Summary of Lipella Pharmaceuticals Conference Call Company Overview - **Company**: Lipella Pharmaceuticals Inc. (NasdaqCM: LIPO) - **Focus**: Development of proprietary liposomal formulations for drug delivery to mucosal tissues [2][3] Industry Context - **Indication**: Oral Lichen Planus (OLP), a T-cell-mediated autoimmune disorder with no approved drug therapies [5][6] - **Prevalence**: Affects up to 2% of U.S. adults, translating to approximately 5.2 million individuals, with about 3.9 million experiencing symptoms [5] Core Points and Arguments - **Unique Technology**: Utilizes multi-lamellar liposomal technology to deliver drugs directly to mucosal tissues, minimizing systemic exposure and potential side effects [2][3] - **Regulatory Strategy**: Plans to use the 505(b)(2) regulatory pathway for efficient clinical development, leveraging existing FDA familiarity with the active agents [3] - **Pipeline**: - Two assets in phase two trials - One asset IND approved - One preclinical asset - Focus on liposomal formulations for mucosal delivery [4][26] Clinical Trial Results - **Phase Two Trial**: Involved 27 subjects with symptomatic OLP, assessing safety and efficacy of LP-10 oral rinse [11][12] - **Safety Profile**: No serious adverse events reported; 18.5% experienced dry mouth, and 11.1% reported oral dysesthesia [16][17] - **Efficacy**: Significant improvement in investigator global assessment (IGA) scores from baseline (3.5) to week four (approximately 2) [18] - **Patient-Reported Outcomes**: Notable reductions in pain and sensitivity reported by patients, with sustained efficacy observed two weeks post-treatment [18][19] Market Opportunity - **Addressable Market**: Estimated at 1.2 million symptomatic patients in the U.S. who are poorly controlled by existing treatments [22] - **Current Treatment Limitations**: Existing therapies are off-label, poorly tolerated, and have limited efficacy [22][23] - **Pricing Strategy**: Anticipated monthly cost of LP-10 around $1,000, with annual treatment costs estimated between $3,000 to $5,000 [24] - **Sales Projections**: Expected to generate approximately $750 million in peak sales by 2035, translating to a $350 million risk-adjusted net present value [25] Additional Insights - **Regulatory Milestones**: Anticipated IND approval for the phase two placebo-controlled clinical trial in the next 18 months [27] - **Global Market Potential**: Estimated to be approximately 25% of the U.S. market in dollar terms, with patent protection in multiple jurisdictions [27] - **Investigator Feedback**: Positive responses from investigators and patients, with requests for expanded use access granted by the FDA for patients who failed conventional treatments [20][21] Conclusion - Lipella Pharmaceuticals is positioned to address a significant unmet medical need in the treatment of OLP with its innovative LP-10 oral rinse, backed by promising clinical trial results and a clear market strategy [26]

Part I [Item 1. Financial Statements](index=4&type=section&id=Item%201%20Financial%20Statements%2E) Presents Lipella Pharmaceuticals Inc.'s unaudited condensed financial statements, covering balance sheets, operations, equity, cash flows, and detailed explanatory notes [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets%20as%20of%20June%2030%2C%202025%20%28Unaudited%29%20and%20December%2031%2C%202024) Summarizes Lipella Pharmaceuticals Inc.'s financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2025, and December 31, 2024 | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :-------------------------- | :------------------------ | :------------------ | | Cash and cash equivalents | $2,781,828 | $2,184,863 | | Total Current Assets | $3,437,246 | $2,617,252 | | Total Assets | $3,720,206 | $2,673,870 | | Total Current Liabilities | $746,898 | $754,417 | | Total Liabilities | $978,534 | $754,417 | | Total Stockholders' Equity | $2,741,672 | $1,919,453 | [Condensed Statements of Operations](index=5&type=section&id=Condensed%20Statements%20of%20Operations%20%28Unaudited%29%20for%20the%20Three%20Months%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Presents Lipella Pharmaceuticals Inc.'s revenues, expenses, and net loss for the three and six months ended June 30, 2025 and 2024 | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Grant revenues | $87 | $136 | $216 | $282 | | R&D expenses | $792 | $662 | $1,785 | $1,504 | | G&A expenses | $652 | $427 | $1,115 | $948 | | Total costs & expenses| $1,443 | $1,089 | $2,901 | $2,452 | | Loss from operations | $(1,357) | $(952) | $(2,684) | $(2,170) | | Net Loss | $(1,327) | $(938) | $(2,634) | $(2,130) | | Basic EPS | $(0.31) | $(0.99) | $(0.83) | $(2.29) | [Condensed Statements of Changes in Stockholders' Equity (Deficit)](index=6&type=section&id=Condensed%20Statements%20of%20Changes%20in%20Stockholders%27%20Equity%20%28Deficit%29%20%28Unaudited%29%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Details changes in Lipella Pharmaceuticals Inc.'s stockholders' equity, including net loss, preferred stock issuance, and conversions for the periods ended June 30, 2025 and 2024 - Total stockholders' equity increased from **$1,919,453** at December 31, 2024, to **$2,741,672** at June 30, 2025, despite a net loss, primarily due to the issuance of preferred stock and warrants[16](index=16&type=chunk) - Significant