Palvella Therapeutics - Earnings Call - Q4 2024

Executive Summary

• Palvella reported full-year 2024 results and its first public earnings call after closing a December 2024 reverse merger and concurrent $78.9M private placement, ending 2024 with $83.6M cash and runway into 2H 2027.
• R&D spend fell modestly YoY while G&A rose with the public company transition; FY24 net loss was $17.4M ($7.83/sh) vs FY23 net income of $17.9M (driven by other income in 2023).
• Pipeline execution on track: Phase 2 TOIVA (cutaneous VMs) topline in Q4 2025 and Phase 3 SELVA (microcystic LMs) topline in Q1 2026; management plans to unveil a third QTORIN rapamycin indication and a second QTORIN program in 2H 2025.
• 2025 operating framework introduced: YE25 cash ≥$55M, total 2025 cash spend ~$30M (R&D $18–20M; G&A $10–12M), supporting key readouts and pre-commercial build; lack of quarterly revenue/EPS and limited Street coverage means stock moves will hinge on clinical milestones and financing outlook.

What Went Well and What Went Wrong

What Went Well

• Clinical execution: first patients dosed in Phase 3 SELVA (Nov 2024) and Phase 2 TOIVA (Jan 2025); 13 SELVA sites activated; timelines reiterated (TOIVA Q4’25, SELVA Q1’26).
• Strengthened balance sheet: closed $78.9M private placement alongside the merger; YE24 cash $83.6M; runway into 2H 2027; 2025 YE cash ≥$55M outlook.
• Regulatory momentum and validation: Breakthrough Therapy, Orphan, and Fast Track designations for QTORIN rapamycin in microcystic LMs; Fast Track for venous malformations; awarded FDA Orphan Products Grant (up to $2.6M) for Phase 3 SELVA—only Phase 3 program funded among seven FY2024 recipients.

Notable quotes:

• “Our strategy at Palvella is to be first… We believe tremendous value can and will be created by… changing that treatment paradigm from zero to one.”
• “We expect to end the year with at least $55,000,000 in cash… During the year, we expect to see approximately $30,000,000 in total cash spend.”

What Went Wrong

• Limited financial granularity by quarter: No Q4’24 revenue/EPS detail in the press release (company reported full-year only); consensus estimates for Q4’24 were unavailable (GetEstimates: Q4 2024 returned no data).
• G&A expense increased to support public company transition (FY24 $5.9M vs $3.1M), pressuring operating loss amid lack of product revenue.
• Development risk remains: pivotal SELVA is single-arm/baseline-controlled; while supported by Phase 2 data and FDA alignment, statistical and clinical meaningfulness must still be demonstrated for approval and payer adoption.

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by and welcome to Palvella's full-year 2024 financials and corporate update call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like now to turn the conference over to Bohan Wei, Vice President of Corporate Development. Please go ahead.

Speaker 8

Thanks, Operator. Good morning. My name is Bohan Wei, and I'm the Vice President of Corporate Development for Palvella Therapeutics. I joined Palvella in December of last year after ten years at Centerview Partners and Cowen, and I'm excited to help bring ketoran rapamycin to market and continue to build our rare disease pipeline. I'm pleased to kick off Palvella's first earnings call and would like to first extend our thanks to everyone for joining today's call. On today's call, we are joined by several members of the Palvella senior executive team, including Wes Kaupinen, our Founder and Chief Executive Officer, Dr. Jeff Martini, our Chief Scientific Officer, and Matt Korenberg, Palvella's Chief Financial Officer. As a reminder, the press release issued earlier today can be found under the investors' page of the Palvella website at www.palvellatx.com.

I would like to remind you that we will be making certain forward-looking statements today. These may include statements regarding, among other things, the timing and expectations of research and development plans, regulatory plans, our plans to present or report additional data, and our financial resources and cash runway. These forward-looking statements are based on current information, assumptions, and expectations that are subject to change and involve risks and uncertainties that may cause the actual results to differ materially from those contained in the forward-looking statements. These and other risk factors can be found in our most recent periodic report filed with the SEC. Now, I would like to turn the call over to Wes.

Speaker 1

Thanks, Bohan. Good morning, and thank you all for joining Palvella's first earnings call as a publicly traded company. I'd like to begin this morning's call by sharing Palvella's mission, strategy, and vision, which together are the foundation upon which we are building an enduring rare disease biopharmaceutical company that we believe will become the leader in developing and commercializing novel therapies for serious rare genetic skin diseases. Palvella in Finnish means to serve, and our mission is to relentlessly serve patients suffering from serious rare diseases with no FDA-approved therapies. We are accomplishing this mission through the development and commercialization of novel therapies, which we believe will have a transformational impact on patients' lives. Our strategy at Palvella is to be first, first with an approved therapy in a serious rare disease that previously lacked a single approved treatment.

