Pieris Pharmaceuticals(PIRS) - 2025 Q2 - Quarterly Report

General Information This section provides introductory information about Palvella Therapeutics, Inc., clarifying company naming conventions post-merger and outlining the nature of forward-looking statements contained within the report Cautionary Note Regarding Forward-Looking Statements This section advises readers that the Quarterly Report contains forward-looking statements concerning future operations, product development, financial performance, and regulatory matters, which are inherently subject to risks and uncertainties - The report contains forward-looking statements regarding future operations, product potential (QTORIN™ rapamycin), financial performance, regulatory approvals, and market opportunities[13][14] - Actual results may differ materially due to important factors, including those detailed in the 'Risk Factors' section of the 2024 Form 10-K[15] - The company disclaims any intention or obligation to update or revise forward-looking statements, except as required by law[16] Part I. Financial Information This part presents the unaudited condensed consolidated financial statements for Palvella Therapeutics, Inc. for the periods ended June 30, 2025, and December 31, 2024, along with management's discussion and analysis of financial condition and results of operations, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This item includes the unaudited condensed consolidated financial statements, comprising the balance sheets, statements of operations and comprehensive loss, statements of changes in stockholders' equity (deficit), and statements of cash flows, along with their accompanying notes Condensed Consolidated Balance Sheets Presents the company's financial position as of June 30, 2025, and December 31, 2024, showing a decrease in total assets and stockholders' equity, primarily driven by a reduction in cash and cash equivalents and an accumulated deficit Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :--------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $70,433 | $83,602 | | Total current assets | $73,747 | $88,234 | | Total assets | $73,747 | $88,234 | | Total current liabilities | $9,616 | $12,038 | | Total liabilities | $25,967 | $25,627 | | Total stockholders' equity | $47,780 | $62,607 | | Accumulated deficit | $(111,391) | $(93,735) | Condensed Consolidated Statements of Operations and Comprehensive Loss Details the company's financial performance for the three and six months ended June 30, 2025, and 2024, showing a significant increase in net loss and operating expenses, particularly in research and development and general and administrative costs Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Research and development | $5,118 | $1,442 | $9,192 | $2,426 | | General and administrative | $4,132 | $1,466 | $7,929 | $2,241 | | Total operating expenses | $9,250 | $2,908 | $17,121 | $4,667 | | Operating loss | $(9,250) | $(2,908) | $(17,121) | $(4,667) | | Net loss | $(9,471) | $(4,172) | $(17,656) | $(6,708) | | Loss attributable to common stockholders | $(9,471) | $(4,366) | $(17,656) | $(7,096) | | Net loss per share (basic and diluted) | $(0.86) | $(2.47) | $(1.60) | $(4.01) | - Research and development expenses increased significantly, from $1,442 thousand to $5,118 thousand for the three months ended June 30, 2025, and from $2,426 thousand to $9,192 thousand for the six months ended June 30, 2025, compared to the prior year[23] - General and administrative expenses also rose substantially, from $1,466 thousand to $4,132 thousand for the three months ended June 30, 2025, and from $2,241 thousand to $7,929 thousand for the six months ended June 30, 2025[23] Condensed Consolidated Statements of Changes in Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Deficit) This statement outlines the changes in the company's equity accounts for the six months ended June 30, 2025, and 2024, reflecting the impact of net losses, stock-based compensation, and the exercise of stock options Condensed Consolidated Statements of Changes in Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Deficit) | Metric | Balance at Dec 31, 2024 (in thousands) | Balance at June 30, 2025 (in thousands) | | :--------------------------------- | :------------------------------------- | :------------------------------------ | | Additional paid-in capital | $156,328 | $159,271 | | Accumulated deficit | $(93,735) | $(111,391) | | Total stockholders' equity | $62,607 | $47,780 | - The accumulated deficit increased from $(93,735) thousand at December 31, 2024, to $(111,391) thousand at June 30, 2025, primarily due to net losses[26] - Stock-based