conversions of Series B and Series C preferred stock into common stock occurred during the six months ended June 30, 2025, increasing common stock shares outstanding[16](index=16&type=chunk) [Condensed Statements of Cash Flows](index=8&type=section&id=Condensed%20Statements%20of%20Cash%20Flows%20%28Unaudited%29%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Analyzes Lipella Pharmaceuticals Inc.'s cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(2,859) | $(2,307) | | Net cash provided by financing activities | $3,456 | $200 | | Net increase (decrease) in cash and cash equivalents | $597 | $(2,107) | | Cash and cash equivalents at end of period | $2,781,827 | $1,186,507 | [Notes to Condensed Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Financial%20Statements%20%28Unaudited%29) Provides detailed explanations and disclosures supporting the unaudited condensed financial statements, covering accounting policies, going concern, and specific financial instrument details [Note 1. Description of Business and Basis of Presentation](index=9&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) Describes Lipella Pharmaceuticals Inc.'s business as a clinical-stage biotechnology company focused on drug reformulation and its basis of financial statement presentation - Lipella Pharmaceuticals Inc. is a clinical-stage biotechnology company focused on developing new drugs by reformulating active agents in existing generic drugs for new applications[21](index=21&type=chunk) - Operations consist of research, preclinical, and clinical development activities, with the most advanced program in Phase 2 clinical development[21](index=21&type=chunk) [Note 2. Going Concern](index=9&type=section&id=Note%202.%20Going%20Concern) Addresses the Company's ability to continue operations, highlighting significant net losses and the need for additional capital to alleviate substantial doubt - The Company has incurred significant net losses and an accumulated deficit, raising substantial doubt about its ability to continue as a going concern without additional capital[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) | Metric | June 30, 2025 | December 31, 2024 | | :----------------- | :-------------- | :---------------- | | Net Loss (6 months/fiscal year) | $2,634,009 | $5,016,264 | | Accumulated Deficit | $17,974,116 | $15,340,107 | | Cash and Cash Equivalents | $2,781,828 | N/A | | Net Working Capital | $2,690,348 | N/A | [Note 3. Summary of Significant Accounting Policies](index=10&type=section&id=Note%203.%20Summary%20of%20Significant%20Accounting%20Policies) Outlines the Company's key accounting policies, including revenue recognition, concentration risks, and earnings per share calculations, with no material changes reported - No material changes to significant accounting policies occurred during the three months ended June 30, 2025[27](index=27&type=chunk) - Grant revenues and receivables are concentrated with the National Institute of Health (NIH), with **$216,117** in revenue for the six months ended June 30, 2025[30](index=30&type=chunk) - Common Stock equivalents (stock options, preferred stock, warrants) were anti-dilutive due to net loss, resulting in basic and diluted EPS being the same[31](index=31&type=chunk) [Note 4. Fair Value Measurements and Marketable Debt Securities](index=10&type=section&id=Note%204.%20Fair%20Value%20Measurements%20and%20Marketable%20Debt%20Securities) Discusses the fair value of financial instruments, primarily cash and cash equivalents, and their classification based on valuation inputs - The Company's financial instruments primarily consist of cash and cash equivalents, accounts payable, and accrued liabilities, with carrying amounts representative of fair values due to short maturity[36](index=36&type=chunk) | Cash Equivalents (maturity < 90 days) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Money market funds | $2,628,237 | $1,692,141 | | Total Cash equivalents | $2,628,237 | $1,692,141 | [Note 5. Prepaid Expenses](index=11&type=section&id=Note%205.%20Prepaid%20Expenses) Details the composition of prepaid expenses, including insurance, issuance costs, and clinical trial advance deposits, as of June 30, 2025, and December 31, 2024 | Prepaid Expense Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Total Prepaid Expenses | $613,437 | $347,676 | | - Prepaid insurance | $83,074 | N/A | | - Prepaid issuance costs | $17,499 | N/A | | - Advance deposit (clinical trial) | $384,907 | $267,684 | | - Other prepaid expenses | $127,597 | $66,128 | [Note 6. Accrued Expenses](index=11&type=section&id=Note%206.%20Accrued%20Expenses) Outlines the components of accrued expenses, such as unbilled legal and franchise taxes, and professional service expenses, as of June 30, 2025, and December 31, 2024 | Accrued Expense Category | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Total Accrued Expenses | $15,087 | $237,886 | | - Unbilled legal and franchise taxes | $15,087 | N/A | | - Accrued professional service expenses | N/A | $237,886 | [Note 7. Letter of Credit](index=12&type=section&id=Note%207.%20Letter%20of%20Credit) Describes the Company's $50,000 letter of credit, collateralized by assets and personally guaranteed by the CEO, with a zero outstanding balance - The Company has a **$50,000** letter of credit, collateralized by assets and personally guaranteed by the CEO, with a **$0** outstanding balance as of June 30, 2025, and December 31, 2024[40](index=40&type=chunk) [Note 8. Segment Information](index=12&type=section&id=Note%208.