We believe tremendous value can and will be created by identifying a rare disease with no treatments and changing that treatment paradigm from zero to one. We firmly believe this strategy can create outsized concurrent value for both patients and also for our shareholders. Our vision at Palvella is to build the leader in this area of rare genetic skin diseases. It is estimated that there are 597 rare skin diseases, many of those genetically based, and unfortunately, only 2% of these diseases have an FDA-approved therapy. Therefore, we believe rare skin diseases are an unambiguously high-on-met-need and also low-competitive intensity corridor of the orphan universe, dynamics which are ideally suited for the Palvella team to build an enduring leader in the space.

With strong support from both new and existing investors, including our lead investors, BVF Partners, and Frazier Life Sciences, we closed a $78.9 million PIPE financing while debuting as a public company in December 2024. What sets Palvella apart begins with our strategy. We want to be first, first in disease by identifying serious rare genetic skin diseases that currently do not have a single FDA-approved therapy and delivering transformational impact for patients by developing and commercializing that first-approved therapy. I'm honored to lead a team that has deep experience in rare disease drug development, including my own experience in Insmed, helping to bring therapies to patients with rare lung diseases that previously had no FDA-approved treatments. Since founding, we've executed our business model with great capital efficiency. Our aim has been to mitigate risk and do so with small quantums of capital.

That's our commitment to our shareholders in the years to come: continue to be highly capital-efficient in our development and commercialization efforts. We now have both a compelling late-stage pipeline and a platform for reproducibly producing novel topical product candidates, which is called ketoran. The highlight of our late-stage pipeline is our lead product candidate, QTORIN 3.9% rapamycin anhydrous gel, which we refer to as QTORIN rapamycin. We're advancing QTORIN rapamycin for microcystic lymphatic malformations, where we've been granted FDA's breakthrough therapy designation, and also for cutaneous venous malformations. Both are serious rare and chronically debilitating genetic diseases for which there are no FDA-approved therapies, and importantly, both diseases are driven by the mammalian target of rapamycin, or mTOR pathway.

If approved, we believe, based on market research, that ketoran rapamycin has the potential to be first-line therapy and standard of care for patients with microcystic lymphatic malformations and cutaneous venous malformations. We will now move to our lead product candidate, ketoran 3.9% rapamycin anhydrous gel. The mTOR pathway has been shown through scientific work by academics and geneticists to be a key driver for many genetic skin diseases. Over 200 published papers exist describing the clinical and commercial potential of inhibiting the mTOR pathway across a multitude of skin diseases. While this broad potential exists, what has been elusive for the scientific and clinical communities is a commercially viable, FDA-approved topical formulation.

Attempts to properly develop topical mTOR inhibitors such as rapamycin and topical PI3K inhibitors for the treatment of microcystic lymphatic malformations and venous malformations have been unsuccessful, relegating the field to off-label oral rapamycin, which comes with unwanted immunosuppression, a host of off-target toxicities that are unacceptable, especially for pediatric populations, and limited efficacy for skin diseases due to rapamycin's poor skin biodistribution. The field is relegated to unproven and unapproved compounded formulations, which are typically formulated at low rapamycin concentrations between 0.1% and 1%. Those formulations lack the reliable quality, efficacy, and most of all, safety characteristics that patients and physicians deserve. We believe we have overcome the challenges of unlocking rapamycin's potential in rare genetic skin diseases with our breakthrough innovation, ketoran rapamycin.

Ketoran rapamycin is the result of more than a two-year innovation process in which we evaluated more than 80 prototypes with leading experts in topical formulation science from the U.S. and Europe. Several of our key innovations on ketoran rapamycin are listed on this slide. First, we discovered a co-solvent system that allows for synergistic solubility of rapamycin, a highly insoluble molecule enabling a 3.9% rapamycin concentration. Ketoran rapamycin's 3.9% drug concentration, we believe, could, number one, lead to a fast onset of therapeutic activity for patients with chronically debilitating skin diseases, and number two, result in more predictable efficacy and a more dramatic therapeutic impact on their diseases. Second, we have been able to demonstrate pre-clinically that ketoran rapamycin delivers rapamycin into the dermis, the lower layer of the skin, and the site of disease origin for many of the diseases that we target.

The rapamycin levels that we've shown pre-clinically exceed the IC90 for mTOR inhibition, indicating the potential for therapeutic activity at the site of disease pathology. Third, we developed a formulation that has no traditional penetration enhancers, which we believe lends itself to having a patient-friendly, tolerable profile. Furthermore, multiple clinical studies have shown that ketoran rapamycin results in limited systemic absorption, which we believe indicates retention of rapamycin in the skin without absorption levels that trigger unwanted immunosuppression and toxicities. We're now pleased to have six issued or pending patents in the United States with claims until at least 2038. It's a very exciting next four quarters at Palvella, highlighted by what we expect to be our top-line phase 3 data in microcystic lymphatic malformations.

We now have 13 clinical sites open and recruiting patients in our phase three syllabus study, and we're pleased to confirm the study is on track to read out top-line results in Q1 2026. Furthermore, later this year in Q4 of 2025, we also expect to announce top-line results from our phase two study of ketoran rapamycin in cutaneous venous malformations. Furthermore, as highlighted earlier, we truly believe ketoran rapamycin is a pipeline and a product with clinical and commercial potential that extends well beyond microcystic lymphatic malformations and cutaneous venous malformations. We expect to unveil our third target indication for ketoran rapamycin later this year, and we also anticipate unveiling our next ketoran program in the second half of this year. We'll now move to our lead indication, microcystic lymphatic malformations. Microcystic lymphatic malformations are a serious rare chronically debilitating and lifelong genetic disease.