compensation contributed $2,527 thousand to additional paid-in capital for the six months ended June 30, 2025[26][108] Condensed Consolidated Statements of Cash Flows Reports the cash inflows and outflows for operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, indicating a significant increase in cash used in operating activities and a shift from cash provided by financing activities in 2024 to cash used in 2025 Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(12,202) | $(2,705) | | Net cash (used in) provided by financing activities | $(853) | $9,892 | | Net (decrease) increase in cash and cash equivalents | $(13,169) | $7,187 | | Cash and cash equivalents at end of period | $70,433 | $14,537 | - Net cash used in operating activities increased substantially from $(2,705) thousand in H1 2024 to $(12,202) thousand in H1 2025, reflecting increased operating expenses[32][177] - Financing activities shifted from providing $9,892 thousand in H1 2024 (due to convertible notes issuance) to using $(853) thousand in H1 2025 (due to transaction costs and stock option exercises)[32][178][179] Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering business description, significant accounting policies, the reverse merger, fair value measurements, strategic agreements, accrued liabilities, stockholders' equity, equity incentive plans, commitments, segment information, and subsequent events Note 1. Description of Business, Organization and Liquidity Describes Palvella Therapeutics, Inc. as a late clinical-stage biopharmaceutical company focused on rare genetic skin diseases, with its lead product candidate QTORIN rapamycin in clinical development - Palvella Therapeutics, Inc. is a late clinical-stage biopharmaceutical company developing QTORIN rapamycin for rare genetic skin diseases[35] - The company incurred a net loss of $17,700 thousand and used $12,200 thousand in operating cash flows for the six months ended June 30, 2025, with an accumulated deficit of $111,400 thousand[38] - Management expects existing cash and cash equivalents to support operations for at least one year from the financial statement issuance date, but future funding will be required as no commercial revenue is expected in the near term[39] Note 2. Summary of Significant Accounting Policies Outlines the key accounting policies used in preparing the financial statements, including the basis of presentation (unaudited, U.S. GAAP, reverse recapitalization for the merger), use of estimates, concentration of credit risk, comprehensive loss, cash and cash equivalents, accounts receivable, fair value measurements, derivative instruments, research and development expenses, stock-based compensation, government grants, income taxes, German R&D tax credit, related party transactions, segments, net loss per share, and recently issued accounting standards - The Business Combination was accounted for as a reverse recapitalization, treating Legacy Palvella as the accounting acquirer[41] - Research and development costs are expensed as incurred, and stock-based compensation is recognized based on fair values using the Black-Scholes model[57][59] - The company recognized $300 thousand in government grant income as a reduction to R&D costs for the six months ended June 30, 2025, related to the Phase 3 SELVA trial[64] Note 3. Reverse Merger Details the December 13, 2024, Business Combination where Legacy Palvella merged into Pieris Pharmaceuticals, Inc., which was then renamed Palvella Therapeutics, Inc. For accounting purposes, this was treated as a reverse recapitalization, with Legacy Palvella as the accounting acquirer - The Reverse Merger, completed on December 13, 2024, resulted in Legacy Palvella becoming a wholly-owned subsidiary of the Company, and the Company's name changed from Pieris Pharmaceuticals, Inc. to Palvella Therapeutics, Inc.[76][10] - For accounting purposes, the Reverse Merger was treated as a reverse recapitalization, with Legacy Palvella deemed the accounting acquirer[77][79] Reverse Merger | Metric | As of December 13, 2024 (in thousands) | | :--------------------- | :------------------------------------- | | Cash | $13,781 | | Total current assets | $14,753 | | Total current liabilities | $3,142 | | Net assets acquired | $11,611 | Note 4. Fair Value Measurements Provides information on financial assets and liabilities measured at fair value on a recurring basis, categorizing them into Level 1, Level 2, or Level 3 of the fair value hierarchy Fair Value Measurements | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Cash and cash equivalents (Level 1) | $70,433 | $83,602 | | Derivative liabilities – royalty agreement (Level 3) | $1,840 | $1,647 | | Derivative liabilities – contingent value right liability (Level 3) | $1,978 | $1,978 | | Total liabilities measured at fair value | $3,818 | $3,625 | - Derivative liabilities for the royalty agreement and contingent value rights are classified as Level 3, relying on unobservable inputs like probability rates for FDA approval and expected term[52][84] Fair Value Measurements | Assumption | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Discount rate | 19.0% | 20.0% | | Probability rate of achieving FDA approval of a product | 56.6% | 56.6% | | Expected term to FDA regulatory approval of a product | 2.0 years | 2.5 years | Note 5. Strategic Agreements Describes the Development Funding and Royalties Agreement with Ligand Pharmaceuticals, Inc., under which Ligand provided $15,000 thousand in funding - The company has a Development Funding and Royalties Agreement with Ligand Pharmaceuticals, Inc., under which Ligand provided $15,000 thousand for QTORIN rapamycin development[88] - Palvella is obligated to pay Ligand up to $8,000 thousand in milestone payments (with $5,000 thousand remaining) and tiered royalties ranging from 8.0% to 9.8% on net product sales[88][90] Strategic Agreements | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Royalty agreement liability | $14,511 | $11,942 | | Non-cash interest expense – royalty agreement (6 months) | $2,569 | $1,747 | Note 6. Accrued Expenses and Other Current Liabilities Details the composition of accrued expenses and other current liabilities, which decreased from $5,474 thousand at December 31, 2024, to $3,081 thousand at June 30, 2025, primarily due to a reduction in compensation expense Accrued Expenses and Other Current Liabilities | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :------------------------------------ | :----------------------------- | :------------------------------- | | Professional fees | $399 | $808 | | Compensation expense | $786 | $3,073 | | Research and development expenses | $971 | $404 | | Other | $925 | $1,189 | | Total accrued expenses and other current liabilities | $3,081 | $5,474 | - Accrued compensation expense significantly decreased from $3,073 thousand at December 31, 2024, to $786 thousand at June 30, 2025, including $2,100 thousand for current and former Pieris employees as of December 31, 2024[93] Note 7. Stockholders' Equity Outlines the company's authorized capital, including common stock and various series of preferred stock - As of June 30, 2025, the company had 11,059,665 shares of common stock outstanding and 2,466,456 pre-funded warrants outstanding, exercisable at $0.001 per share[94][98] - The company has 15,617 shares of Preferred Stock outstanding across Series A-E, convertible into 13.34 common shares per preferred share, and ranking senior to common stock in liquidation[97][100][101] Note 8. Equity Incentive Plans Describes the company's equity incentive plans, including the 2024 Equity Incentive Plan and the adjusted 2019 Plan - The 2024 Equity Incentive Plan, approved on December 13, 2024, reserves 3,455,433 shares of common stock for issuance, with 2,077,974 shares issued as of June 30, 2025[104][105][106] Equity Incentive Plans | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Research and development stock-based compensation | $900 | $290 | | General and administrative stock-based compensation | $1,627 | $73 | | Total stock-based compensation expense | $2,527 | $363 | - As of June 30, 2025, there was $20,100 thousand of unrecognized compensation cost related to non-vested stock options, expected to be recognized over 3.25 years[108] Note 9. Commitments and Contingencies States that the company accrues liabilities for contingent matters when future expenditures are probable and estimable - The company accrues liabilities for contingent matters when future expenditures are probable and reasonably estimable[110] - As of the reporting date, the company is not currently subject to any material legal proceedings[111][188] Note 10. Segment Information Discloses that the company operates in a single reportable segment focused on discovering and developing products for rare genetic skin diseases - The company operates as a single reportable segment, focused on discovering and developing products for individuals with serious and rare genetic skin diseases[112][113] - The CODM (CEO) assesses performance and allocates resources based on consolidated net income or loss and total consolidated assets[114] Segment Information | Expense Category | Three Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $5,118 | $9,192 | | General and administrative | $4,132 | $7,929 | | Loss from operations | $(9,250) | $(17,121) | Note 11. Subsequent Events States that subsequent events have been evaluated through August 14, 2025, the date the financial statements were issued - Subsequent events have been evaluated through August 14, 2025, the issuance date of the condensed consolidated financial statements[117] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on the company's financial condition, results of operations, and liquidity - The company is a clinical-stage biopharmaceutical company focused on developing novel therapies for serious, rare genetic skin diseases using its QTORIN platform[121] - The lead product candidate, QTORIN 3.9% rapamycin anhydrous gel, is in clinical development for microcystic LMs (Phase 3 SELVA trial) and cutaneous VMs (Phase 2 TOIVA trial)[121][122] - The Business Combination was accounted for as a reverse recapitalization, with Legacy Palvella treated as the accounting acquirer[133] Overview Palvella Therapeutics, Inc. is a clinical-stage biopharmaceutical company aiming to be a leader in rare disease therapies for genetic skin diseases - Palvella Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing novel therapies for serious, rare genetic skin diseases[121] - The company's lead product candidate, QTORIN 3.9% rapamycin anhydrous gel, is in clinical development for microcystic LMs (Phase 3 SELVA) and cutaneous VMs (Phase 2 TOIVA)[121][122] Recent Developments Highlights key recent achievements including receiving initial grant proceeds for the Phase 3 SELVA trial, being granted a new U.S. patent for rapamycin compositions, and successfully completing enrollment for the Phase 3 SELVA trial - In May 2025, the company received initial proceeds of $500 thousand from an FDA grant supporting the Phase 3 SELVA trial[124] - In June 2025, a sixth U.S. patent (No. 12,329,748) was granted, covering 0.1-20% anhydrous compositions of rapamycin and other mTOR inhibitors[124] - Enrollment for the Phase 3 SELVA trial was successfully completed in June 2025 with 51 subjects, exceeding the original target[124] Our Novel Product Candidate: QTORIN rapamycin QTORIN rapamycin is a 3.9% anhydrous topical gel formulation of rapamycin, being developed for microcystic LMs, cutaneous VMs, and other mTOR-driven skin diseases, with the potential to become the standard of care QTORIN rapamycin for the treatment of microcystic LMs QTORIN rapamycin is in a Phase 3 clinical trial (SELVA) for microcystic LMs, a rare genetic disease with no FDA-approved treatments - QTORIN rapamycin is in a Phase 3 SELVA trial for microcystic LMs, a rare genetic disease with no FDA-approved treatments for over 30,000 U.S. individuals[126][127] - The SELVA trial completed enrollment in Q2 2025 with 51 subjects, exceeding the target, and top-line data is expected in Q1 2026[127] - QTORIN rapamycin has received Breakthrough Therapy, Fast Track, and Orphan Drug Designations from the FDA for microcystic LMs, and an FDA grant of up to $2,600 thousand supports the SELVA study[128] QTORIN rapamycin for the treatment of cutaneous VMs QTORIN rapamycin is in a Phase 2 clinical trial (TOIVA) for cutaneous VMs, another serious rare condition with no FDA-approved treatments for an estimated 75,000 individuals in the U.S - QTORIN rapamycin is in a Phase 2 TOIVA trial for cutaneous VMs, a rare condition affecting over 75,000 individuals in the U.S. with no FDA-approved treatments[129][130] - First patients were dosed in Q1 2025, and top-line data from approximately 15 participants is expected in Q4 2025[130] - The venous malformations program has received Fast Track Designation from the FDA[130] The Business Combination Reaffirms the December 13, 2024, business combination where Pieris Pharmaceuticals, Inc. merged with Legacy Palvella and was renamed Palvella Therapeutics, Inc. - The business combination, completed on December 13, 2024, involved the merger of Legacy Palvella into Pieris Pharmaceuticals, Inc., which was subsequently renamed Palvella Therapeutics, Inc.