%20Segment%20information) Reports that the Company operates as a single segment, 'Products,' focused on therapeutic development, and provides segment-level financial results - The Company operates as a single operating and reportable segment, 'Products,' focused on discovery, development, and commercialization of novel therapeutics[41](index=41&type=chunk) | Segment Results (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $87 | $136 | $216 | $282 | | Total G&A | $652 | $427 | $1,115 | $948 | | Total R&D | $792 | $662 | $1,785 | $1,504 | | Loss from operations | $(1,357) | $(952) | $(2,684) | $(2,170) | [Note 9. Stock Options](index=12&type=section&id=Note%209.%20Stock%20Options) Details stock option activity, compensation costs, and outstanding option statistics for the periods ended June 30, 2025, and December 31, 2024 - The Company recognized **$0** in stock option compensation costs for the three and six months ended June 30, 2025, a decrease from **$80,665** and **$289,305** respectively in 2024[45](index=45&type=chunk) | Stock Options | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Outstanding Shares | 361,624 | 361,624 | | Weighted Average Exercise Price | $19.74 | $19.74 | | Weighted Average Remaining Term | 4.59 years | 5.07 years | - No stock options were granted in the three and six months ended June 30, 2025, compared to **55,000** options granted in March 2024[46](index=46&type=chunk) [Note 10. Preferred Stock](index=15&type=section&id=Note%2010.%20Preferred%20Stock) Describes the characteristics, conversion terms, and outstanding shares of the Company's Series B and Series C Preferred Stock - Series A Preferred Stock was eliminated on April 11, 2024[48](index=48&type=chunk) - Series B Preferred Stock is convertible into Common Stock at a stated value of **$100** per share, with limited voting rights and senior ranking to Common Stock[50](index=50&type=chunk) - Series C Preferred Stock is convertible into Common Stock on a one-to-one basis, ranks pari passu to Common Stock, and its authorized shares were increased to **1,260,000** on April 8, 2025[52](index=52&type=chunk)[53](index=53&type=chunk) | Preferred Stock | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | Series B Outstanding Shares | 1,260 | 25,975 | | Series C Outstanding Shares | 153,442 | 303,041 | [Note 11. Common Stock](index=17&type=section&id=Note%2011.%20Common%20Stock) Provides details on common stock outstanding, recent conversions, and the delisting of the Company's Common Stock from Nasdaq | Common Stock | June 30, 2025 | December 31, 2024 | | :------------- | :------------ | :---------------- | | Shares Outstanding | 4,467,395 | 1,208,919 | - The Company's Common Stock was delisted from Nasdaq on June 20, 2025, due to non-compliance with shareholder approval and voting rights requirements, and is now quoted on the OTCID Market under 'LIPO'[60](index=60&type=chunk) - **1,535,067** shares of Common Stock were issued from Series B Preferred Stock conversion and **383,517** shares from Series C Preferred Stock conversion in Q2 2025[58](index=58&type=chunk) [Note 12. Warrants](index=18&type=section&id=Note%2012.%20Warrants) Describes the terms and exercise activity of Placement Agent Warrants and Series B Warrants, including cashless exercises and outstanding balances - Placement Agent Warrants were issued in connection with the Offering, immediately exercisable at **$1.00** per share or via cashless exercise, expiring in five years[61](index=61&type=chunk) - On January 23, 2025, **97,216** Placement Agent Warrants were exercised for **64,702** shares of Common Stock on a cashless basis[62](index=62&type=chunk) - **72,000** Series B Warrants were outstanding as of June 30, 2025, exercisable for Series B Preferred Stock at **$100** per share, which are convertible into Common Stock at **$2.16** per share[64](index=64&type=chunk) [Note 13. Commitment and Contingencies](index=18&type=section&id=Note%2013.%20Commitment%20and%20Contingencies) Outlines the Company's lease commitments for its headquarters and contractual obligations with CROs and manufacturers - The Company renewed its principal headquarters lease for five years, starting July 1, 2025[67](index=67&type=chunk)[68](index=68&type=chunk) | Lease Commitments | June 30, 2025 | | :---------------- | :------------ | | Total minimum lease payments | $326,087 | | Present value of minimum lease payments | $274,539 | | ROU asset | $274,539 | | Current operating lease liability | $42,903 | | Non-current operating lease liability | $231,636 | - Contract commitments with CROs and manufacturers are generally cancellable, with payments due for services rendered or non-cancellable obligations[72](index=72&type=chunk) [Note 14. Income Taxes](index=19&type=section&id=Note%2014.%20Income%20Taxes) Explains the Company's income tax position, detailing the effective tax rate and the impact of valuation allowances on deferred tax assets - The Company reported a **0%** effective income tax rate for the three and six months ended June 30, 2025 and 2024, primarily due to a full valuation allowance against net deferred tax assets[73](index=73&type=chunk)[74](index=74&type=chunk) [Note 15. Subsequent Events](index=20&type=section&id=Note%2015.