All right, good afternoon, everyone, and welcome to the Palvella Therapeutics session. It's our pleasure to have CEO Wes Kaupinen presenting for us today. Thanks for coming. Palvella has certainly moved pretty rapidly from, I would say, a little-known name to probably one of the most broadly covered names in very rapid succession here. Your stock is up 500% +. That's kind of cool. For anyone who doesn't quite know the story, I'm going to let Wes give a quick overview, and then we'll go into Q&A.
Yeah.
Great. Thanks, Annabelle. We appreciate all the support you've provided Palvella since we went public and appreciate the support from the Stifel team. We're going to start with some forward-looking statements that I'll be making today. Please refer to our SEC filings for the risks associated with those statements. I'll begin with the name Palvella. Palvella in Finnish means to serve. The mission of our company is to serve patients that have serious rare skin diseases. We're going to do so through the development and upon potential regulatory approval, commercialization of therapies for those patients. Our strategy is to be first. We try to identify those diseases where there are no FDA-approved therapies and then develop the first approved therapies for those diseases.
We think by taking diseases that have no approved therapies and going from zero to one that we can deliver transformational impact for these patients with serious rare skin diseases. As Annabelle mentioned, we're a new publicly traded company, still in our infancy. We went public just under a year ago. Really, over the last several years, we have now positioned the company to be in a place where we've assembled the team, a late-stage pipeline, a platform, and the capital base to really build the enduring leader addressing this corridor of serious rare skin diseases. As I had founded the company and was looking for an area of the orphan universe to focus the company, I came across this corridor of rare skin diseases. It's been quantified that there's approximately 600 rare skin diseases. Over 98% of those do not have a single approved therapy.
This also happens to be a low competitive intensity corridor of the orphan universe. We think these dynamics of high unmet need, low competitive intensity really lend themselves to Palvella building the enduring leader addressing these rare skin diseases. Our team has worked for many years on each of the programs that you see listed here on this slide. Before I go into the details of this slide, I'll just note that each of these diseases currently has no FDA-approved therapies, and our goal is to deliver the first FDA-approved therapy for each of these diseases and also eventually be, upon potential regulatory approval, the first-line therapy and standard of care for these patients. Our lead product candidate, QTORIN rapamycin, that's our patented 3.9% anhydrous gel formulation of the drug rapamycin, which is a selective mTOR inhibitor. We view that product candidate as a pipeline and a product.
There are many potential diseases which we can pursue that researchers have shown to be mTOR-driven. Earlier this year, we announced the third potential indication, which is under panel number one here. That's called clinically significant angiocheratomas. These are a type of lymphatic malformation. They present superficially. These patients can have a whole host of clinical issues, including bleeding and pain. There are no FDA-approved therapies. We believe that recent biological breakthroughs have shown this disease to be mTOR and VEGF-driven, and therefore it's a great third application of QTORIN rapamycin. We announced that in September, credit to our R&D team who did a great job working with KOLs to really bring that indication into the Palvella pipeline. Just last week, we announced our second product candidate from QTORIN. QTORIN is our platform for reproducibly generating these novel topical product candidates. The disease you see pictured there is called porokeratosis.
We're going to focus our efforts with QTORIN pitavastatin, our second product candidate, on a subtype of that called disseminated superficial actinic porokeratosis. Serious rare disease, these patients can have burning, itching, stinging. These lesions can also have malignant transformation into cutaneous squamous cell carcinoma. More than 50,000 patients in the U.S. We're moving through the preclinical process and hope to dose our first patients in a phase II study in the second half of next year. Number three and four are our ongoing clinical programs. We have QTORIN rapamycin in a now fully enrolled, credit to our clinical operations team, phase II study for cutaneous venous malformations. This is a serious vascular disorder, genetically based. These patients have dysregulated veins that protrude through the skin, as you can see pictured from the slide here. No FDA-approved therapies.
Physicians are reliant upon invasive procedures such as laser, sometimes surgery, sclerotherapy to try to treat these lesions. Those are not durable approaches. There are high rates of recurrence. Over the past decade, it has been shown that the mTOR pathway is really driving the disease process. There has been some off-label use of systemic oral mTOR inhibitors for internal disease. Now, 26 published studies indicate clinical benefit of systemic rapamycin for internal disease. Where we are focused is with our QTORIN topical formulation to help patients with cutaneous venous malformations. This study will read out in mid-December next month. We have FDA's fast-track designation. If we do show an efficacy signal in this study, our plans would be to rapidly move this towards a phase III study that would be pivotal in nature and try to have this as a second indication for our drug.