[131][132] - The transaction was accounted for as a reverse recapitalization, with Legacy Palvella treated as the accounting acquirer for financial reporting purposes[133] Contingent Value Rights Agreement Describes the CVR Agreement entered into on December 13, 2024, granting pre-Merger stockholders of Pieris one non-transferable CVR for each share - A Contingent Value Rights (CVR) Agreement was established on December 13, 2024, granting pre-Merger Pieris stockholders CVRs[134] - CVRs represent the contractual right to receive payments from strategic partner agreements and R&D tax credits related to Pieris's legacy assets, with no assurance of payment[134] Ligand Development Funding and Royalties Agreement Details the agreement with Ligand Pharmaceuticals, Inc., where Ligand provided $15,000 thousand for QTORIN rapamycin development - Ligand Pharmaceuticals, Inc. provided $15,000 thousand in funding for QTORIN rapamycin development under the Ligand Agreement[135] - The company is obligated to pay Ligand up to $8,000 thousand in milestone payments (with $5,000 thousand remaining) and tiered royalties of 8.0% to 9.8% on annual worldwide net product sales of QTORIN rapamycin products[135] Impact of Global and Macroeconomic Events Acknowledges significant risks to the business from global and macroeconomic uncertainties, including inflation, tariffs, interest rate fluctuations, new legislation (like the One Big Beautiful Bill Act), economic slowdowns, banking instability, and geopolitical tensions - The company faces significant risks from global and macroeconomic uncertainties, including inflation, tariffs, interest rate and currency fluctuations, and geopolitical tensions[136] - Management is monitoring these impacts, but the ultimate extent on business, results of operations, liquidity, and capital resources remains highly uncertain[136] Components of Operating Results Discusses the primary components of the company's operating results, mainly research and development expenses and general and administrative costs Operating Expenses The company's operating expenses primarily consist of research and development and general and administrative costs - Operating expenses primarily comprise research and development and general and administrative costs[137] - The company expects to incur significant operating losses for the foreseeable future due to advancing product candidates, regulatory submissions, and public company operating costs[138] Research and Development Expenses Research and development expenses, which are expensed as incurred, include costs for preclinical and clinical materials, personnel, vendor services, regulatory compliance, and allocated overhead - R&D expenses are expensed as incurred and include costs for clinical materials, personnel, vendor services, and regulatory compliance[139][142] - R&D expenses are expected to increase substantially due to continued investment in product candidates, particularly late-stage clinical development and regulatory approvals for QTORIN rapamycin[141][143] - The duration, costs, and timing of R&D are subject to various factors, including clinical trial completion, side effects, manufacturing, patient retention, and intellectual property rights[144][146] General and Administrative Expenses General and administrative expenses primarily cover personnel costs (salaries, benefits, stock-based compensation) for executive, finance, and administrative functions, as well as professional fees (legal, audit, consulting) - G&A expenses include personnel costs for executive, finance, and administrative functions, and professional fees for legal, audit, and consulting services[149] - G&A expenses are anticipated to increase substantially due to headcount additions and increased accounting, audit, legal, regulatory, and investor relations costs associated with being a public company[147][150] Other (Expense) Income Other (expense) income primarily consists of non-cash interest expense related to the Ligand royalty agreement, fair value adjustments on derivative liabilities (milestone payments), and net interest income - Other (expense) income primarily includes non-cash interest expense from the Ligand royalty agreement, fair value adjustments on derivative liabilities (milestone payments), and net interest income[151] - This category is subject to variability due to changes in the fair value of derivative liabilities and the royalty agreement liability, which depend on estimates of future development and commercialization[152] Income Taxes The company has not recorded income tax benefits for net operating losses (NOLs) since May 2018, maintaining a full valuation allowance against deferred tax assets due to the unlikelihood of realizing future tax benefits - The company has not recorded income tax benefits for NOLs since May 2018 and maintains a full valuation allowance against all deferred tax assets[153] - No provision for income taxes was recorded for the three and six months ended June 30, 2025, and 2024[155] Results of Operations This section provides a detailed comparison of the company's financial results for the three and six months ended June 30, 2025, versus 2024, highlighting significant increases in operating expenses and net loss Comparison of the Three and Six Months Ended June 30, 2025 and 2024 Presents a tabular comparison of key financial metrics, showing