%20Subsequent%20Events) Discloses significant events that occurred after the balance sheet date but before the issuance of the financial statements - On August 12, 2025, **153,442** shares of Series C Preferred Stock were converted to **153,442** shares of Common Stock[77](index=77&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations%2E) Discusses Lipella Pharmaceuticals Inc.'s financial condition, operational results, liquidity, capital resources, and critical accounting policies for the periods ended June 30, 2025 and 2024 [Overview](index=22&type=section&id=Overview) Provides a general description of Lipella Pharmaceuticals Inc.'s clinical-stage biotechnology business, its drug development programs, and patent portfolio - Lipella is a clinical-stage biotechnology company developing new drugs by reformulating existing generic active agents for new applications, aiming for cost efficiencies and patent protection[84](index=84&type=chunk) - **LP-10:** Reformulation of tacrolimus for hemorrhagic cystitis (HC), in Phase 2 clinical development - **LP-310:** Oral, liposomal tacrolimus for oral lichen planus (OLP), completed dosing for first cohort in Phase 2a clinical trial with no product-related serious adverse events - **LP-410:** Oral, liposomal tacrolimus for oral graft-versus-host disease (GVHD), received orphan drug designation from FDA in November 2023 and IND approval in March 2024 - **LP-50:** Intravesical formulation of immunoglobulins for non-muscle invasive bladder cancer, in preclinical development - The Company holds two issued U.S. patents for LP-10 and LP-310 formulations, expiring July 11, 2035, and additional patents in Australia, Canada, and Europe expiring October 22, 2034[91](index=91&type=chunk) [Recent Developments](index=24&type=section&id=Recent%20Developments) Highlights key recent events, including the ATM Offering Agreement, changes to Series C Preferred Stock, and the delisting of Common Stock from Nasdaq - The Company entered into an At The Market (ATM) Offering Agreement on April 4, 2025, to sell up to **$2,641,881** in Common Stock, but does not intend to utilize it due to Nasdaq delisting[95](index=95&type=chunk) - On April 8, 2025, the Certificate of Amendment to the Series C Certificate of Designation was filed, increasing authorized Series C Preferred Stock from **1,050,000** to **1,260,000** shares[96](index=96&type=chunk) - The Common Stock was delisted from the Nasdaq Capital Market on June 20, 2025, due to non-compliance with shareholder approval and voting rights requirements related to Series C Preferred Stock and Series B Warrants issuances[98](index=98&type=chunk)[99](index=99&type=chunk)[100](index=100&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Analyzes Lipella Pharmaceuticals Inc.'s financial performance, focusing on revenue, expenses, and net loss for the three and six months ended June 30, 2025 and 2024 [Comparison of the Three Months Ended June 30, 2025 and 2024](index=25&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20and%202024) Compares Lipella Pharmaceuticals Inc.'s financial results for the three months ended June 30, 2025, against the same period in 2024, detailing changes in revenue, expenses, and net loss | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (Increase/Decrease) | | :-------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Revenue | $87 | $136 | $(49) | | R&D expenses | $792 | $662 | $130 | | G&A expenses | $652 | $427 | $225 | | Net loss | $(1,327) | $(938) | $(389) | - Grant revenue decreased by **$49,000 (36%)** due to the full depletion of funds from the 2022 NIH Grant during Q2 2025[102](index=102&type=chunk) - R&D expenses increased by **$130,000 (19.6%)** primarily due to a **$139,000** increase in outside services for the LP-310 clinical trial, partially offset by a **$39,000** decrease in stock option expense[108](index=108&type=chunk) - G&A expenses increased by **$225,000 (52.7%)** mainly due to a **$323,000** rise in professional and outside services (legal, accounting, investor relations), offset by decreases in employee costs and stock option expense[110](index=110&type=chunk) [Comparison of the Six Months Ended June 30, 2025 and 2024](index=27&type=section&id=Comparison%20of%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20and%202024) Compares Lipella Pharmaceuticals Inc.'s financial results for the six months ended June 30, 2025, against the same period in 2024, detailing changes in revenue, expenses, and net loss | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (Increase/Decrease) | | :-------------------- | :--------------------------- | :--------------------------- | :------------------------- | | Revenue | $216 | $282 | $(66) | | R&D expenses | $1,785 | $1,504 | $281 | | G&A expenses | $1,115 | $948 | $167 | | Net loss | $(2,634) | $(2,130) | $(504) | - Grant revenue decreased by **$66,000 (23.4%)** due to the full depletion of funds from the 2022 NIH Grant[113](index=113&type=chunk) - R&D expenses increased by **$281,000 (18.7%)** driven by a **$376,000** increase in outside services for the LP-310 clinical trial and **$209,000** in salaries/benefits, partially offset by a **$247,000** decrease in stock option expense[114](index=114&type=chunk) - G&A