock units 743,950 440,079 Total shares of authorized common stock reserved for future issuance 12,072,855 10,230,564 Preferred Stock As of December 31, 2022 and 2021, the Company was authorized to issue 10,000,000 shares of undesignated preferred stock, $ 0.0001 par value, in one or more series, and is authorized to fix the powers, designations, preferences and relative participating option or other rights thereof, including dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences and the number of shares constituting any series, without any further vote or action by the Company's shareholders. As of December 31, 2022 and 2021, the Company had no shares of undesignated preferred stock issued or outstanding. 11. Stock-Based Compensation The total number of shares of common stock authorized for issuance under the 2020 Stock Option and Incentive Plan (the "2020 Plan") as of December 31, 2022 and December 31, 2021 was 7,449,480 shares and 5,184,455 shares, respectively. The total number of shares of common stock authorized for issuance under the 2017 Stock Inventive Plan (the "2017 Plan") as of December 31, 2022 and 2021 was 5,937,763 shares. Any authorization to issue new options under the 2017 Plan was cancelled upon the effectiveness of the 2020 Plan and no further awards will be granted under the 2017 Plan. Stock options issued under the 2020 Plan and 2017 Plan expire ten years from the date of grant. Shares that expire, are terminated, surrendered or canceled under the 2020 Plan and 2017 Plan without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for future awards. Upon stock option exercise, the Company issues new shares and delivers them to the participant. 2020 Employee Stock Purchase Plan Th e total shares authorized for issuance under the 2020 Employee Stock Purchase Plan (the "2020 ESPP") as of December 31, 2022 and 2021 was 981,306 shares and 654,204 shares, respectively. During the year ended December 31, 2022, the Company issued 141,384 shares under the 2020 ESPP. The Company did no t issue any shares under the 2020 ESPP during the year ended December 31, 2021. 119 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Restricted Stock Units The following table summarizes the Company’s restricted stock unit activity: Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2021 440,079 $ 41.86 Issued 676,828 14.54 Vested ( 104,803 ) 44.89 Forfeited ( 268,154 ) 22.08 Unvested as of December 31, 2022 743,950 $ 23.07 As of December 31, 2022, total unrecognized compensation cost related to unvested restricted stock units was $ 12.4 million, which is expected to be recognized over a weighted-average period of 2.65 years. Stock Options The following table summarizes the Company’s stock option activity: Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In years) (In thousands) Outstanding as of December 31, 2021 6,468,501 $ 16.92 Granted 3,969,302 9.23 Exercised ( 265,662 ) 3.04 $ 850 Cancelled or Forfeited ( 1,334,113 ) 16.64 Outstanding as of December 31, 2022 8,838,028 $ 13.93 8.26 $ 514 Exercisable as of December 31, 2022 3,315,240 $ 14.86 7.50 $ 95 Vested and expected to vest as of December 31, 2022 8,635,022 $ 13.90 8.30 $ 497 The aggregate intrinsic value of stock options exercised for the year ended December 31, 2021 was $ 19.7 million. The aggregate intrinsic value of stock options outstanding, exercisable, and vested and expected to vest is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock at December 31, 2022. The aggregate intrinsic value of stock options exercised is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock on the date of exercise for those stock options that had exercise prices lower than the fair value of the Company’s common stock on the exercise date. 120 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Valuation of Stock Options The weighted-average assumptions that the Company used in the Black-Scholes option pricing model to determine the grant-date fair value of stock options granted to employees, members of the Board, and non-employees on the date of grant were as follows for the for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Risk-free interest rate 2.52 % 0.86 % Expected term (in years) 6.07 6.08 Expected volatility 89.20 % 85.52 % Expected dividend yield — % — % Weighted average grant-date fair value per share $ 6.65 $ 27.58 As of December 31, 2022, total unrecognized compensation cost related to unvested stock options was $ 45.9 million, which is expected to be recognized over a weighted-average period of 2.17 years. Stock-Based Compensation Stock-based compensation expense was allocated as follows (in thousands): Year Ended December 31, 2022 2021 Research and development $ 9,972 $ 9,350 General and administrative 18,621 13,343 Total stock-based compensation expense $ 28,593 $ 22,693 12. Significant Agreements RogCon and Ionis Agreements On September 11, 2019, the Company entered into both a Cooperation and License Agreement (the “License Agreement”) with RogCon, Inc. ("RogCon"), and a Research, Collaboration, Option and License Agreement (the “Ionis Collaboration Agreement”) with Ionis Pharmaceuticals, Inc. ("Ionis"). The agreements were entered into contemporaneously to enable the parties to advance their collective efforts related to SCN2A. RogCon Agreement Under the License Agreement, RogCon granted to the Company an exclusive, worldwide license under RogCon’s intellectual property to research, develop and commercialize products for the treatment of all forms of epilepsy and/or neurodevelopmental disorders in each case caused by any mutation of the SCN2A gene. Under the License Agreement, the Company will conduct, at its own cost and expense, the research and development activities assigned to it under the research plan. In addition, the Company is responsible for reimbursing RogCon for any costs associated with research and development activities RogCon performs at the request of the Company. As part of the agreement, the Company