Our lead indication is listed under number four. That's in a disease called microcystic lymphatic malformations. This is a serious rare genetic disease. The genetics and biology are well characterized. It's caused by a mutation in the PI3K pathway. mTOR is hyperactivated. That's what's causing these genetically malformed lymphatic vessels to protrude through the skin. Here, we're in a phase III study based on our phase II results. Our phase II results, we ran a single-arm baseline controlled phase II study of 12 patients on the clinician global impression of change, which is a clinician assessment assessing the lesion severity at week 12 compared to baseline. We had all 12 of our patients rated on a negative three to plus three scale as a plus two or plus three. That's much improved or very much improved.
Based on those results, the FDA granted us breakthrough therapy designation, and we also are the beneficiaries of an FDA orphan drug grant. FDA has stepped up with non-dilutive funding to support that study. If successful, microcystic LMs reading out next quarter, Q1 of 2026. We have plans already underway to file an NDA in the second half of next year. Really, that moment that the entire Palvella team is looking forward to would be that first approval for Palvella of QTORIN rapamycin and microcystic LM, which could be pending positive data and potential regulatory approval in the first half of 2027. Really exciting time for us. When we went public, we were really focused with one product candidate in two diseases. Now we have two product candidates. We've expanded into four diseases.
In all of these diseases, we have the opportunity to have the first FDA-approved therapy, really transformational for patients, transformational also for clinicians.
Great. Thank you for that overview. Just keeping a big picture to begin with, your development from compound identification to late-stage development is very rapid and very efficient. Can you talk about that and just how you select these indications and how you get from identification and proof of concept as quickly and efficiently as you do?
Sure. Part of the answer there is based on the QTORIN platform. We developed the platform over two-plus years. We went through 80-plus prototypes. When we bring new molecules into the platform because of the investment that we made early on, we think that we're able to take a lower-risk approach and a more expedited approach to having a finished drug product that can enter the clinic. That's one de-risking point from a time and capital perspective. The second de-risking point is we select diseases where there are no FDA-approved therapies. We focus on rare diseases, not ultra-rare diseases. If you look at going left to right on these indications, over 50,000 angiocheratoma patients, we estimate over 50,000 diagnosed DSAP patients, over 75,000 with CVM, over 30,000 with microcystic LM.
The reason I'm going through those numbers is our clinical operations team, working really closely with our clinician investigators, are able to enroll these studies relatively swiftly. We like these proof of concept studies in rare disease like we did for micro-LM. Twelve patients. We have sixteen patients in the cutaneous venous malformation study. There is that ability to potentially go from concept to having that finalized drug product to moving through a small phase II proof of concept study and doing so in around two and a half years.
How much, I guess, clinical validation do you have of the compound before you select it? What do you need to see before you choose an indication to take into development?
Yeah, great. I'll use an example of our most recently unveiled program, QTORIN pitavastatin for DSAP. There we worked really closely with Keith Choate. Keith is the Chair of Dermatology at Yale School of Medicine. He's a clinician scientist. What we had there was clear genetics via the due diligence that we did on the disease. Also, the causal pathway was elucidated by Keith. That's the mevalonate pathway. There had been some off-label use of unapproved topical statins that had shown some clinical benefit, again, sort of setting the foundation for a company to step in and properly develop an FDA-approved therapy. We do like these diseases where there is some real-world evidence.
If it is from off-label use, it gives us not only a strong sort of scientific preclinical biological rationale, but there can also be sort of early proof of principle that increases our confidence level that we will be able to formulate our drug and then run it in a phase II study and show really transformational impact by having that QTORIN formulation for these patients.
These are all known APIs, so it's all 505(b)(2) pathways. I guess that's part of the expedited path through development.
Yes. To date, we have selected known APIs. That's accurate. All of our programs we think will be eligible for the 505(b)(2) pathway. We've certainly looked at molecules that are novel molecules with the platform as well. Our corporate strategy and our platform is not just limited to those molecules that are 505(b)(2) eligible, but I think it gets to the core of your question, which is the 505(b)(2) pathway can result in a streamlined process for moving drugs through the development process.