We estimate that the disease impacts more than 30,000 diagnosed patients in the United States. The genetics, disease biology, target skin tissue, and natural history of microcystic lymphatic malformations have all been well characterized. Genetically, they're caused by PI3K mutations. Biologically, the PI3K mutation results in hyperactivation of the mTOR pathway, which ultimately produces malformed vessels that protrude through the skin. The target skin tissue is the dermis, which is the site of disease origin in microcystic lymphatic malformations. From a natural history perspective, the disease is present at birth, has no spontaneous progression, and is proliferative and progressive. The major clinical burden to these patients is referred to as lymphuria, which is the leaking or discharge of internal lymphatic fluid onto the skin or into the soft tissues.

The result of lymphuria is that these patients are at persistent risk of serious infections, including acute cellulitis, which can cause repeated hospitalizations. In addition, bleeding can also cause significant disease morbidity for these patients. Moving to the current treatment paradigm, first, there's no FDA-approved therapies. Attempts to treat the disease, therefore, have typically been through highly invasive approaches such as surgery, sclerotherapy, which involves repeated injections of chemotherapeutic agents such as bleomycin, and laser therapy. These invasive approaches are destructive to the patient's skin and are characterized by a lack of durable efficacy due to the known high disease recurrence rates, which stem from the genetic basis of the disease.

More recently, since the discovery of the genetic basis of lymphatic malformations around 2015, which recognized the central role of the mTOR pathway and microcystic LMs, there's been use of off-label oral and topical mTOR inhibitors, an incremental move towards targeted molecular inhibitors, albeit with major limitations. Moving to our phase three study of ketoran rapamycin for microcystic lymphatic malformations. I'm pleased to share, thanks to the dedicated efforts of our phase three investigators and the research coordinators at clinical trial sites, our passionate patient advocacy collaborators, the highly committed Palvella Clinical Operations Team, and most of all, the patients living with microcystic lymphatic malformations who have enrolled in this landmark study, that the phase three study is on track to read out top-line data on 40 patients in Q1 of 2026. In terms of study leadership, the principal investigator is Dr. Joyce Teng from Stanford. Dr.

Teng is a true champion for patients with serious rare genetic skin diseases. In addition to microcystic lymphatic malformations, she has worked tirelessly to advance therapies for patients with other rare diseases such as epidermolysis bullosa and erythropoietic protoporphyria, or EPP. We've had the pleasure of working closely with Dr. Teng for many years, and we're honored to have her leading this study. Stanford is joined by an additional 12 sites listed on the slide, all of whom are active and all of whom are recruiting patients. From a study design perspective, we designed our phase three study after extensive interactions with our key opinion leaders, such as Dr. Jim Treat, a pediatric dermatologist at Children's Hospital of Philadelphia, and Dr.

Mike Kelly, a pediatric hematologist-oncologist at Cleveland Clinic, as well as collaborative interactions with the FDA's Division of Dermatology and Dentistry, including our type B meeting after the agency granted breakthrough therapy designation to ketoran rapamycin. Overall, the design of the phase three study mimics our phase two study. The phase three is a single-arm, baseline-controlled study with a clinician-reported dynamic change scale as the primary endpoint and a sample size of 40 patients. We believe a baseline-controlled design is an appropriate and a reliable trial design in microcystic lymphatic malformations since the natural history of microcystic LMs is well documented to have no spontaneous regression of their disease. The primary endpoint for the phase three study is the microcystic lymphatic malformation investigator global assessment, a seven-point change scale, which has many similarities with the clinician global of impression change instrument that was used in our phase two study.

We expect top-line data from this study in the first quarter of 2026. Our phase three syllabus trial on microcystic LMs builds upon our compelling phase two data, the results of which led to FDA's granting of breakthrough therapy designation. The study design was a phase two open-label baseline-controlled study over 12 weeks with a sample size of 12 patients. Importantly, the results from that study showed clinically and statistically significant improvements on pre-specified global and individual endpoints, some of which we'll review here. Beginning with the clinician global impression of change, this is a single-item question that the physician completes in clinic where they're comparing the patient's lesion severity at the end of the treatment period to baseline.

As you can see from the data under the clinician global impression of change at week 12, ketoran rapamycin's average effect size on the scale, which goes from negative three, very much worse, to plus three, very much improved, was 2.42. All 12 patients in the study on the scale were either a plus two or a plus three, so either much improved or very much improved. Importantly, a similar result was seen on the patient global impression of change, where at week four, week eight, and week 12, statistically significant results were achieved with the average patient at just above a two or much improved. We also evaluated individual signs of microcystic lymphatic malformations in the phase two study. The results are listed on the right side of the slide and were also statistically significant.