agreed to provide up-front consideration of $ 2.1 million. Subsequent to September 11, 2019, the Company will reimburse RogCon for its out-of-pocket costs incurred for activities performed under the License Agreement. The Company expenses these costs as incurred as research and development. Expenses incurred for all periods presented were no t material. Additionally, the Company may pay RogCon a milestone payment of $ 3.0 million and profit share payments. The $ 3.0 million milestone payment will become due when the first profit share payment has become due and certain contingent payments have become payable to Ionis under the Ionis Collaboration Agreement, which are subject to the Company exercising its option to obtain license rights to a development candidate, as well as other contingent events. The profit share payments will be based on a low-double-digit percentage of net profits, depending on sales volume. 121 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The License Agreement, unless earlier terminated, will continue until the latest of: (i) expiration of all patent rights within RogCon patents, (ii) the Company and its affiliates certify they have abandoned the research, development and commercialization of product with no intention to re-establish such activities, and (iii) no third party is obligated to pay the Company or its affiliates any amounts that comprise net sublicense revenue. Either party may terminate the License Agreement for material breach or insolvency of the other party. Additionally, the Company may terminate for convenience with prior written notice to RogCon. Upon termination by either party, all rights and licenses granted by RogCon to the Company will revert back to RogCon. Ionis Collaboration Agreement Under the Ionis Collaboration Agreement, both parties participated in research activities related to the downregulation of SCN2A gene products associated with the treatment of any and all forms of epilepsy and/or neurodevelopmental disorders in each case caused by any mutation of the SCN2A gene, other than one severe type of epilepsy. Ionis was also responsible for identifying a development candidate and conducting an IND-enabling toxicology study. The Company reimbursed Ionis for out-of-pocket costs incurred related to the research activities, identification of a development candidate and conducting an IND-enabling toxicology study. The reimbursement of out-of-pocket costs was recognized as research and development expense as incurred. The Company expensed a total of $ 0.7 million and $ 1.9 million, as research and development expense under the Ionis Collaboration Agreement for the years ended December 31, 2022 and 2021, respectively. Ionis granted the Company an exclusive option to obtain the rights and license to further develop and commercialize a development candidate in the field of epilepsy and neurodevelopmental disorders, other than Dravet Syndrome, following the results of the investigational new drug application-enabling toxicology study. The Company exercised this exclusive option in January 2022, paid a $ 2.0 million license fee and recognized the license fee in research and development expenses in the consolidated statement of operations during the year ended December 31, 2022. After option exercise, the Company is responsible for clinical development and commercialization of the development candidate. Ionis may be entitled to additional development milestone payments, additional milestone payments, and sales royalties or sublicense fees. The Ionis Collaboration Agreement will continue until the expiration of all payment obligations to Ionis, unless earlier terminated. Either party may terminate the Ionis Collaboration Agreement upon material breach or insolvency of the other party. Ionis may terminate if the Company fails to achieve a performance milestone. The Company may terminate for convenience with prior written notice to Ionis. Upon termination by the Company for convenience, the Company will stop selling all products, subject to certain wind-down provisions, and all products will revert back to Ionis. 13. Net Loss per Share The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have been anti-dilutive: Year Ended December 31, 2022 2021 Outstanding stock options 8,838,028 6,468,501 Unvested restricted stock units 743,950 440,079 Potential shares issuable under the ESPP 283,861 33,425 9,865,839 6,942,005 14. Income Taxes The Company maintains a full valuation allowance on its U.S. net deferred tax assets due to the uncertainty of future taxable income. The Company did not recognize an income tax benefit in the years ended December 31, 122 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2022 or 2021 related to its U.S. operations due to the uncertainty regarding future taxable income. In the years ended December 31, 2022 and 2021, the difference between the statutory tax rate in the U.S. and the Company’s effective tax rate was due primarily to the valuation allowance recorded to offset any potential tax benefit. The income tax benefit (provision) recognized for the years ended December 31, 2022 and 2021 was not material. The reconciliation of the U.S. statutory income tax rate to the Company’s effective tax rate is as follows: Year Ended December 31, 2022 2021 Federal statutory income tax rate 21.0 % 21.0 % Federal and state research and development credits 3.7 % 3.8 % State taxes, net of federal benefit 4.2 % 4.8 % Non-deductible items ( 0.7 ) % ( 1.7 ) % Stock-based compensation ( 1.0 ) % 1.6 % Change in valuation allowance ( 27.2 ) % ( 29.4 ) % Other — % ( 0.1 ) % Effective income tax rate — % — % Net deferred tax assets consisted of the following (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 60,047 $ 56,482 Capitalized research expenditures 34,947 — Amortization 24,262 14,295 Research and development credits 17,205 9,296 Stock-based compensation 6,422 3,759 Leases 898 1,132 Accrued expenses 893 1,952 Total gross deferred