a substantial increase in operating expenses and net loss for both the three and six months ended June 30, 2025, compared to the same periods in 2024 Comparison of the Three and Six Months Ended June 30, 2025 and 2024 | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | $ Change (3 Months) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | $ Change (6 Months) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------ | | Research and development | $5,118 | $1,442 | $3,676 | $9,192 | $2,426 | $6,766 | | General and administrative | $4,132 | $1,466 | $2,666 | $7,929 | $2,241 | $5,688 | | Total operating expenses | $9,250 | $2,908 | $6,342 | $17,121 | $4,667 | $12,454 | | Operating loss | $(9,250) | $(2,908) | $(6,342) | $(17,121) | $(4,667) | $(12,454) | | Net loss | $(9,471) | $(4,172) | $(5,299) | $(17,656) | $(6,708) | $(10,948) | Research and Development Expenses R&D expenses significantly increased for both the three and six months ended June 30, 2025, compared to 2024 Research and Development Expenses | R&D Category | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | $ Change (3 Months) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | $ Change (6 Months) | | :------------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------ | | QTORIN rapamycin for microcystic LM | $1,235 | $422 | $813 | $2,389 | $425 | $1,964 | | QTORIN rapamycin for cutaneous VM | $354 | $0 | $354 | $700 | $0 | $700 | | QTORIN rapamycin CMC | $1,517 | $40 | $1,477 | $2,289 | $153 | $2,136 | | Salaries and stock-based compensation | $1,501 | $704 | $797 | $2,823 | $1,351 | $1,472 | | Total research and development expenses | $5,118 | $1,442 | $3,676 | $9,192 | $2,426 | $6,766 | - The increase in R&D expenses was primarily due to increased spending on clinical development for QTORIN rapamycin (microcystic LMs and cutaneous VMs), including the Phase 3 SELVA and Phase 2 TOIVA trials, which were initiated in 2024[157] - Additional increases were attributed to CMC costs for all programs and higher compensation costs due to headcount additions in late 2024 and early 2025[157] General and Administrative Expenses General and administrative expenses significantly increased for both the three and six months ended June 30, 2025, compared to 2024 General and Administrative Expenses | G&A Category | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total general and administrative | $4,132 | $1,466 | $7,929 | $2,241 | - The increase in G&A expenses was primarily driven by increased employee compensation due to headcount additions and higher professional services costs related to operating as a publicly-traded company[159] Total Other (Expense) Income Total other (expense) income, net, decreased from $1,300 thousand expense in Q2 2024 to $200 thousand expense in Q2 2025, and from $2,000 thousand expense in H1 2024 to $500 thousand expense in H1 2025 Total Other (Expense) Income | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total other (expense) income, net | $(201) | $(1,304) | $(535) | $(1,982) | - Total other (expense) income, net, decreased from $1,300 thousand expense in Q2 2024 to $200 thousand expense in Q2 2025, and from $2,000 thousand expense in H1 2024 to $500 thousand expense in H1 2025[160] Interest expense – royalty agreement Interest expense related to the royalty agreement increased to $1,400 thousand for the three months and $2,600 thousand for the six months ended June 30, 2025, compared to $900 thousand and $1,700 thousand respectively in 2024, reflecting changes in the fair value of the royalty agreement liability Interest expense – royalty agreement | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Interest expense – royalty agreement | $(1,354) | $(942) | $(2,569) | $(1,747) | - Interest expense related to the royalty agreement increased by $400 thousand for the three months and $800 thousand for the six months ended June 30, 2025, compared to the prior year, due to changes in the fair value of the royalty agreement liability[161] Fair value adjustments on derivative liabilities – royalty agreement The company recorded a non-cash loss on derivative liabilities of $100 thousand for the three months and $200 thousand for the six months ended June 30, 2025, which is a decrease compared to $300 thousand for both periods in 2024 Fair value adjustments on derivative liabilities – royalty agreement | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Fair value adjustments on derivative liabilities – royalty agreement | $(118) | $(271) | $(193) | $(329) | - Non-cash loss on derivative liabilities decreased from $300 thousand to $100 thousand for the three months and from $300 thousand to $200 thousand for