We've included here some of the photography results from the trial, which illustrate the patient's lesions at baseline and then the patient's lesions at the end of treatment after 12 weeks of ketoran rapamycin. As seen on the slides, when compared to baseline at week 12, patients improved in terms of the height of the lesion on the skin and the presence of bleeding, while also demonstrating a reduction in the presence of microcysts or the vesicles on the skin at week 12. Overall, exciting phase two results that strongly encourage the advancement of ketoran rapamycin into a pivotal phase three study. We were excited to press release earlier this year that our phase two data has been published in the Journal of Vascular Anomalies, or JOVA, which is the official journal of the International Society for the Study of Vascular Anomalies.

The phase two publication highlighted the remarkable visual improvement observed in the phase two study as a result of ketoran rapamycin treatment, as well as noting a robust clinical response that was statistically significant across a variety of clinician and patient endpoints. In our phase two study, we also prospectively implemented patient qualitative interviews aimed at capturing the voice of the patient. This is an emerging technique used in many rare disease studies to capture clinical meaningfulness of a potential treatment effect. This involved conducting qualitative interviews with patients before they initiated treatment and also at the end of the study after 12 weeks of treatment. The JOVA publication highlights that these patient interviews confirmed the positive results from the phase two study. Preparations are underway for an NDA submission in 2026 following a successful phase three study result.

From a regulatory strategy perspective, we intend to leverage the 505(b)(2) pathway for our NDA submission, which can represent a streamlined drug review process, enabling us to incorporate existing data on rapamycin into our NDA submission while avoiding unnecessary duplication of certain studies that have already been performed on the drug. In addition to 505(b)(2), we intend to leverage the large-growing real-world evidence base indicating rapamycin's therapeutic activity in lymphatic malformations, which should augment the clinical data from our prospective phase three and phase two studies. Our NDA submission will be supported by the designations you see listed here: breakthrough therapy, fast track, and orphan drug designations. As a function of breakthrough therapy and fast track designations, we should be in a position to execute a rolling NDA submission, and we will also be eligible for an expedited six-month priority NDA review.

In addition to the financial support from the institutional investors from our PIPE financing last December, we're pleased to have the FDA financially supporting the phase three syllabus study through a non-dilutive FDA orphan product grant of up to $2.6 million. As background, the FDA orphan product grant program is administered by FDA's Office of Orphan Products Development. Annually, they award non-dilutive grants, typically to programs that are in serious rare diseases with either no approved therapies or inadequate therapies where there's been a high level of scientific and technical merit demonstrated to a particular therapeutic approach. Last year, there were 51 applicants for the FDA orphan drug grant program and only seven recipients. We were one of the seven recipients and notably, we're the only phase three study that the FDA is supporting.

On the slide here is an article from Hyman Phelps and McNamara, a leading FDA law firm that contextualizes the grant program while noting that these grants likely represent a meaningful degree of alignment with the FDA review division on a particular program and trial. Palvella's commercial planning is well underway for microcystic lymphatic malformations based on multiple methodologies, including primary prospective research published in the Orphanet Journal of Rare Diseases, as well as a claims analysis we recently conducted in partnership with Trinity Life Sciences. We estimate that there are more than 30,000 diagnosed patients in the United States afflicted with microcystic lymphatic malformations.

For 2025, we have additional claims analysis work ongoing, which will help elucidate, number one, the estimated annual incidence of microcystic lymphatic malformations, or commercially speaking, the number of new patients annually coming into the addressable pool of patients that could be treated with ketoran rapamycin. Number two, the concentration of microcystic lymphatic malformation patients in established centers of excellence, sometimes referred to as vascular anomaly centers. We look forward to sharing the results of this ongoing work later this year. Continuing with the theme of market research, we're encouraged by the results from the market research we conducted in 2024 with 52 high-volume treaters of microcystic lymphatic malformations. We presented those physicians with the product profile of a topical 3.9% rapamycin gel. 98% of physicians surveyed indicated they'd incorporate such a product into their clinical practice.

98% would consider topical 3.9% rapamycin gel as first-line therapy, and 96% saw advantages to a targeted topical rapamycin intervention when compared to orally administered mTOR PI3K inhibitors. Overall, this research confirmed ketoran rapamycin's potential to be first-line standard of care therapy for microcystic lymphatic malformations. Our plan, if successful in our phase three trial, is to commercialize ketoran rapamycin on a standalone basis in the US. We believe there are favorable commercial dynamics that will allow Palvella to execute a successful US launch in line with other rare disease companies who have launched first and only approved therapies in serious rare diseases. At launch, we plan to focus our efforts on the established centers of excellence, referred to as vascular anomaly centers, which today diagnose and treat microcystic lymphatic malformations and other vascular malformations.

