PALVELLA THERAPEUTICS, INC.

Previous wording

Microcystic LMs are a rare, chronically debilitating, and lifelong genetic disease of the lymphatic system characterized by lymphorrhea, which is the persistent discharge of internal lymph fluid from disrupted lymphatic vessels, and acute cellulitis, or a bacterial infection of the skin underlying tissues. The specific pathophysiology of microcystic LMs is primarily the result of somatic activating mutations in the PIK3CA gene that result in increased activation of the PI3K/mTOR pathway and subsequent lymphatic hyperplasia. Because microcystic LMs have a well-understood pathophysiology and a well-defined disease course, we believe an appropriate clinical study for this rare disease is a baseline-controlled Phase 3 study using clinician assessments. There are currently no FDA-approved treatments for the estimated more than 30,000 individuals in the U.S. with microcystic LMs.

Current wording

Microcystic LMs is a rare, chronically debilitating, and lifelong genetic disease of the lymphatic system characterized by lymphorrhea, which is the persistent discharge of internal lymph fluid from disrupted lymphatic vessels, and acute cellulitis, or a bacterial infection of the skin underlying tissues. The specific pathophysiology of microcystic LMs is primarily the result of somatic activating mutations in the PIK3CA gene that result in increased activation of the PI3K/mTOR pathway and subsequent lymphatic hyperplasia. Because microcystic LMs have a well-understood pathophysiology and a well-defined disease course, we believe an appropriate clinical study for this rare disease is a baseline-controlled Phase 3 study using clinician assessments. There are currently no FDA-approved treatments for the estimated more than 30,000 individuals in the U.S. with microcystic LMs.

Previous wording

In the third quarter of 2024, we initiated SELVA, a 24-week, Phase 3, single-arm, baseline-controlled clinical trial of QTORIN rapamycin administered topically once daily for the treatment of microcystic LMs. The primary efficacy endpoint is the change from baseline in the overall microcystic LM Investigator Global Assessment, a 7-point clinician rated changes scale, at week 24. In the first quarter of 2025, we announced the expansion of our SELVA trial to include patients ages 3 to 5 years old. Previously, trial participants were required to be at least 6 years old. We expect to report top-line data for the Phase 3 study in approximately 40 participants with microcystic LMs in the first quarter of 2026.

Current wording

In the third quarter of 2024, we initiated SELVA, a 24-week, Phase 3, single-arm, baseline-controlled clinical trial of QTORIN rapamycin administered topically once daily for the treatment of microcystic LMs. The primary efficacy endpoint is the change from baseline in the overall microcystic LM Investigator Global Assessment, a 7-point clinician rated changes scale, at week 24. In the first quarter of 2025, we announced the expansion of our SELVA trial to include patients ages 3 to 5 years old. Previously, trial participants were required to be at least 6 years old. In the second quarter of 2025 we completed enrollment in the SELVA trial with 51 subjects enrolled, exceeding the original target of approximately 40 participants. Following an 8-week baseline period and 24-week evaluation, eligible participants may continue treatment in an open-label extension study. The open-label extension study also remains open to enrolling new subjects aged three to five years who meet the study’s inclusion criteria. We expect to report top-line data for the Phase 3 study in the first quarter of 2026.

Previous wording

We have received Breakthrough Therapy Designation, Fast Track Designation, and Orphan Drug Designation from the FDA for QTORIN rapamycin for the treatment of microcystic LMs. Orphan Drug Designation has also been granted by the European Medicines Agency. In addition, we have been awarded an FDA Orphan Products Clinical Trials Grant for up to $2.6 million supporting the SELVA Phase 3 study.

Current wording

We have received Breakthrough Therapy Designation, Fast Track Designation, and Orphan Drug Designation from the FDA for QTORIN rapamycin for the treatment of microcystic LMs. Orphan Drug Designation has also been granted by the European Medicines Agency. In addition, we have been awarded an FDA Orphan Products Clinical Trials Grant for up to $2.6 million supporting the SELVA Phase 3 study. In May 2025, we received initial proceeds of $0.5 million from the FDA under such grant.

Previous wording

Cutaneous VMs are a serious, rare condition characterized by the overgrowth of veins that protrude through the skin and are characterized by deformities, functional impairment and hemorrhaging. They present as dilated, tortuous vessels that manifest as bluish or purplish patches or nodules on the skin. These malformations result from developmental errors in venous morphogenesis during embryogenesis, leading to abnormal connections between veins and capillaries. Cutaneous VMs cause functional impairment, significantly impact quality of life and are associated with severe long-term complications. There are currently no FDA-approved treatments for the estimated more than 75,000 individuals in the U.S. with cutaneous VMs.