the six months ended June 30, 2025, reflecting changes in the fair value of future milestone payment obligations[162] Interest income (expense), net The company recorded $700 thousand in net interest income for the three months and $1,400 thousand for the six months ended June 30, 2025, a significant increase from interest expense of $100 thousand and $0 respectively in 2024 Interest income (expense), net | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Interest income (expense), net | $690 | $(86) | $1,442 | $0 | - Interest income, net, increased significantly due to higher average balances held in interest-bearing cash and money market funds[163] Net Loss Applicable to Common Stockholders The net loss applicable to common stockholders increased to $9,500 thousand for the three months and $17,700 thousand for the six months ended June 30, 2025, compared to $4,400 thousand and $7,100 thousand respectively in 2024, driven by the factors discussed in the results of operations Net Loss Applicable to Common Stockholders | Metric | 3 Months Ended June 30, 2025 (in thousands) | 3 Months Ended June 30, 2024 (in thousands) | 6 Months Ended June 30, 2025 (in thousands) | 6 Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss attributable to common stockholders | $(9,471) | $(4,366) | $(17,656) | $(7,096) | - Net loss applicable to common stockholders increased significantly due to higher operating expenses, particularly R&D and G&A, as well as interest expenses[164] Liquidity and Capital Resources Discusses the company's funding sources, historical losses, current cash position, and future capital requirements Sources of Liquidity Since inception, the company has funded operations through the Ligand Agreement and debt/equity sales, incurring substantial losses - The company has incurred substantial losses since inception, funding operations primarily through the Ligand Agreement and sales of debt and equity securities[165] Sources of Liquidity | Metric | As of June 30, 2025 (in thousands) | | :------------------------------------ | :--------------------------------- | | Cash and cash equivalents | $70,433 | | Accumulated deficit | $(111,391) | - The company does not expect to generate commercial revenue or operating cash flows for at least the next several years and relies on existing cash and additional financing to fund operations and product development[166] PIPE Financing Details the PIPE Financing completed concurrently with the Merger Agreement on July 23, 2024 - The PIPE Financing, completed concurrently with the Merger Agreement, raised approximately $78,900 thousand[167] - This included $60,000 thousand in cash and the conversion of approximately $18,900 thousand of principal and interest from outstanding convertible notes[167] - Investors purchased 3,168,048 shares of common stock and 2,466,456 pre-funded warrants[167] Convertible Notes Legacy Palvella issued convertible notes totaling approximately $18,400 thousand between June and December 2024, accruing interest at SOFR plus 2.0% per annum - Legacy Palvella issued approximately $18,400 thousand in convertible notes between June and December 2024[168] - Upon the closing of the PIPE Financing, these notes and accrued interest converted into 1,179,163 shares of common stock and 168,503 prefunded warrants[168] Future Funding Requirements The company expects to incur increasing losses and requires additional capital beyond its current cash and cash equivalents, which are projected to fund operations into the second half of 2027 - The company expects increasing losses and believes existing cash and cash equivalents ($70,400 thousand as of June 30, 2025) will fund operations into the second half of 2027[169][171] - Future funding requirements are dependent on factors such as regulatory review, commercialization costs, scope of R&D programs, and intellectual property maintenance[173][175] - Raising additional capital may lead to substantial stockholder dilution or require relinquishing valuable rights through collaborations[172] Cash Flows Summarizes cash flow activities for the six months ended June 30, 2025, and 2024 Cash Flows | Metric | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(12,202) | $(2,705) | | Net cash (used in) provided by financing activities | $(853) | $9,892 | | Net (decrease) increase in cash and cash equivalents | $(13,169) | $7,187 | - Net cash used in operating activities increased significantly in H1 2025 due to greater R&D efforts and increased costs of operating as a public company[177] - Financing activities shifted from providing $9,900 thousand in H1 2024 (convertible notes) to using $900 thousand in H1 2025 (transaction