Palisade Bio(PALI) - 2024 Q4 - Annual Report

Part I Business Palisade Bio, Inc. is a clinical-stage biopharmaceutical company focused on developing therapeutics for autoimmune, inflammatory, and fibrotic diseases - The company's primary focus is on its lead product candidate, PALI-2108, a treatment for IBD (UC and FSCD), which is currently in a Phase 1 clinical trial in Canada[25][29][36] - Palisade's strategy involves advancing PALI-2108 through clinical trials, leveraging its platform for other autoimmune diseases, and pursuing strategic partnerships for development and commercialization[27] - The company has an exclusive worldwide license agreement with Giiant Pharma for the development and commercialization of PALI-2108 and other related compounds[46] - Palisade does not own manufacturing facilities and relies on third-party Contract Development and Manufacturing Organizations (CDMOs) for the clinical supply of its product candidates[54][56] Pipeline and Clinical Development The company's pipeline focuses on PALI-2108, a PDE4 inhibitor prodrug for IBD, currently in a Phase 1 clinical trial in Canada with topline data expected in Q2 2025 - PALI-2108 is a prodrug designed to be activated by colonic bacteria, delivering a PDE4 inhibitor locally to reduce inflammation and fibrosis in IBD[30][31] - A Phase 1 clinical trial of PALI-2108 is ongoing in Canada, with topline data anticipated in the second quarter of 2025[37][38] - The company plans to submit an Investigational New Drug Application (IND) to the FDA during 2025, aiming to start U.S. clinical trials in the first quarter of 2026[39] Market and Competition The target market for PALI-2108 includes Ulcerative Colitis and Fibrostenotic Crohn's Disease, with significant market values and unmet needs, facing competition from established pharmaceutical companies IBD Market Projections | Indication | 2021/2022 Market Value | Projected 2031/2032 Market Value | CAGR | | :--- | :--- | :--- | :--- | | Ulcerative Colitis (UC) | $7.3 billion (2021) | >$9.5 billion (2031) | 2.78% | | Crohn's Disease (CD) | $13.9 billion (2022) | $25.5 billion (2032) | 6.0% | - A significant unmet need exists for FSCD, as approximately half of CD patients develop strictures within 10 years of diagnosis, and there are no approved therapies specifically for this indication[42] - Competition includes major pharmaceutical companies such as AbbVie, Johnson & Johnson, and Pfizer, as well as several other companies with IBD product candidates in development[67][68] Intellectual Property The company's intellectual property for PALI-2108 is secured through an exclusive worldwide license from Giiant, covering pending U.S. and international patent applications, and includes a provisional patent for personalized PDE4 inhibitor methods - Palisade has exclusively licensed a worldwide patent portfolio from Giiant for PALI-2108, which includes one pending U.S. patent application (No. 17927827) and seven pending international applications[70] - The company has filed a provisional patent application (No. 63/733,390) for personalized methods of administering PDE4 inhibitors, aiming to protect its precision medicine approach[71] - The company maintains the patent family for its legacy asset LB1148, with patents expiring in 2035, to support its co-development agreement with Newsoara[73][74] Government Regulation The company's operations are subject to extensive regulation by the U.S. FDA and foreign authorities, encompassing drug development, clinical trials, marketing approval, manufacturing compliance, and various healthcare and data privacy laws - The drug approval process in the U.S. requires completion of preclinical studies, submission of an IND, and successful completion of Phase 1, 2, and 3 clinical trials before an NDA can be submitted to the FDA for marketing approval[76][81] - The company is currently conducting its Phase 1 trial in Canada under a Clinical Trial Application (CTA) approved by Health Canada, which has a regulatory process similar to the FDA's[158][161] - Beyond clinical regulations, the company is subject to numerous other laws, including the federal Anti-Kickback Statute, HIPAA, the Sunshine Act, and data privacy laws like GDPR and CCPA, which govern interactions with healthcare providers and the handling of patient data[132][134][151] Human Capital and Corporate Information As of December 31, 2024, Palisade Bio had eight full-time employees and engages consultants, with compensation programs designed to attract and retain talent, operating from its Carlsbad, California headquarters - As of December 31, 2024, the company had eight full-time employees[175] - The company's compensation programs include competitive wages, equity incentives, and comprehensive benefits to attract and retain talent[177] Risk Factors The company faces significant risks including dependence on PALI-2108's clinical success, a history of net losses, going concern doubts, reliance on third parties, intellectual property disputes, competition, and stock price volatility Risks Related to Development, Commercialization and Regulatory Approval The company's success is highly dependent on its lead asset, PALI-2108, with substantial risks including trial failures, side effects, inability to obtain regulatory approval, patient enrollment challenges, and reliance on its license agreement with Giiant - The business is heavily dependent on the successful clinical development, regulatory approval, and commercialization of its single lead asset, PALI-2108[182] - The company depends on its license agreement with Giiant Pharma; termination of this agreement would prevent the development and commercialization of PALI-2108[186] - There is a risk that the FDA may not accept data from the Phase 1 clinical trial being conducted in Canada, which could require additional, costly trials in the U.S.