Current wording

Cutaneous VMs is a serious, rare condition characterized by the overgrowth of veins that protrude through the skin and are characterized by deformities, functional impairment and hemorrhaging. They present as dilated, tortuous vessels that manifest as bluish or purplish patches or nodules on the skin. These malformations result from developmental errors in venous morphogenesis during embryogenesis, leading to abnormal connections between veins and capillaries. Cutaneous VMs cause functional impairment, significantly impact quality of life and are associated with severe long-term complications. There are currently no FDA-approved treatments for the estimated more than 75,000 individuals in the U.S. with cutaneous VMs.

Previous wording

On December 13, 2024 (the “Closing Date”), we consummated the previously announced business combination contemplated by that certain Agreement and Plan of Merger, dated July 23, 2024 (the “Merger Agreement”), by and among the Company, Polo Merger Sub, Inc. (“Merger Sub”), and Palvella Therapeutics, Inc. (“Legacy Palvella”). Pursuant to the Merger Agreement, on the Closing Date, (i) Merger Sub merged with and into Legacy Palvella, with Legacy Palvella as the surviving company in the merger and, after giving effect to such merger, continuing as a wholly owned subsidiary of the Company (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”) and (ii) the Company’s name was changed from Pieris Pharmaceuticals, Inc. to Palvella Therapeutics, Inc.

Current wording

Pursuant to the Merger Agreement, on the Closing Date, (i) Merger Sub merged with and into Legacy Palvella, with Legacy Palvella as the surviving company in the merger and, after giving effect to such merger, continuing as a wholly owned subsidiary of the Company (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Business Combination”) and (ii) the Company’s name was changed from Pieris Pharmaceuticals, Inc. to Palvella Therapeutics, Inc.

Previous wording

Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including increases in inflation and geopolitical factors, including the ongoing conflict between Russia and Ukraine and the responses thereto, rapid changes in our regulatory landscape in the United States, including significant staffing reductions and unexpected shifts in leadership of certain federal agencies, and an uncertain legislative environment and supply chain disruptions. While our management is closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, including the impacts on its participants in its Phase 3 clinical trials, employees, suppliers, vendors and business partners, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside our control and could exist for an extended period of time. Management will continue to evaluate the nature and extent of the potential impacts to our business, results of operations, liquidity and capital resources. For additional information, see Part I, Item 1A “Risk Factors” of our 2024 Form 10-K.

Current wording

Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including increases in inflation, increased U.S. trade tariffs and retaliatory tariffs, interest rate and currency rate fluctuations, new laws and regulations enacted by the Trump administration, including, but not limited to, the recently enacted One Big Beautiful Bill Act, economic slowdown or recession, banking instability, monetary policy changes, and geopolitical factors, including the ongoing conflict between Russia and Ukraine and the responses thereto, rapid changes in our regulatory landscape in the United States, including significant staffing reductions and unexpected shifts in leadership of certain federal agencies, and an uncertain legislative environment and supply chain disruptions. While our management is closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, including the impacts on its participants in its Phase 3 clinical trials, employees, suppliers, vendors and business partners, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside our control and could exist for an extended period of time. Management will continue to evaluate the nature and extent of the potential impacts to our business, results of operations, liquidity and capital resources. For additional information, see Part I, Item 1A “Risk Factors” of our 2024 Form 10-K.

Previous wording

Our other (expense) income for the three months ended March 31, 2025 and 2024 primarily consists of: (i) non-cash interest (expense) income related to our obligation to make future royalty payments pursuant to the Amended Ligand Agreement, which was determined to be a debt instrument; (ii) fair value adjustments related to our obligation to make future milestone payments under the Amended Ligand Agreement, which was determined to be a derivative liability; and (iii) interest income, net.

Current wording

Our other (expense) income for the three and six months ended June 30, 2025 and 2024 primarily consists of: (i) non-cash interest (expense) income related to our obligation to make future royalty payments pursuant to the Amended Ligand Agreement, which was determined to be a debt instrument; (ii) fair value adjustments related to our obligation to make future milestone payments under the Amended Ligand Agreement, which was determined to be a derivative liability; and (iii) interest income (expense), net.

Previous wording

We had no provision for income taxes for the three months ended March 31, 2025 and 2024.

Current wording

We had no provision for income taxes for the three and six months ended June 30, 2025 and 2024.