Is your intention to stick with that known API moving forward, or do you get here to some kind of critical mass and then you start looking at more novel compounds with QTORIN?
Yeah, I think it's more the latter, Annabelle, which is early on in the history of the company we have focused on these 505(b)(2) molecules, but I think you'll see that natural progression over time to focusing on novel compounds.
Okay. So let's focus on the lead program for a minute since we can talk big picture for a long time, but the most interesting thing is obviously you've got pivotal data coming out in the first quarter of 2026. Obviously, you had very impressive results in phase II. Can you talk about the phase III design, how it compared to phase II and whether you can replicate the phase II results? Because if you don't know already, they had a 100% response rate, and that's unusual. So why don't you tell us what you think you can do for phase III?
Yeah, great. Why don't I just show the phase II results? This was a single-arm baseline controlled study of 12 patients. We were honored to work with several of the leading key opinion leaders in this area of microcystic lymphatic malformations. What we showed in phase II, some of the data is on the slide here, focusing on the clinician global impression of change. That is a single-item question where at week 12, the clinician is scoring lesion severity at week 12 compared to day zero. And they're doing so on a numeric rating scale that goes from negative three, very much worse, to plus three, very much improved. What we showed in phase II was that all patients, all 12 patients, were either plus two or plus three on this scale. When we submitted that data to the FDA, they were able to grant us breakthrough therapy designation.
You can see some of the pictures here that we've included in the corporate presentation. This is a patient where at baseline, very significant height of their lesion, bleeding. You can see the cysts or vesicles. By week 12, the height has regressed. There has been improvement in bleeding and certainly improvement in the appearance of the cysts or vesicles on the skin. Similar result here for a second patient by week 12, after 12 weeks of dosing with QTORIN rapamycin. You can see very little residual disease, some hyperpigmentation, but very little active disease. I will come back to the safety data, but our goal after such a positive phase II result was to have the phase III study mimic the phase II study. We think we have been able to accomplish that. Just some similarities between the phase II and phase III. Both studies are single-arm, number one.
Two, they're both baseline controlled. Three, it's a QD dose. Our primary endpoint is very similar to the CGIC. We've renamed it the microcystic lymphatic malformation IGA or Investigator Global Assessment, but it has the same numeric rating scale that goes from negative three to plus three. That's really the goal from a drug development perspective. When you see a strong phase II result, you want to try to preserve some of those design elements in phase III. We think we've been able to accomplish that. The study is now fully enrolled. Target sample size, 40 patients. We ended up enrolling 51 patients, and we'll have data next quarter.
Okay, great. This is a single-arm study. With everything that's going on with the FDA, what gives you comfort that they're still going to stand by their guidelines or whatever guidelines they gave you and not do a little bait and switch on you like they're doing on some others?
Yes. Yeah, that's a very important question. I'll have the slide here, which shows our regulatory status. I'll go first to the top right of the slide. We have been the recipient of an FDA orphan drug grant. This is a program that's managed by the FDA's Office of Orphan Products Development. The FDA has a pool of capital, about $10 million-$15 million per year. They award these non-dilutive grants typically to companies that are developing drugs in rare diseases where there's no approved therapies or where the therapies are inadequate. We presented our single-arm baseline controlled phase III study to the FDA, and we were one of seven recipients last year of an FDA orphan drug grant. We just received year two of proceeds after submitting to them our annual performance progress report.
We think that the FDA continues to be a great collaborator to Palvella and is supportive of the program and this trial design. We also have the benefits of breakthrough and fast-track designations. As you can see at the bottom of the slide from FDA guidance, they talk in FDA guidance about single-arm trials being important options in rare diseases where there's well-understood pathophysiology and a well-defined disease course. We think that microcystic LMs certainly meets that definition. We're grateful to the FDA for the designations that have been awarded for the FDA orphan drug grant.
Our goal, as you would expect, is to really have the sort of transformational efficacy that we saw in phase II, demonstrate a safety profile of low systemic absorption like we showed in phase II, continue to do great work on the CMC and quality front, and put that robust package in front of the FDA in an NDA submission next year that we think would be very compelling for this population that currently has nothing.
Great. As you all know, this is rapamycin, which is a strong immunosuppressant, and the FDA has allowed you to move into a very, very young population. I guess, would you say that's a testament to how safe they think the drug is? How are you going to use those data as part of the package or as part of the label, maybe?