Specifically, over the last 15 years, there's been approximately 150 of these vascular anomaly centers that have been formed, and they're usually associated with pediatric hospitals. We believe these vascular anomaly centers are a logical point of focus for our sales, marketing, and medical affairs efforts after FDA approval, since a meaningful percentage of patients with microcystic lymphatic malformations are diagnosed and treated at these centers. Furthermore, patients with cutaneous venous malformations are also oftentimes diagnosed and treated at these vascular anomaly centers. Overall, we see strong synergy from a commercialization perspective as we think about adding cutaneous venous malformations as our second indication for ketoran rapamycin. With that, it's my pleasure to turn it over to Dr. Jeff Martini, our Chief Scientific Officer, to provide an overview of our second indication for ketoran rapamycin, cutaneous venous malformations. Jeff?

Speaker 0

Thank you, Wes. Good morning, everyone. I'm Jeff Martini, Chief Scientific Officer. I have a passion for rare disease drug development, and I joined Palvella in 2020 to execute on what I saw as an attractive opportunity to bring transformative treatments to patients with rare skin diseases. This has been a neglected corridor of orphan drug development, and we are building the leader in this space while bringing therapies to these deserving patients. Our second clinical program for ketoran rapamycin is in cutaneous venous malformations, another serious rare genetic disease with no FDA-approved therapies. Similar to microcystic lymphatic malformations, cutaneous venous malformations disease pathology is driven by the mTOR pathway caused by mutations in either TIE2 or PIK3CA, which leads to overactivated mTOR signaling. Cutaneous venous malformations are characterized by dysregulated growth of malformed veins in the skin, which can bleed and cause functional impairment.

Because of the genetic driver of this disease, cutaneous venous malformations continue to grow over time and do not spontaneously regress. From a prevalence perspective, venous malformations are the most common vascular malformation and represent a more prevalent disease when compared to microcystic lymphatic malformations. We estimate, based on published epidemiology work and prospective work conducted with Clarity Pharma, that there are greater than 75,000 diagnosed patients in the United States living with venous malformations. There is a significant amount of real-world evidence supporting the use of rapamycin in treating venous malformations, including over 20 published studies or case reports. Most of this data is from systemic rapamycin for internally located venous malformations.

In the publication shown here on the slide, the authors refer to rapamycin as the gold standard for this disease, but also note the unmet need in treating specifically the cutaneous presentation, which is often not addressed with systemic therapy. In April of last year, we were pleased that the FDA granted us fast track designation for ketoran rapamycin for venous malformations. I want to spend a few minutes on our scientific rationale. In our phase two study in cutaneous venous malformations, we're including both TIE2 and PIK3CA mutations. Starting at the far left of the slide, from a mechanistic standpoint, somatic overactivating mutations in both of these genes result in increased mTOR activity and ultimately venous endothelial cell proliferation. The breakdown between mutations is roughly 70% caused by TIE2 mutations and the remaining by PIK3CA mutations. In an excellent review by Dr.

Emmanuel Serran and colleagues, with which we adopted the mechanism graphic here, he nicely highlights how mutations in TIE2 lead to ligand-independent activation of the PI3K mTOR pathway, and they further recommend rapamycin as first-line treatment for venous malformations caused by both mutations. Moving to the center panel, a preclinical study conducted by Dr. Elisa Boscola in 2015 demonstrated how rapamycin reduced venous malformation growth and restored normal vascular tissue in a venous malformation mouse model with TIE2 mutations compared to controls. Finally, on the right-hand side of the slide, data from Dr. Serran in 2023 from the largest human clinical study we are aware of with systemic rapamycin for the treatment of venous malformations demonstrated that a sustained benefit was observed in 84% of TIE2 mutated and 83% of PIK3CA mutated patients, indicating a similar clinical response to rapamycin for both mutation types.

Earlier this quarter, we announced the first patient's dose in our phase two trial of ketoran rapamycin in cutaneous venous malformations, which we call TOIVA. For development of ketoran rapamycin for cutaneous venous malformations, we employed a similar drug development strategy to the approach we undertook for microcystic lymphatic malformations. First, this is a proof of concept study where we will be collecting safety and tolerability data along with efficacy data from numerous clinician and patient endpoints. Second, the study is a baseline controlled study since there is no spontaneous regression in this disease. Third, in terms of sample size, we anticipate approximately 15 patients. Fourth, dosing regimen will be once daily ketoran rapamycin. Finally, statistically, there is no formal hierarchy since it is a rare disease that has not been previously studied, and we are therefore looking to determine which efficacy endpoints are most appropriate for detecting a treatment effect.

Should this study be successful in terms of achieving a compelling safety and efficacy profile, we will be submitting a breakthrough therapy designation request to the FDA and urging they expedite ketoran rapamycin to patients in need. Finally, the envisioned submission plan would be a supplemental NDA or sNDA, assuming that ketoran rapamycin's original NDA is approved in microcystic lymphatic malformations. We expect top-line data from this study in the fourth quarter of this year. We are similarly encouraged by the results from the market research we conducted in 2024 with 50 dermatologists and hematologists who are high-volume treaters of microcystic lymphatic malformations and venous malformations. 86% of physicians surveyed would consider topical 3.9% rapamycin gel as first-line therapy. Overall, this research confirmed ketoran rapamycin's potential to be first-line standard of care for cutaneous venous malformations.