[188] Risks Related to Our Business and Dependence on Third Parties The company has a limited operating history with no product revenue, relies heavily on third-party CROs and API suppliers, and its success depends on retaining key personnel and navigating changes in FDA policies - The company has a limited operating history and has never generated revenue from product sales, making it difficult to evaluate its future viability[212] - Palisade relies on third-party CROs to conduct its clinical trials; if these CROs fail to perform as required, regulatory approval and commercialization could be jeopardized[223] - The company depends on two qualified suppliers for the API used in PALI-2108, and any supply shortages or quality issues could adversely impact the business[224] Risks Related to Financial Operations and Securities The company faces substantial doubt about its going concern ability due to recurring losses and insufficient cash, has identified a material weakness in internal controls, and its stock is volatile with delisting risk and future dilution concerns - Management has expressed substantial doubt about the company's ability to continue as a going concern, as available cash is not sufficient to fund operations for the next 12 months[235] - The company has a history of net losses, reporting a net loss of $14.4 million for the year ended December 31, 2024, and expects losses to continue[237] - A material weakness in internal control over financial reporting has been identified, related to a lack of controls in the financial closing and reporting process[238] - The company's common stock is at risk of being delisted from the Nasdaq Stock Market if it fails to maintain compliance with continued listing standards, such as the minimum $1.00 bid price rule[257] Unresolved Staff Comments The company has no unresolved staff comments - None[280] Cybersecurity The company relies on third-party IT providers, exposing it to cybersecurity risks, with the Audit Committee overseeing these risks, and no material incidents identified in the last fiscal year - The company relies on third-party providers for critical IT systems and processing of sensitive information, including patient data and intellectual property[280] - The Audit Committee is responsible for overseeing cybersecurity risks[283] - In the last fiscal year, the company has not identified any risks from cybersecurity threats that have materially affected it, but acknowledges that such risks are reasonably likely to exist[282] Properties The company leases 2,747 square feet for its corporate headquarters in Carlsbad, California, under a lease expiring August 31, 2025, which it does not expect to renew - The company leases its corporate headquarters in Carlsbad, California, under a non-cancelable operating lease expiring on August 31, 2025[284] Legal Proceedings The company is not a party to any material legal proceedings and does not expect any ordinary course claims to have a material adverse effect - As of the report date, the company is not a party to any material legal proceedings[286] Mine Safety Disclosures This item is not applicable to the company - Not applicable[287] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'PALI', has never paid dividends, and issued 3,000 restricted shares to a consultant in 2024, with no issuer purchases of equity securities - The company's common stock is traded on the Nasdaq Capital Market under the symbol "PALI"[290] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[292] - On October 1, 2024, 3,000 restricted common shares were issued to a consultant in an unregistered transaction[293] Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations The clinical-stage biopharmaceutical company reported a $14.4 million net loss in 2024, driven by increased R&D for PALI-2108, raised $9.8 million in financing, and has substantial doubt about its going concern ability beyond Q4 2025 - Management has substantial doubt about the company's ability to continue as a going concern, with cash on hand sufficient to fund operations only through the fourth quarter of 2025[314][349] Key Financial Results (in thousands) | | 2024 | 2023 | | :--- | :--- | :--- | | License revenue | $0 | $250 | | Research and development | $9,063 | $6,893 | | General and administrative | $5,796 | $6,202 | | Loss from operations | $(14,859) | $(13,070) | | Net loss | $(14,438) | $(12,300) | - R&D expenses increased by $2.2 million (31%) in 2024, primarily due to a $3.6 million increase in joint development expenses for PALI-2108 and a $1.0 million increase in drug manufacturing costs[318] - The company completed three financing events in 2024: a warrant inducement in February (net proceeds **$2.2 million**), a private placement in May (net proceeds **$3.5 million**), and an underwritten public offering in December (net proceeds $4.1 million)[303][304] Liquidity and Capital Resources The company's cash and equivalents were $9.8 million as of December 31, 2024, with $12.2 million net cash used in operations, and $9.6 million provided by financing activities, indicating a need for additional capital beyond Q4 2025 Summary of Cash Flows (in thousands) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $ (12,193) | $ (11,133) | | Net cash used in investing activities | $ 0 | $ (4) | | Net cash provided by financing activities | $ 9,582 | $ 11,186 | - As of December 31, 2024, the company had $9.8 million in cash, cash equivalents, and restricted cash[337] - Cash provided by financing activities in 2024 totaled $9.6 million, driven by net proceeds from the February warrant inducement (**$2.2 million**), May offering (**$3.5 million**), and December offering ($4.1 million)[342][328][329] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant estimates for accrued R&D expenses and the fair value measurement of contingent consideration, which is re-measured periodically with changes recognized in R&D expense - Accrued research and development expenses are estimated based on services performed by collaboration partners, CROs, and manufacturers, requiring management to estimate the level of service completed when invoices have not yet been received[351][353] - The contingent consideration obligation from the Giiant License Agreement is a liability measured at fair value using a probability-based model with Level 3 inputs, including a discount rate of 9.29% and management's projections of milestone achievement[357][358] - The fair value of the contingent consideration liability decreased by $54,000 during 2024, primarily due to an amendment to the Giiant agreement that reduced potential milestone payments[360] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Palisade Bio, Inc. is not required to provide the information for this item - The company is not required to provide this information as it qualifies as a smaller reporting company[363] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2024 and 2023, including the auditor's report with a "Going Concern Uncertainty" highlight, and detailed notes Report of Independent Registered Public Accounting Firm The independent auditor, Baker Tilly US, LLP, issued an unqualified opinion on the financial statements but included a "Going Concern Uncertainty" paragraph due to the company's recurring losses and negative cash flows - The auditor's report contains a "Going Concern Uncertainty" paragraph, highlighting substantial doubt about the company's ability to continue as a going concern due to losses and negative cash flows[368] - The auditor, Baker Tilly US, LLP, expressed an opinion that the financial statements are presented fairly in conformity with U.S. GAAP[367] Consolidated Financial Statements The consolidated financial statements show total assets of $10.9 million and a net loss of $14.4 million for 2024, with cash and equivalents decreasing to $9.8 million Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $9,821 | $12,432 | | Total Assets | $10,880 | $14,052 | | Total Liabilities | $3,388 | $2,739 | | Total Stockholders' Equity | $7,492 | $11,313 | Consolidated Statement of Operations Data (in thousands) | | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Total operating expenses | $14,859 | $13,320 | | Net loss | $(14,438) | $(12,300) | | Net loss per common share | $(10.19) | $(27.01) | Notes to Consolidated Financial Statements The notes detail the going concern uncertainty, a 1-for-15 reverse stock split, 2024 equity offerings raising $9.8 million, the Giiant License Agreement's milestone obligations, and a full valuation allowance on deferred tax assets - The company effected a 1-for-15 reverse stock split on April 5, 2024. All share and per-share amounts have been retrospectively adjusted[399] - In 2024, the company completed a warrant inducement transaction and two equity offerings (May and December), raising a total of approximately $9.8 million in net proceeds[446][451][457] - The Giiant License Agreement requires the company to make potential milestone payments and royalty payments, subject to a payment cap. An amendment in August 2024 reduced future milestone payments in exchange for increased joint development cost reimbursement[483][484] - The company maintains a full valuation allowance on its deferred tax assets of $32.5 million as of December 31, 2024, due to uncertainty about their realization[520] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with its accountants on accounting and financial disclosure - None[533] Controls and Procedures Management concluded that disclosure controls were not effective as of December 31, 2024, due to a material weakness in internal control over financial reporting, with ongoing remediation efforts - Management concluded that disclosure controls and procedures were not effective as of December 31, 2024[535] - A material weakness in internal control over financial reporting exists due to a lack of controls in the financial