expenses increased by **$167,000 (17.6%)** due to a **$240,000** rise in professional and outside services, offset by decreases in employee costs and stock option expense[115](index=115&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses Lipella Pharmaceuticals Inc.'s ability to meet short-term and long-term obligations, discussing cash flows, financing activities, and future capital requirements - The Company has not commercialized any products and expects to incur operating losses and negative cash flows for the foreseeable future, requiring significant equity financing[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk) | Cash Flow Activity (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | $(2,859) | $(2,307) | | Net cash provided by financing activities | $3,456 | $200 | | Net increase (decrease) in cash and cash equivalents | $597 | $(2,107) | - Net cash provided by financing activities significantly increased to **$3,456,228** in H1 2025 (from **$200,000** in H1 2024) due to net proceeds from preferred stock and warrant issuances[123](index=123&type=chunk) - Existing cash and cash equivalents are estimated to be sufficient to fund operations and capital expenses through the end of 2025, but this estimate is subject to risks and uncertainties[126](index=126&type=chunk)[127](index=127&type=chunk) - The Company's ability to continue as a going concern is in substantial doubt, necessitating additional funds through equity or debt, which may dilute stockholders or impose restrictive covenants[128](index=128&type=chunk)[129](index=129&type=chunk) - No off-balance sheet arrangements - Lease agreement for headquarters renewed for five years, with annual base rent of approximately **$67,000** - Service agreement expenses for R&D and clinical trials increased to **$819,000** in H1 2025 from **$421,000** in H1 2024 [Critical Accounting Policies and Significant Judgments and Estimates](index=32&type=section&id=Critical%20Accounting%20Policies%20and%20Significant%20Judgments%20and%20Estimates) Discusses the Company's critical accounting policies and the significant judgments and estimates required in preparing its financial statements, such as for R&D expenses and stock-based compensation - The preparation of financial statements requires significant judgments and estimates, particularly for accrued third-party R&D expenses and stock-based compensation[135](index=135&type=chunk)[137](index=137&type=chunk) - Stock-based compensation expense is measured at grant date fair value using the Black-Scholes model, with assumptions for volatility, expected term, risk-free rate, and dividend yield[143](index=143&type=chunk) - As an emerging growth company, Lipella has irrevocably elected to use the extended transition period for complying with new or revised accounting standards and benefits from reduced disclosure requirements[149](index=149&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk%2E) As a smaller reporting company, Lipella Pharmaceuticals Inc. is not required to provide quantitative and qualitative disclosures about market risk - The Company is exempt from providing market risk disclosures as a smaller reporting company[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures%2E) Management concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter. The report acknowledges the inherent limitations of any control system - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[156](index=156&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[157](index=157&type=chunk) - Management acknowledges that control systems provide only reasonable assurance and have inherent limitations, such as human error, collusion, or management override[158](index=158&type=chunk)[160](index=160&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings%2E) Lipella Pharmaceuticals Inc. is not currently a party to any legal proceedings that would have a material adverse effect on its business or financial condition - The Company is not currently involved in any material litigation, claims, or legal proceedings[162](index=162&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%20Risk%20Factors%2E) This section supplements previously disclosed risk factors, emphasizing new risks related to the Company's Nasdaq delisting, its designation as a 'penny stock,' and the potential for significant dilution from the conversion of preferred stock and warrants - **Nasdaq Delisting:** The Company's Common Stock was suspended from the Nasdaq Capital Market in June 2025 and now trades on the OTC Markets, potentially limiting liquidity and increasing price volatility - **'Penny Stock' Designation:** The Common Stock is deemed a 'penny stock,' which limits liquidity and makes it difficult for broker-dealers to recommend, potentially further restricting trading activity - **Dilution from Conversions:** The conversion of outstanding Series B and Series C Preferred Stock, and the exercise of Series B Warrants, will cause immediate and substantial dilution to existing common stockholders - **Seniority of Series B Preferred Stock:** Holders of Series B Preferred Stock have senior rights over Common Stock holders regarding dividends and liquidation payments [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=38&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds%2E) No unregistered sales of equity securities or use of proceeds were reported during the fiscal quarter ended June 30, 2025 - No unregistered sales of equity securities or use of proceeds occurred during the period[173](index=173&type=chunk) [Item 3. Defaults upon Senior Securities](index=38&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities%2E) The Company reported no defaults upon senior securities during the fiscal quarter ended June 30, 2025 - No defaults upon senior securities were reported[174](index=174&type=chunk) [Item 4. Mine Safety Disclosures](index=38&type=section&id=Item%204.