With that, I'll turn it over to Matt Korenberg, our Chief Financial Officer, to discuss our financial results and outlook.

Speaker 1

Thanks, Jeff. Good morning, everyone. I'm Matt Korenberg, the Chief Financial Officer at Palvella. I've known Palvella since 2018 when, as a senior executive at Ligand Pharmaceuticals, I helped finance some of the early work on ketoran rapamycin. At Ligand, I had, excuse me, a broad view into many novel drugs under development, particularly in the orphan space. I was compelled to join Palvella full-time and help shape the successful approval and commercialization of ketoran rapamycin while simultaneously leveraging the strengths of the Palvella R&D team to build a broader pipeline of rare disease programs aimed at treating diseases with no FDA-approved therapies. Palvella is in a strong financial position, allowing us to execute on our R&D and commercial strategies with confidence. Cash and cash equivalents as of December 31, 2024, were $83.6 million.

Following the reverse merger and oversubscribed PIPE financing led by BVF Partners and Frazier Life Sciences, we believe we have a clear cash runway into the second half of 2027. Our funding covers our major upcoming milestones, including the completion of our phase three microcystic LM trial, completion of our phase two cutaneous venous malformations trial, submission of the microcystic LM NDA filing to the FDA, and pre-commercialization efforts, as well as the addition of two new programs to the pipeline. As presented in our press release this morning, I'll briefly review our financial activities and results for the full year 2024. Research and development expenses were $8.2 million for the full year 2024, as compared to $8.8 million for the comparable period in 2023. General and administrative expenses were $5.9 million for the full year 2024, as compared to $3.1 million for the comparable period in 2023.

Our net loss was $17.4 million, or $7.83 per diluted share for the full year 2024, compared to net income of $17.9 million, or $2.17 per diluted share for the comparable period in 2023. Finally, looking forward to 2025, we expect to end the year with at least $55 million in cash and cash equivalents based on the current strategic operating plan. During the year, we expect to see approximately $30 million in total cash spend. Given the significant increase in our clinical activity in 2025 as compared to 2024, we expect the R&D portion of the spend to be $18-$20 million. As we grow our team and fully transition to a public company, we expect the G&A portion of the spend to increase as well, with the outlook for $10-$12 million in 2025.

With a clear strategic vision, a strong financial foundation, and a team experienced in bringing rare disease therapies to market, Palvella is well positioned for success. We thank you for your continued support, and we look forward to keeping you updated on our progress. With that, let's open the floor for Q&A. Operator, please go ahead.

Speaker 5

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. The first question comes from Josh Schimmer with Cantor Fitzgerald. Your line is now open.

Speaker 9

Great. Thanks for taking the questions and for the comprehensive overview. I guess first question, how do we think about quantifying the dose that each patient is getting as part of the ketoran rapamycin gel? I guess that would be measured as number of pumps per patient. Then how many pumps per tube do you expect ketoran rapamycin to be supplied in?

Speaker 1

Hey, Josh, thanks for the questions. We'll pass it over to Matt Korenberg, CFO, to address those questions.

Thanks, Josh. Josh, as you know well, ketoran rapamycin is delivered through our pump. Each pump is a single dose. We haven't given any specific guidance on exactly the size of our commercial product, but we expect that each patient will use one pump per day to cover roughly the surface area of the disease that they're treating. Eventually, we'll determine our pricing and dose ketoran pump size based on the final commercial product size.

Speaker 9

Okay, got it. Given the difference in clinical manifestation, how do we think about the difference, if any, in the primary endpoints between the cutaneous lymphocystic malformation or the MLM microcystic lymphatic malformation trial versus the cutaneous venous malformation trial?

Speaker 1

Great. Thanks, Josh, for the question. We'll pass that over to Jeff Martini.

Speaker 0

Yeah. Hey, Josh, this is Jeff. For the phase three ongoing trial, we have a dynamic seven-point change scale. It is conducted by live clinician assessment, evaluating the live lesion compared to the baseline photograph at end of treatment. That is for the phase three MLM trial. For phase two, we are looking at a number of different efficacy endpoints. Ultimately, what we are going to do is look at the data, see which endpoints move the most. We will look at the clinician and patient interviews and ultimately take that package of data to the FDA, and we will have a discussion with them about which is the right endpoint for cutaneous venous malformations.

Speaker 9

Okay. Thank you.

Speaker 5

Our next question will come from Ritu Barra with TD Cowen. Your line is open.

Speaker 3

Hi, this is Joshua Fleischman on the line for Ritu. Thanks for taking my question. How should we think about the new ketoran rapamycin indication and the new ketoran product announcement in the second half of this year? Should we expect for the candidate molecules to have similar pharmacological characteristics to rapamycin? Thank you.

Speaker 1

Yeah, Josh, thanks for those questions. As we've said consistently, we think ketoran rapamycin truly is a pipeline and a product that's certainly supported by the pioneering work by folks like Dr. Joyce Teng and others who have shown that mTOR is a key driver of many genetic skin diseases. We look forward in the second half of this year to unveiling that next ketoran rapamycin indication. There's a number of indications currently under evaluation. We typically gravitate to those indications that are serious, that are rare, and where there's currently no FDA-approved therapy. We're working through a number of different indications with our KOLs, our scientific partners doing commercial work in parallel, but you can expect to see us stay in that high unmet need corridor where we're unambiguously helping patients that today don't have therapies or have approaches that are inadequate in nature.