Yeah, I think it's a testament to the recognition of the unmet need on this disease. Our key opinion leaders really pushed on our management team to be able to dose younger patients below the age of six. The reason for that is at younger ages, this disease can be less involved, less engorged. In the words of one of our key opinion leaders, Michael Kelly, who's the head of the vascular anomalies clinic at Cleveland Clinic, he said, "Intervening early may change the natural history of the disease." We want to do right by the patient always. That's core to our mission. We were very excited when the FDA is allowing us to dose younger patients. The goal when we do file an NDA, assuming positive data, would be to try to get a label of three and above at a first pass.
If we need to develop more data, then our label could be six and above with a requirement to do more work to eventually get that three to five-year-old age label.
Okay, great. Obviously one upcoming catalyst that is not mLM, it's CVM. That's a proof of concept trial. Very similar indication, but more venous involvement as opposed to lymphatic involvement. Maybe you can talk about this indication a little bit and what some of the expectations are for the proof of concept coming up in this quarter, people. Pay attention.
Mid-December.
Mid-December.
Great. I'd like to show pictures as to what these rare diseases that historically haven't gotten enough attention from industry, which is why we've stepped in. Cutaneous venous malformations are exactly right, Annabelle, dysregulated growth of malformed veins that protrude through the skin. As we've done a lot of research into this disease, we found that what's debilitating to patients is thrombosis, bleeding. Obviously, there's a disfigurement element to this. It can lead to functional impairment. Today, these patients don't have any FDA-approved therapies, again, like all Palvella diseases, so they undergo repeat interventional approaches. What really brought us to this disease was an understanding of the genetics, which is type 2 mutations, PI3K mutations that leads to upregulated mTOR signaling. Some of our scientific and clinical collaborators in Europe have done great work running studies evaluating systemic rapamycin for internal venous malformations.
You can see on this slide here, they refer to rapamycin as the gold standard for venous malformations with a strong call to develop topical agents that can abolish the need for systemic treatments that have the toxicities associated with rapamycin. There's also been, and credit to Jeff Martini on our team, now 26 studies that have been summarized in a systematic review, again, all pointing to systemic rapamycin and its use in internal venous malformations. What we're doing is applying QTORIN in a targeted topical approach to the more than 75,000 patients that we estimate have cutaneous venous malformations in the United States. Our phase II study, this is important, we're pioneering new ground here in venous malformations that has not been an indication that's been studied by biotech companies.
We're excited to partner with folks like Megan Tollefson at the Mayo Clinic, who's our principal investigator here. Our study design is intentional. We don't have a statistical hierarchy. We don't have a primary endpoint. When you're pioneering these new diseases, you evaluate a number of clinician and patient-reported outcomes to understand effect sizes on those endpoints and then ultimately select some of those endpoints to move forward into a pivotal study with the goal that one or more of the endpoints you see responding in phase II could be a primary endpoint for phase III. We designed this in collaboration with Dr. Tollefson, Dr. Ting, Dr. Kelly at the Cleveland Clinic. We think we had a great endpoint on the types of clinical signs and the types of instruments that we should use in this study.
Our goals, as we talked internally as to what we'd like to see to determine whether we move forward to a phase III study, is we'd like to see about 30% of patients show a slowing of the disease progression or evidence of clinical improvement. We have a number of scales that we've included hoping to detect that. If we do see that sort of, call it 30%, approximately 30%, we think that suggests that we should be charging to the clinic for a phase III study and also giving consideration to working with the FDA towards a breakthrough therapy designation application.
Okay. I guess we talked about this the other day, but the case report cited over 70% response for these patients when they were given oral rapamycin. Why should we not think of 70% as the potential positive outcome for this study? Maybe you can sort of reframe it for us so we can understand or set expectations properly.
Sure. I think with the case reports, many of those case reports are investigator-initiated studies where they're selecting endpoints that are unlikely to be validated or viable endpoints from an FDA perspective. You also have to take into consideration, or we do internally, potential publication bias associated with some of the case reports that are out there. When we think about the 30%, we look at other commercially successful drugs like the program I worked on at Insmed, ARIKACE, 29% efficacy rate in phase III. That drug has done very well commercially. It'll generate more than $400 million in sales. We also think about that 30% in the context of if we're around 30% with a response rate, we're going to analyze all the phase II data, and then we're going to adjust study design to try to increase the signal in a phase III study.