%20Mine%20Safety%20Disclosures%2E) Mine safety disclosures are not applicable to Lipella Pharmaceuticals Inc.'s operations - Mine safety disclosures are not applicable to the Company[175](index=175&type=chunk) [Item 5. Other Information](index=38&type=section&id=Item%205.%20Other%20Information%2E) No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2025 - No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[176](index=176&type=chunk) [Item 6. Exhibits](index=39&type=section&id=Item%206.%20Exhibits%2E) This section lists all exhibits filed with the Form 10-Q, including amendments to preferred stock designations, the At The Market Offering Agreement, and certifications from the principal executive and financial officers - **Exhibit 3.1:** Certificate of Amendment of Certificate of Designation of Preferences, Rights and Limitations of Series C Voting Convertible Preferred Stock - **Exhibit 10.1:** At The Market Offering Agreement, dated April 4, 2025, with H.C. Wainwright & Co., LLC - **Exhibits 31.1* and 31.2*:** Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - **Exhibits 32.1** and **32.2**: Certifications of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 [Signatures](index=40&type=section&id=SIGNATURES) The report is duly signed on behalf of Lipella Pharmaceuticals Inc. by its President and Chief Executive Officer, Jonathan Kaufman, and its Chief Financial Officer, Douglas Johnston, on August 14, 2025 - The report was signed by Jonathan Kaufman, President and CEO, and Douglas Johnston, CFO, on August 14, 2025[182](index=182&type=chunk)

Pipeline Programs - LP-10 (Liposomal tacrolimus) is positioned for market exclusivity in treating Hemorrhagic cystitis (HC), with a well-established mechanism and demonstrated safety in Phase 2a studies[11] - LP-310, an oral rinse formulation of LP-10, targets the Oral Lichen Planus (OLP) market, estimated at USD 980 million in 2028 and projected to reach USD 2.7 billion by 2034[14] - LP-410, an alternative oral rinse formulation of LP-10, is intended for the treatment of oral Graft-Versus-Host Disease (GVHD) and has received FDA Orphan Disease Designation[70] - LP-50 is an intravesical liposomal formulation of checkpoint Inhibitor for the treatment of bladder cancer[74] LP-310 Clinical Trial Results and Market Opportunity - Phase 2a multicenter dose escalation study completion of LP-310 for Oral Lichen Planus is anticipated in 2Q25[15] - LP-310 Phase 2a data shows safety with minimal systemic uptake and statistically significant improvement of efficacy[50] - Oral Lichen Planus (OLP) affects approximately 6 million Americans, presenting a substantial target market with no current FDA-approved pharmacotherapy[14, 19, 53, 86] - Projected annual revenue per customer for LP-310 is $8,000[53] LP-10 Market and Revenue Potential - Hemorrhagic cystitis affects approximately 60,000 individuals annually[13] - The company anticipates annual revenue of $20,000 per patient for LP-10 intravesical instillation[13, 91, 92] - Market penetration of 60,000 patients (45%) for LP-10 could yield $1.2 billion in annual revenue[13, 91, 92]

Core Viewpoint - Lipella Pharmaceuticals Inc. is committed to transparency and long-term value creation despite its recent delisting from the Nasdaq Capital Market, with ongoing clinical programs and plans for relisting on a national exchange [2][3]. Company Overview - Lipella Pharmaceuticals is a clinical-stage biotechnology company focused on developing new drugs by reformulating existing generic drugs to address diseases with significant unmet needs [4]. Delisting and Relisting Plans - The company expressed disappointment over the Nasdaq's decision to delist but emphasized that its underlying business remains strong and is actively pursuing relisting on a national exchange [3][6]. - Lipella is evaluating national exchanges that support early-stage innovation and intends to file an initial listing application soon [6]. Operational Status - The company remains fully operational, with clinical programs advancing as planned, and the delisting has not affected clinical timelines or research staffing [6]. Clinical Pipeline - Lipella's lead candidates, LP-310 for oral lichen planus and LP-10 for hemorrhagic cystitis, continue to show promising clinical progress, with final topline data from the Phase 2a trial of LP-310 expected in the second half of 2025 [6]. Financial Position - Lipella maintains a sound financial standing, with sufficient capital to support ongoing development programs and prudent fiscal management in place [6]. Shareholder Engagement - The company will continue to communicate with shareholders through SEC filings, press releases, and investor outreach, including participation in investor conferences and calls [6].