In terms of our next ketoran program, the way to think about that, Josh, and thanks for the question, is similarly, we really start with the disease, start with the end in mind. We look to identify diseases that are serious, rare, genetic, nothing approved. We strongly prefer those diseases that have well-characterized genetics, well-characterized biology. We think by doing so that that increases our probability of success. It is really linking the disease with a molecule that we can formulate with ketoran and bringing that targeted topical ketoran-enabled administration to patients with a serious, rare genetic skin disease.

Speaker 5

Our next question comes from Whitney Ijam with Canaccord. Your line is open.

Speaker 6

Hey, guys. Thanks for taking the question. Excuse me. First is a follow-up on the dosing question. Can you, I guess, remind us about lesion size and therefore dosing differences between MLM and CVM? And I guess, given you'll have that CVM data by the time you have the phase three data, to what extent might any differences there play into your pricing discussion in the MLM indication?

Speaker 1

Yeah. Hey, Whitney. Thanks for the question. Jeff will follow up.

Speaker 0

Yeah, Whitney. One actuation of the pump gives enough dose to cover approximately 200 cm sq. We like to refer to that as roughly the size of a human adult foot. For our clinical trials, we allow up to 400 cm sq in these trials. Most of the patients, we believe, fall into 200 cm sq, but we'll be looking at the data from our trials to look at the actual average size of these lesions.

Speaker 6

Got it. Okay. I guess another follow-up on the next ketoran rapamycin indication and then the next ketoran program in general. What is included in the current cash guidance as it relates to progress with those new programs?

Speaker 1

Yeah. Thanks, Whitney. Matt?

Yeah. Whitney, as I mentioned in my prepared remarks, we feel like we've got sufficient funding to add those two programs to the pipeline. What we see that is covering is identification of the disease as Wes covered, as well as formulation of the product for the new product. Obviously, ketoran rapamycin exists in the form we need it already. Designing and getting the trial started for each of those two different indications is next. Really just getting it in the clinic and ready to go for the clinic is kind of what's covered there.

Speaker 6

Perfect. Really helpful. Thanks so much.

Speaker 1

Thanks, Whitney.

Speaker 5

The next question comes from Annabelle Samimi with Stifel. Your line is open.

Speaker 4

Hi. Thanks for taking my question. I'm wondering if you can just help us understand the powering of the trial. What is required for statistical significance? More importantly, what is required for clinical meaningfulness? I'm thinking more in terms of payers to really capture that premium pricing that you're looking for in light of some off-label usage of rapamycin. Thank you.

Speaker 1

Yeah. Great, Annabelle. Thanks for those questions. From a payer perspective, to begin with your last comment, we do expect specialty pricing in line with other orphan therapies that are first in disease. We think there will be favorable payer and reimbursement dynamics because there are no FDA-approved therapies, and really, there are no alternatives for these patients. As the FDA has acknowledged, this is a serious, rare, and genetic lifelong disease. I'll answer the question in terms of clinical meaningfulness and then pass it over to Jeff to talk through statistical significance. From a regulatory perspective, there are no pre-specified thresholds for clinical meaningfulness. Really importantly, just as we did in the phase two study, we have implemented prospectively these patient qualitative interviews.

This is very rich data that we're able to capture in the study where patients are interviewed at baseline, and then they're interviewed at the end of treatment, which is week 24. That is data that will augment many of the statistical endpoints that we're capturing in the phase three. I wanted to make sure we address that there is no pre-specified clinical meaningful threshold from a regulatory perspective. Jeff will walk now through the phase two results on the CGIC, Clinician Global Impression of Change, which really informed our phase three powering, which is powered on that endpoint, which we call the microcystic lymphatic malformation IGA, which shares many similarities to the phase two CGIC. Jeff?

Speaker 0

Yeah. In the phase two study with 12 patients, all patients were either a plus two or plus three on the CGIC. Those are the two highest categories with an average of 2.42 points on that, of course, highly statistically significant. We use that data to power our phase three. The statistics there is a T-test comparing back to zero since each patient serves as their own control. Based on all 12 patients being a plus two or plus three with 40 patients, that gives us greater than 99% powered in our phase three study. We've also calculated what our minimum effect size to be statistically significant is. Based on a very conservative standard deviation, any change greater than about 0.5 on that scale should be statistically significant.

Speaker 6

Great. Thank you.

Speaker 1

Thanks, Annabelle.

Speaker 5

The next question comes from Luis Chen with Scotiabank. Your line is open.

Speaker 6

Hi. Congratulations on all the progress, and thanks for taking my questions. Just two quick commercial questions for you. If your products are approved, do you think physicians will test patients for the PI3K mutation or just treat patients with CVM and MLM? The second thing is just what type of support programs do you plan to have for your patients and physicians to help drive uptake and get coverage for ketoran rapamycin? Thank you.