Previous wording

Comparison of the Three Months Ended March 31, 2025 and 2024

Current wording

Comparison of the Three and Six Months Ended June 30, 2025 and 2024

Previous wording

The increase in research and development expenses during the 2025 period, as compared to 2024, was primarily due to increased spending on the clinical development of QTORIN rapamycin for the treatment of microcystic LMs and cutaneous venous malformations, including conducting our Phase 3 SELVA and Phase 2 TOIVA trials, which were initiated in 2024. Additional increases include CMC costs for all programs and increased compensation costs as a result of headcount additions in late 2024 and early 2025.

Current wording

The increase in research and development expenses during each of the three and six months ended June 30, 2025, as compared to the corresponding periods in 2024, was primarily due to increased spending on the clinical development of QTORIN rapamycin for the treatment of microcystic LMs and cutaneous venous malformations, including conducting our Phase 3 SELVA and Phase 2 TOIVA trials, which were initiated in 2024. Additional increases include CMC costs for all programs and increased compensation costs as a result of headcount additions in late 2024 and early 2025.

Previous wording

General and administrative expenses for the three months ended March 31, 2025 were $3.8 million, compared to $0.8 million for the three months ended March 31, 2024. The increase in general and administrative expenses during the 2025 period, as compared to 2024, was primarily due to increased employee compensation expense due to headcount additions, as well as increased professional services related to operating as a publicly-traded company.

Current wording

30, 2025 were $7.9 million, as compared to $2.2 million for the six months ended June 30, 2024. The increase in general and administrative expenses during each of the three and six months ended June 30, 2025, as compared to the corresponding periods in 2024, was primarily due to increased employee compensation expense due to headcount additions, as well as increased professional services related to operating as a publicly-traded company.

Previous wording

Total other (expense) income, net for the three months ended March 31, 2025 was $0.3 million of expense, as compared to $0.8 million of expense for the three months ended March 31, 2024. The significant components of other (expense) income are more fully described below.

Current wording

Total other (expense) income, net for the three months ended June 30, 2025 was $0.2 million of expense, as compared to $1.3 million of expense for the three months ended June 30, 2024. Total other (expense) income, net for the six months ended June 30, 2025 was $0.5 million of expense, as compared to $2.0 million of expense for the six months ended June 30, 2024. The significant components of other (expense) income are more fully described below.

Previous wording

During the three months ended March 31, 2025, we recorded interest expense of approximately $1.2 million, compared to interest expense of approximately $0.8 million for the three months ended March 31, 2024, related to the change in fair value of our royalty agreement liability.

Current wording

During the three months ended June 30, 2025, we recorded interest expense of approximately $1.4 million, as compared to approximately $0.9 million for the three months ended June 30, 2024. During the six months ended June 30, 2025, we recorded interest expense of approximately $2.6 million, as compared to approximately $1.7 million for the six months ended June 30, 2024. Interest expense recorded in all periods related to the change in fair value of our royalty agreement liability.

Previous wording

During each of the three months ended March 31, 2025 and 2024, we recorded a non-cash loss of approximately $0.1 million related to the change in fair value of our obligation to make future milestone payments under the Amended Ligand Agreement, which was determined to be a derivative liability.

Current wording

During the three months ended June 30, 2025, we recorded a non-cash loss on derivative liabilities of approximately $0.1 million, as compared to approximately $0.3 million for the three months ended June 30, 2024. During the six months ended June 30, 2025, we recorded a non-cash loss on derivative liabilities of approximately $0.2 million, as compared to approximately $0.3 million for the six months ended June 30, 2024. The non-cash loss recorded in all periods related to the change in fair value of our obligation to make future milestone payments under the Amended Ligand Agreement, which was determined to be a derivative liability.

Previous wording

During the three months ended March 31, 2025, we recorded $0.8 million of interest income, net, compared to $0.1 million for the three months ended March 31, 2024. The increase during the 2025 period, as compared to 2024, was primarily due to increases in the average balances held in interest-bearing cash and money market funds.

Current wording

During the three months ended June 30, 2025, we recorded $0.7 million of interest income, net, as compared to $0.1 million of interest expense for the three months ended June 30, 2024. During the six months ended June 30, 2025, we recorded $1.4 million of interest income, net, as compared to $0 for the six months ended June 30, 2024. The increase during each of the three and six months ended June 30, 2025, as compared to the corresponding periods in 2024, was primarily due to increases in the average balances held in interest-bearing cash and money market funds.

Previous wording

As a result of the factors discussed above, our net loss applicable to common stockholders for the three months ended March 31, 2025 and 2024 was $8.2 million and $2.5 million, respectively.