tax assets $ 144,674 $ 86,916 Less: Valuation allowance ( 143,930 ) ( 85,957 ) Net deferred tax assets $ 744 $ 959 Deferred tax liabilities: Operating lease right-of-use asset ( 744 ) ( 959 ) Total gross deferred tax liabilities ( 744 ) ( 959 ) Net deferred tax assets $ — $ — As of December 31, 2022 and 2021, the Company had U.S. federal net operating loss carryforwards which may be able to offset future income tax liabilities of approximately $ 226.3 million and $ 212.3 million, respectively. Federal net operating loss carryforwards of $ 7.7 million will expire at various dates from 2035 through 2037 and approximately $ 218.6 million may be carried forward indefinitely. As of December 31, 2022 and 2021, the Company also had state net operating loss carryforwards of approximately $ 197.4 million and $ 187.6 million, respectively, which may be available to offset future income tax liabilities and expire at various dates from 2036 through 2042. As of December 31, 2022 and 2021, the Company had federal research and development tax credit carryforwards of approximately $ 14.4 million and $ 7.3 million, respectively, available to reduce future tax liabilities which expire at various dates from 2039 through 2042. As of December 31, 2022 and 2021, the Company had state research and development tax credit carryforwards of approximately $ 3.5 million and $ 2.5 million, respectively, available to reduce future tax liabilities which expire at various dates from 2031 through 2037. The Company has 123 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) generated research credits but has not conducted a study to document the qualified activity. This study may result in an adjustment to the Company’s research and development credit carryforwards; however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position. A full valuation allowance has been provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance. Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards would be subject to an annual limitation under Section 382, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position. ASC 740 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all of the evidence, both positive and negative, the Company has recorded a valuation allowance against its deferred tax assets at December 31, 2022 and 2021 because management has determined that it is more likely than not that the Company will not recognize the benefits of its federal and state deferred tax assets, primarily due to its history of cumulative net losses incurred since inception and its lack of commercialization of any products or generation of any revenue from product sales since inception. As a result, a valuation allowance of $ 143.9 million and $ 86.0 million has been established at December 31, 2022 and 2021, respectively. Management reevaluates the positive and negative evidence at each reporting period. The valuation allowance increased by approximately $ 58.0 million and $ 49.1 million during the years ended December 31, 2022 and 2021, respectively, due primarily to the generation of net operating losses. The Company has not recorded any amounts for unrecognized tax benefits as of December 31, 2022 and 2021. The Company’s policy is to record interest and penalties related to uncertain tax positions as part of its income tax provision. As of December 31, 2022 and 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no such amounts have been recognized in the Company’s consolidated statement of operations for either year ended December 31, 2022 or 2021. The statute of limitations for federal and state tax authorities is open for tax years ended December 31, 2019 through December 31, 2022. Since the Company is in a net loss carryforward position, the Company is generally subject to examination by the U.S. federal, state and local income tax authorities for all tax years in which a loss carryforward is available. 15. Related Party Transactions One of the founders of RogCon is the Company's General Counsel. During the years ended December 31, 2022 and 2021, the Company reimbursed RogCon for its out-of-pocket costs incurred for activities performed under the License Agreement (Note 12). 16. Employee Benefit Plan 124 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company has a defined contribution savings plan under Section 401(k) of the Internal Revenue Code for eligible employees. The plan covers substantially all employees who meet a minimum age requirement and allows participants to defer a portion of their annual compensation on a pre-tax basis. Under the plan, the Company is not obligated to match any participant contributions. The Company made contributions of $ 1.5 million and $ 1.0 million during the years ended December 31, 2022 and 2021, respectively . 17. Restructuring In June 2022, the Company began a strategic realignment to focus resources on its ulixacaltamide, PRAX-562, PRAX-222 and PRAX-628 product candidates, as well as its preclinical programs across our Cerebrum™ and Solidus™ platforms, which resulted in a reduction of the Company’s workforce. The Company incurred $ 1.0 million of costs related to the realignment, of which $ 0.6 million has been recognized in research and development expenses and $ 0.4 million has been recognized in general and administrative expenses in the consolidated statement of operations during the year ended December 31, 2022. These costs relate to employee severance, benefits and related costs. The Company does not expect to incur any additional significant costs related to the strategic realignment. As of December 31, 2022, all costs related to the strategic realignment have been paid. 18. Subsequent Events Subsequent to December 31, 2022, the Company issued and sold a total of 2,942,083 shares under the Sales Agreement for aggregate net proceeds of $ 11.2 million after deducting commissions and offering expenses payable by the Company. 125 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.