Core Viewpoint - Lipella Pharmaceuticals Inc. has been delisted from The Nasdaq Capital Market due to non-compliance with specific listing rules related to private placement transactions [2][3]. Group 1: Delisting Details - The delisting was triggered by Nasdaq's findings that certain private placement transactions from December 2024 to March 2025 violated Listing Rules 5100, 5635, and 5640 [2]. - The specific issue involved the issuance of Series C voting convertible preferred stock and warrants to the Company's placement agent, which was deemed non-compliant [2]. Group 2: Company Response - Lipella expressed disappointment over the delisting decision, emphasizing its efforts to obtain stockholder approval to address Nasdaq's concerns [3]. - The Company remains operationally sound and is continuing its strategic and clinical development plans, including advancing its lead product candidates LP-10 and LP-310 [4]. Group 3: Future Plans - Lipella is exploring other markets for relisting its common stock to ensure better liquidity and access for investors [5]. - The Company will continue to file periodic reports with the U.S. Securities and Exchange Commission and keep stockholders informed of material developments [5]. Group 4: Company Overview - Lipella Pharmaceuticals is a clinical-stage biotechnology company focused on developing therapies for diseases with significant unmet needs, reformulating existing generic drugs for new applications [6]. - The Company completed its initial public offering in 2022 [6].

Core Insights - Lipella Pharmaceuticals Inc. has been granted U.S. Patent No. 12,326,492 for a method to detect interstitial cystitis using MRI, providing protection until at least 2045 [1][2] - The patented method aims to enhance outcome assessments for mucosal disorders, including existing programs for oral lichen planus, hemorrhagic cystitis, and bladder cancer [2] - The patent strengthens Lipella's strategic position in drug delivery, allowing non-invasive monitoring of body cavity lesions, which could serve as an early detection tool [3] Company Overview - Lipella Pharmaceuticals is a clinical-stage biotechnology company focused on developing new drugs by reformulating existing generic drugs for new applications [3] - The company targets diseases with significant unmet needs where no approved drug therapies currently exist [3] - Lipella completed its initial public offering in 2022 [3]

Core Insights - Lipella Pharmaceuticals has renewed its manufacturing collaboration agreement with Cook MyoSite to support the Chemistry, Manufacturing and Control (CMC) documentation for its clinical products LP-10 and LP-310, which is a non-steroidal oral rinse therapy for Oral Lichen Planus, a condition currently lacking approved treatments [1][2][4] Company Overview - Lipella Pharmaceuticals is a clinical-stage biotechnology company focused on developing new drugs by reformulating existing generic drugs to address diseases with significant unmet needs [4] - The company completed its initial public offering in 2022 and aims to optimize reformulations for new applications [4] Collaboration Details - The collaboration with Cook MyoSite is seen as increasingly valuable as Lipella's clinical pipeline matures towards commercializable assets [2] - Cook MyoSite specializes in the development and commercialization of technology related to human skeletal muscle cells and offers a range of custom services including contract manufacturing and quality control testing [3]

Core Viewpoint - Lipella Pharmaceuticals is set to present statistically significant safety and efficacy data from its Phase 2a trial of LP-310 for Oral Lichen Planus at the 2025 AAOM/EAOM International Meeting, highlighting the potential of LP-310 as a localized, non-steroidal treatment option [3][6]. Presentation Details - The presentation will take place on May 15, 2025, at 11:36 a.m. PT, in Las Vegas, NV [3][7]. - The data includes findings from the 0.25 mg and 0.50 mg dose cohorts, administered once daily over four weeks to adults with symptomatic Oral Lichen Planus [4][8]. Efficacy and Safety Findings - The 0.50 mg dose cohort showed statistically significant improvements in multiple endpoints, including: - Investigator Global Assessment (IGA) improved from 3.42 at baseline to 1.71 at Week 4 (p=0.007) [7]. - Reticulation, Erythema, Ulceration (REU) Score reduced from 26.91 to 11.88 at Week 4 (p=0.003) [7]. - Oral Lichen Planus Symptom Severity Measure (OLPSSM) dropped from 14.92 to 4.88 at Week 4 (p=0.003) [7]. - Pain Numerical Rating Scale (NRS) improved from 6.42 to 2.25 at Week 4 (p=0.003) [7]. - LP-310 was well tolerated, with no treatment-related serious adverse events, no patient discontinuations, and no detectable systemic tacrolimus levels [5][6]. Company Overview - Lipella Pharmaceuticals is a clinical-stage biotechnology company focused on developing therapies for diseases with significant unmet needs, reformulating existing generic drugs for new applications [9].