Current wording

As a result of the factors discussed above, our net loss applicable to common stockholders for the three months ended June 30, 2025 and 2024 was $9.5 million and $4.4 million, respectively, and our net loss applicable to common stockholders for the six months ended June 30, 2025 and 2024 was $17.7 million and $7.1 million, respectively.

Previous wording

Since inception, we have incurred substantial losses, and have primarily funded our operations with proceeds from the Amended Ligand Agreement and the sale of debt and equity securities, including common stock, convertible preferred stock and convertible notes. During the three months ended March 31, 2025, we incurred a net loss of $8.2 million and reported net cash used in operating activities of $6.8 million. As of March 31, 2025, we had an accumulated deficit of $101.9 million and cash and cash equivalents of $75.6 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and, to a lesser extent, general and administrative expenditures.

Current wording

Since inception, we have incurred substantial losses, and have primarily funded our operations with proceeds from the Amended Ligand Agreement and the sale of debt and equity securities, including common stock, convertible preferred stock and convertible notes. During the six months ended June 30, 2025, we incurred a net loss of $17.7 million and reported net cash used in operating activities of $12.2 million. As of June 30, 2025, we had an accumulated deficit of $111.4 million and cash and cash equivalents of $70.4 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and, to a lesser extent, general and administrative expenditures.

Previous wording

We have not generated product revenue or achieved profitability since our inception and expect to continue to incur net losses for the foreseeable future. As of March 31, 2025, we had approximately $75.6 million in cash and cash equivalents. Based on our current business plans, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operations for at least the one year period following the date of the filing of this Quarterly Report on Form 10-Q. Moreover, we expect our losses to increase as we continue to advance our product candidates through clinical trials and regulatory submissions. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates, which may not be currently contemplated in our planned operations. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our primary uses of capital have been, and we expect will continue to be, compensation and related expenses, third-party clinical research, manufacturing and development services, license payments or milestone obligations that may arise, manufacturing costs, legal and other regulatory expenses and general overhead costs.

Current wording

We have not generated product revenue or achieved profitability since our inception and expect to continue to incur net losses for the foreseeable future. As of June 30, 2025, we had approximately $70.4 million in cash and cash equivalents. Based on our current business plans, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operations for at least the one year period following the date of the filing of this Quarterly Report on Form 10-Q. Moreover, we expect our losses to increase as we continue to advance our product candidates through clinical trials and regulatory submissions. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates, which may not be currently contemplated in our planned operations. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our primary uses of capital have been, and we expect will continue to be, compensation and related expenses, third-party clinical research, manufacturing and development services, license payments or milestone obligations that may arise, manufacturing costs, legal and other regulatory expenses and general overhead costs.

Previous wording

The following table summarizes our cash flows for the three months ended March 31, 2025 and 2024 (in thousands):

Current wording

The following table summarizes our cash flows for the six months ended June 30, 2025 and 2024 (in thousands):

Previous wording

Net cash used in operating activities for the three months ended March 31, 2025 and 2024 consisted of net loss for the period adjusted for non-cash items and changes in components of operating assets and liabilities. The primary use of cash was to fund our operations related to the development of our product candidates, including general and administrative support, which increased due to greater research and development efforts in 2025, increased costs to operate as a public company, as well as the timing of payments and increase in accounts payable.

Current wording

Net cash used in operating activities for the six months ended June 30, 2025 and 2024 consisted of net loss for the period adjusted for non-cash items and changes in components of operating assets and liabilities. The primary use of cash was to fund our operations related to the development of our product candidates, including general and administrative support, which increased due to greater research and development efforts in 2025, increased costs to operate as a public company, as well as the timing of payments and increase in accounts payable.

Previous wording

For the three months ended March 31, 2025, net cash used in financing activities was $1.2 million, consisting primarily of payments of transaction costs incurred in connection with the Business Combination.

Current wording

For the six months ended June 30, 2025, net cash used in financing activities was $0.9 million, consisting primarily of payments of transaction costs incurred in connection with the Business Combination and proceeds from the exercise of options.

Previous wording

During the three months ended March 31, 2025, there were no material changes outside the ordinary course of our business to our contractual obligations and cash requirements, as disclosed in our 2024 Form 10-K.

Current wording

During the six months ended June 30, 2025, there were no material changes outside the ordinary course of our business to our contractual obligations and cash requirements, as disclosed in our 2024 Form 10-K.

Previous wording

During the three months ended March 31, 2025, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Form 10-K.

Current wording

During the six months ended June 30, 2025, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2024 Form 10-K.