We think that that's a credible response threshold. We certainly discussed it with our key opinion leaders, and we look forward to presenting the data next month.
Would it strictly be design, or would it be potency, concentration, duration? What are some of the things that you would be able to do to increase the response?
We're going to look at all of the above, as you would expect us to do. Our primary analysis in the phase II is a 12-week analysis. What we did in microcystic lymphatic malformations is we had a 12-week endpoint. In phase II, when we analyzed the phase II data, our team did Markov modeling, it showed that some patients may accrue an even greater response if they stay on drug longer. That is something that, as we read out this phase II study and analyze the data, we'll certainly give consideration as to whether we would run a longer phase III study, again, if we have positive data and move into phase III.
Okay. The mLM is 26 weeks, so correct?
Correct.
Yeah. Okay. All right. I'm going to leave a little bit of time for these other indications because it's kind of the model of your platform. Each compound is a pipeline and a product. You just added angiocheratomas. Can you talk about that market a little bit and what gives you comfort with that indication?
Sure. Angiocheratomas are superficial lymphatic malformations. They have phenotypic characteristics that look similar to microcystic lymphatic malformations. They were recently classified as an isolated lymphatic malformation. We think in phase II, what we showed with microLM was that our drug does act on this aberrant lymphatic biology. That is one of the reasons that it rose to the top for us from a mechanistic perspective and sort of a biological de-risking. We also know that there has been some real-world use of off-label rapamycin in angiocheratomas. We have spoken to our KOLs about that. We think that is informing that rapamycin is on target for the disease. When we did our EPI work, and we always commission our own EPI work, we do not rely on what the literature suggests. We saw that there are more than 50,000 estimated patients with clinically significant angiocheratomas. That is a large orphan market.
We think it's sort of a logical extension of our work in microcystic lymphatic malformations. Just like all the Palvella diseases, we really go to great lengths to talk to our KOLs about, is there a significant unmet need? Do patients need an FDA-approved therapy? Give us a sense of the inadequacy or adequacy of the interventional approaches. We had a very clear response from investigators on that, that patients would welcome a targeted topical therapy, particularly patients that have this disease in anatomical locations like the genitals, which is the case for patients with angiocheratomas of Fordyce.
Okay. I know we have very little time left, and you just introduced a whole new compound, which is going to take some time. We'll have plenty of time to go into that over the next coming months. I do want to talk about one of the things that we get questions a lot about, and it's commercialization of this topical rapamycin. rapamycin is a known compound. They're orphan drugs. It will be the population is adding up. How are we thinking about pricing and reimbursement and all those fun things that you talk about when there is a compounded product on the market?
Sure. Certainly, I was involved with Insmed that had very similar dynamics to this. We've done recent payer testing to confirm that we anticipate an orphan pricing corridor for QTORIN rapamycin. Importantly, this is a genetic vascular disease. There is not a large budget impact today to payers. When we presented payers with our phase II safety, tolerability, and efficacy data, there was a positive perception of the safety, tolerability, and efficacy of our drug as it relates to market research we've done. When we went out and tested our phase II product profile with 52 physicians, 98% of those physicians indicated that our drug would be first line, and they would place three-quarters of their patients on our drug. That ties and correlates nicely to the interactions that we've had with KOLs.
There is very strong demand for an FDA-approved targeted topical rapamycin like QTORIN, where there is known quality, safety, the backing of an FDA approval, and that efficacy, hopefully, that we can reproduce from phase II.
All right. I'm going to ask you the cash question, and then minus the time that we have. Where does your cash get you? What readouts are we going to get with the cash that you have?
Sure. We're a very capital-efficient company. I spent almost 10 years of my career as an investor. So my training in my early days was to try to flush out as much risk on small amounts of capital. We've kept the management team lean. We raised a PIPE of just under $80 million in December of last year. We're grateful to our many investors from that PIPE: BVF Partners, Fraser, Petrichor, Ligand. That capital gets us into the second half of 2027. So with that capital, we'll have the CVM phase II readout next month, the Q1 2026 pivotal microLM readout. We're also going to be able to start studies in angiocheratomas as well as in disseminated superficial actinic porokeratosis.
Great. We are definitely out of time. Thank you very much.
Great. Thanks, Annabelle.
Thank you.