closing and reporting process, including a lack of segregation of duties[539] - Remediation efforts are underway, including hiring more finance personnel, implementing new software, and formalizing accounting procedures, but the material weakness has not yet been fully remediated[541][542] Other Information This item is not applicable - Not applicable[544] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - Not applicable[545] Part III Directors, Executive Officers and Corporate Governance The company's Board of Directors comprises four members, three independent, with an independent Board Chair, and operates through Audit, Compensation, and Governance and Nominating committees, adhering to a Code of Business Conduct and Ethics - The Board of Directors has four members: J.D. Finley (CEO), Donald Williams (Chair), Margery Fischbein, and Binxian Wei[549] - The Board has an independent chair, Donald Williams, separate from the CEO, J.D. Finley[562] - The Board has three standing committees: Audit, Compensation, and Governance and Nominating. All committee members are independent[571] - The Board has determined that Donald Williams, Margery Fischbein, and Binxian Wei are independent directors under Nasdaq listing standards[561] Executive Compensation The executive compensation program includes base salary, performance-based cash bonuses, and equity incentives, with CEO J.D. Finley's total 2024 compensation at $813,000, guided by peer analysis, and includes severance provisions and a clawback policy 2024 Summary Compensation Table | Name and Principal Position | Year | Salary ($) | Non-Equity Incentive Plan Compensation ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | J.D. Finley, CEO & CFO | 2024 | 542,000 | 271,000 | 813,000 | | Mitchell Jones, M.D., Ph.D., CMO | 2024 | 415,000 | 166,000 | 581,000 | - The 2024 annual discretionary cash bonus targets were 50% of base salary for the CEO and 40% for the CMO, which were paid out at 100% based on achievement of corporate performance targets[598][599] - Employment agreements for named executive officers include severance provisions for termination without cause or resignation for good reason, with enhanced benefits (e.g., 18 months salary continuation for the CEO and full equity acceleration) if termination occurs in connection with a change in control[606][607][610] - The company adopted a formal equity compensation program for non-employee directors in June 2024, providing for initial and annual option grants[635] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 15, 2025, directors and executive officers beneficially owned 1.02% of common stock, Armistice Capital, LLC held 6.49%, and 109,613 shares were available for future issuance under equity compensation plans Security Ownership as of March 15, 2025 | Name of Beneficial Owner | Percentage of Shares Beneficially Owned | | :--- | :--- | | Armistice Capital, LLC | 6.49% | | All directors and executive officers as a group (5 persons) | 1.02% | Equity Compensation Plan Information as of Dec 31, 2024 | Plan Category | Securities to be Issued upon Exercise | Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | | Approved by security holders | 43,547 | 56,672 | | Not approved by security holders | 10,079 | 52,941 | | Total | 53,626 | 109,613 | Certain Relationships and Related Transactions, and Director Independence The company has a policy for reviewing related person transactions exceeding $120,000, with the Audit Committee overseeing, and notable transactions include Armistice Capital LLC's $3.0 million participation in a 2023 offering - The company has a formal written policy for the review and approval of related person transactions, overseen by the Audit Committee[649] - In an April 2023 offering, Armistice Capital LLC, a then greater than 5% stockholder, purchased shares, pre-funded warrants, and warrants for an aggregate price of approximately $3.0 million[652] - Other reported related party transactions consist of employment agreements, salary adjustments, and equity grants to executive officers and non-employee directors, as detailed in the Executive and Director Compensation sections[651][652] Principal Accounting Fees and Services Baker Tilly US, LLP served as the independent auditor, with aggregate audit fees of $454,213 in 2024 and $422,500 in 2023, all pre-approved by the Audit Committee Accountant Fees (in thousands) | | 2024 | 2023 | | :--- | :--- | :--- | | Audit Fees | $454,213 | $422,500 | | Audit-related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | | Total Fees | $454,213 | $422,500 | - All audit and non-audit services provided by the independent auditor were pre-approved by the Audit Committee[657] Part IV Exhibits, Financial Statement Schedules This section lists financial statements included in Item 8 and provides an index of all exhibits filed with or incorporated by reference into the Form 10-K, with schedules omitted as not required - The consolidated financial statements are located in Item 8 of the report[662] - An index of all exhibits filed with the report is provided, including material agreements such as the Giiant License Agreement and various financing agreements[663][665] Form 10-K Summary The company did not provide a Form 10-K summary - None[674]