Financial Performance - Revenue for the three months ended March 31, 2025, was $129,000, a decrease of $17,000 (approximately 11.6%) compared to $146,000 for the same period in 2024[102]. - General and administrative expenses decreased by $57,000 (approximately 10.9%) to $464,000 in Q1 2025 from $521,000 in Q1 2024[102]. - Total operating expenses for Q1 2025 were $1,457,000, an increase of $93,000 (approximately 6.8%) compared to $1,364,000 in Q1 2024[102]. - The net loss for the three months ended March 31, 2025, was $1,307,000, an increase of $115,000 (approximately 9.6%) from a net loss of $1,192,000 in Q1 2024[102]. - Revenue from the 2022 NIH Grant recognized for Q1 2025 was $129,390, a decrease of approximately 11% from $145,880 in Q1 2024[104]. - Net loss for Q1 2025 was $1,306,523, compared to a net loss of $1,191,809 for Q1 2024, indicating an increase in losses year-over-year[115]. Research and Development (R&D) - Research and Development (R&D) expenses increased by $150,000 (approximately 17.8%) to $993,000 in Q1 2025 from $843,000 in Q1 2024[102]. - R&D expenses increased by approximately $150,000 to $993,475 for Q1 2025, compared to $842,600 in Q1 2024, primarily due to increased outside services for the LP-310 clinical trial[110]. - The company expects substantial increases in R&D expenses as it advances clinical trials for LP-10 and LP-310[121]. - The company anticipates continued operating losses and negative cash flows for the foreseeable future due to ongoing R&D activities[116]. - The company bases R&D expenses on estimates from contracts with vendors, which may lead to uneven payment flows[134]. - There have been no material differences between the company's estimates of R&D expenses and the actual amounts incurred to date[135]. Clinical Trials and Drug Development - The company is developing LP-10 and LP-310 for hemorrhagic cystitis and oral lichen planus, respectively, with no FDA-approved therapies currently available for these conditions[87][88]. - LP-310's Phase 2a clinical trial dosing was completed in Q4 2024, with no serious adverse events reported, and results are expected to be presented at a conference in May 2025[90]. - The company received "orphan drug" designation from the FDA for LP-410 for oral graft-versus-host disease on November 11, 2023[91]. Cash Flow and Financing - Cash and cash equivalents totaled $4,225,012 as of March 31, 2025, providing liquidity for ongoing operations[114]. - Net cash used in operating activities for Q1 2025 was approximately $1,426,000, slightly higher than $1,388,000 in Q1 2024[118]. - Net cash provided by financing activities for Q1 2025 was approximately $3,466,000, a significant increase from $200,000 in Q1 2024[120]. - The company entered into an At The Market Offering Agreement to sell shares with an aggregate sales price of up to $2,641,881[96]. Stock-Based Compensation and Accounting - Stock-based compensation expense is expected to increase due to unrecognized expenses and additional stock awards to attract and retain employees[137]. - The fair value of stock options is estimated using the Black-Scholes model, with inputs based on subjective assumptions such as expected volatility and risk-free interest rates[139]. - The company adopted ASU 2018-07 for non-employee stock awards, which did not materially affect financial statements[136]. - The estimated fair value of Common Stock prior to the IPO was determined using independent valuations and various methodologies, including the back-solve method[140]. - The company has elected to take advantage of the extended transition period for adopting new accounting standards as an emerging growth company[145]. - The company may utilize reduced disclosure requirements applicable to emerging growth companies, including R&D progress and market conditions affecting the biotechnology industry[146]. - Recent accounting pronouncements reviewed by the company are not expected to have a material impact on financial statements[149]. - As a smaller reporting company, the company is not required to provide certain market risk disclosures[150]. Compliance and Regulatory - The company believes it regained compliance with Nasdaq's Stockholders' Equity Requirement as of April 14, 2025[100]. - The company has no off-balance sheet arrangements or material contractual obligations as of March 31, 2025[126][127].

Joint meeting to be held in Las Vegas, May 14-17 Presentation will be delivered by Dr. Alessandro Villa of Miami Cancer Institute Topline study results demonstrate clinically meaningful improvements in OLP Visible lesion resolution during treatment; return toward baseline post-dosing supports localized activity "As the global oral medicine community gathers this spring, we're proud to present promising new data toward the goal of providing a safe and effective treatment for Oral Lichen Planus," said Jonatha ...