costs for Reverse Merger)[178][179] Contractual Obligations and Commitments States that there were no material changes to contractual obligations and cash requirements during the six months ended June 30, 2025, outside the ordinary course of business, as previously disclosed in the 2024 Form 10-K - No material changes to contractual obligations and cash requirements occurred during the six months ended June 30, 2025, beyond those disclosed in the 2024 Form 10-K[180] Critical Accounting Policies and Significant Judgments and Estimates Reaffirms that the preparation of financial statements requires significant estimates and assumptions, particularly concerning R&D expenses, the Ligand Agreement (royalty and derivative liabilities), the CVR Agreement, stock-based compensation, and deferred income taxes - Financial statement preparation involves significant estimates and assumptions, especially for R&D expenses, Ligand Agreement liabilities, CVR liability, stock-based compensation, and deferred income taxes[181] - No material changes to critical accounting policies or estimation methodologies were made during the six months ended June 30, 2025[183] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Palvella Therapeutics, Inc. is not required to provide the information typically required under this item - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[184] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2025, concluding they were effective in ensuring material information is known and reported timely Disclosure Controls and Procedures The principal executive officer and principal financial officer evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, concluding they were effective in providing reasonable assurance that material information is known and reported within SEC specified time periods - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2025[185] - These controls are designed to ensure material information is known to officers and reported timely according to SEC rules[185] Changes in Internal Control over Financial Reporting No changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[186] Part II. Other Information This part covers other required disclosures, including legal proceedings, risk factors, unregistered sales of equity securities, defaults upon senior securities, mine safety disclosures, other information, and a list of exhibits Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings and is unaware of any pending or threatened legal proceedings that could adversely affect its business, operating results, or financial condition - The company is not currently a party to any material legal proceedings[188] - No pending or threatened legal proceedings are known that could adversely affect the business, operating results, or financial condition[188] Item 1A. Risk Factors Investing in the company's securities involves a high degree of risk - Investing in the company's securities involves a high degree of risk[189] - There have been no material changes in risk factors from those disclosed in the 2024 Form 10-K[190] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchase of Equity Securities This item reports that there were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities during the period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities occurred during the reporting period[191] Item 3. Defaults Upon Senior Securities This item reports that there were no defaults upon senior securities during the period - There were no defaults upon senior securities during the reporting period[192] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[193] Item 5. Other Information This item reports that no directors or officers adopted or terminated a Rule 10b5-1 trading plan or arrangement or a non-Rule 10b5-1 trading plan or arrangement during the period covered by this report - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading plan during the reporting period[194] Item 6. Exhibits Provides an index of exhibits filed as part of this Quarterly Report on Form 10-Q, including offer letters, severance agreements, certifications, and XBRL documents - The report includes an Exhibit Index listing various documents filed, such as offer letters, severance agreements, and certifications[195][197] Signatures This section contains the required signatures of the Registrant's authorized officers, specifically the President, Chief Executive Officer, and Director, and the Chief Financial Officer and Treasurer, certifying the report on August 14, 2025 - The report is signed by Wesley H. Kaupinen (President, CEO, and Director) and Matthew E. Korenberg (CFO and Treasurer) on August 14, 2025[203]