Speaker 1

Yeah, Luis, thanks for those questions. On the first question, typically, microcystic lymphatic malformations and cutaneous venous malformations are diagnosed clinically, and they're done so without the need for a genetic test. I wanted to make sure to address that upfront, that these are clinical diagnoses. They typically do occur in these vascular anomaly centers, about 150 of those in the United States. In terms of your second question, I had the good fortune of working at Insmed on a pre-commercial basis on their launch on Arikayce. We want to make sure we take a very high-touch approach commercially to serving this patient community and serving the physicians. We intend to do so by enlisting specialty pharmacies with experience in rare diseases. We will also have a patient services hub, which we think is key to our successful commercial launch.

Most importantly, we are going to attract and recruit an exceptional leader with experience in launching rare diseases that have no approved therapies to help build this organization. We have a strong view here that success flows from attracting the right people. That is a key point of focus for us here in 2025.

Speaker 5

Our next question comes from Dev Prasad with Lucid Capital Markets. Your line is open.

Speaker 7

Hi. Thanks for taking our question and congrats on the progress. I have a question on CVM. You mentioned you will be looking at a number of endpoints in the phase two trial. What would be the bar in terms of different efficacy endpoints you will be looking at? What type of data will give you confidence to move into the next phase? Thank you.

Speaker 1

Yeah. Thanks for that question, Dev. In terms of our objectives for that study, it begins really with safety and tolerability. We'll be looking at systemic absorption of rapamycin in these patients. We'll be looking at a local tolerability profile. I think, as Jeff highlighted well earlier, this is a rare disease that has not been extensively studied by any biotech company. We are employing an approach that looks very similar to the approach we employed in microcystic lymphatic malformations. That involves designing a number of clinician and patient-reported endpoints, doing so in collaboration with key opinion leaders and experts in the disease, as well as the FDA. At the end of the study, understanding which of those endpoints is sensitive to detecting a treatment effect. I think once we have that data, top line will be Q4 of this year.

We'll go through a very thorough analysis of both safety and efficacy. Ultimately, I think what's going to determine moving into phase three is knowing that there's a primary endpoint that we can bring forward that's acceptable to the KOLs, that's acceptable to the FDA, and one in which it allows us to run a reasonably sized phase three study that's 90% powered. That's an analysis that we've undergone with microcystic LMs. We'll do so similarly with cutaneous VMs and excited to certainly have FDA's collaboration here as a function of the fast track designation that they granted us last April.

Speaker 7

Great. Thanks for the added coverage. Thank you.

Speaker 1

Thanks, Dev.

Speaker 5

The next question comes from Katherine Novak with Jones Trading. Your line is open.

Speaker 2

Hi. Good morning. Thanks for taking my questions. Just one more on cutaneous venous malformations in the phase two study. Do you anticipate breaking down efficacy by whether patients have PI3K or TIE2 activating mutations? Would this make any difference in your decisions for the target commercial patient population? Thanks.

Speaker 1

Yeah. Hey, Katherine. Thanks for the question. I'll respond first and then ask Jeff to chime in as well. We've seen, as Jeff highlighted earlier from studies from Dr. Serran and others in Europe, the use of systemic rapamycin primarily for internal venous malformations. In those studies, there has been a preliminary clinical benefit recognized across both the PI3K mutation as well as the TIE2 mutation. Jeff's slide shows how TIE2 does activate the mTOR pathway. Ultimately, our hypothesis is that ketoran rapamycin will be therapeutically active in both mutation types.

Speaker 0

Just to add to that, we'll be attempting to collect genetic data from these patients and then ultimately doing further analysis to see if there is any difference in response. We don't anticipate that based on the data that we went through today, but it's important that we do that analysis.

Speaker 2

Got it. Thinking about duration of treatment in microcystic LMs after FDA approval, do you anticipate this is something where patients are going to require chronic treatment or they treat it until remission and monitored for recurrence? Thanks.

Speaker 1

Yeah. Thanks, Katherine. In terms of treatment duration for microcystic lymphatic malformations, what we know from our understanding of the genetics and biology of the disease, as well as our extensive interactions with key opinion leaders, is that when therapy is withdrawn, it is very likely that the disease returns, including the clinical burdens highlighted earlier, like lymphuria, like bleeding. We do think, given the genetic basis of the disease, that there will be a chronic dosing regimen in microcystic lymphatic malformations.

Speaker 2

Got it. Thanks so much for taking my questions.

Speaker 1

Yeah. Thanks, Katherine.

Speaker 5

I show no further questions at this time. I would now like to turn the call back to Wes for closing remarks.

Speaker 1

Thank you, operator. In closing, I speak for the entire Palvella team when stating that we're energized to be a public company and to have the opportunity to execute on our mission, strategy, and vision. We would like to thank everyone for joining today's call, and we look forward to keeping you updated on Palvella's ongoing progress. Thank you.

Speaker 5

This concludes today's conference call. Thank you for participating. You may now disconnect.