Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements and accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and our consolidated audited financial statements and accompanying notes thereto included in our 2025 Form 10-K filed with the Securities and Exchange Commission on March 31, 2026, as well as the information contained under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2025 Form 10-K.

In addition to historical information, this discussion and analysis includes forward-looking statements that are subject to risks and uncertainties, including those discussed in the section titled "Risk Factors," set forth in Part I, Item 1A of our 2025 Form 10-K, that could cause actual results to differ materially from historical or anticipated results.

Unless otherwise indicated or the context otherwise requires, references in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" section to "the Company," "we," "us," and "our" refer to the business and operations of Palvella Therapeutics, Inc., a Delaware corporation (referred to as "Legacy Palvella") prior to the Merger, and the business and operations of Palvella Therapeutics, Inc., a Nevada Corporation (previously Pieris Pharmaceuticals, Inc., referred to as "Pieris") and its consolidated subsidiaries following the Merger.

Overview

We are a clinical-stage biopharmaceutical company whose vision is to become the leading rare disease biopharmaceutical company focused on developing and, if approved, commercializing novel therapies to treat patients suffering from serious, rare skin diseases and vascular malformations for which there are no FDA-approved therapies. We envision a future treatment paradigm in which individuals suffering from serious, rare skin diseases and vascular malformations, and the physicians treating those diseases, have significantly improved treatment options which address the underlying causes of those diseases. We intend to leverage our versatile QTORIN platform to minimize the challenges and timelines typically associated with generating novel topical product candidates that penetrate the deep layers of the skin to locally treat a broad spectrum of rare skin diseases and vascular malformations. Our lead product candidate, QTORIN 3.9% rapamycin anhydrous gel ("QTORIN rapamycin"), is currently in clinical development for microcystic lymphatic malformations ("microcystic LMs"), cutaneous venous malformations ("cutaneous VMs"), and clinically significant angiokeratomas. QTORIN rapamycin contains the active pharmaceutical ingredient ("API") rapamycin, also known as sirolimus, which is an inhibitor of mTOR, a kinase that has been known to play a key role in cell growth and proliferation. We introduced a new QTORIN product candidate, QTORIN pitavastatin, for the treatment of disseminated superficial actinic porokeratosis ("DSAP"), which leverages our proprietary QTORIN platform and is designed to be the first pathogenesis-directed therapy for DSAP.

We announced positive topline results for two clinical trials: (i) SELVA, a Phase 3, single-arm, baseline-controlled study evaluating the safety and efficacy of QTORIN rapamycin for the treatment of microcystic LMs in patients 3 years and older and (ii) TOIVA, a Phase 2, single-arm, open-label, baseline-controlled study evaluating the safety and efficacy of QTORIN rapamycin for the treatment of cutaneous VMs in patients 6 years and older. We also have preclinical research programs based on our QTORIN platform for the treatment of serious, rare skin diseases for which we believe there are significant unmet needs. As we work to expand our pipeline into additional rare skin diseases, we plan to generate new product candidates based on our QTORIN platform.

Recent Developments

Our Novel Product Candidate: QTORIN rapamycin

Overview

We are developing QTORIN rapamycin, a novel, 3.9% anhydrous topical gel formulation containing rapamycin, for the treatment of microcystic LMs, cutaneous VMs, clinically significant angiokeratomas and other mTOR-driven skin diseases. If approved, we believe QTORIN rapamycin has the potential to become the first line therapy and the standard of care in each of these diseases.

QTORIN rapamycin for the treatment of microcystic LMs

Microcystic LM is a serious, chronically debilitating, and lifelong genetic disease of the lymphatic system characterized by lymphorrhea and acute cellulitis. It is estimated that there are more than 30,000 diagnosed patients in the United States with microcystic LMs. The specific pathophysiology of microcystic LMs is primarily the result of somatic activating mutations in PIK3CA that result in increased activation of the PI3K/mTOR pathway and subsequent lymphatic hyperplasia. Because microcystic LMs have a well-understood pathophysiology and a well-defined disease course, we believe an appropriate clinical study for this rare disease is a baseline-controlled Phase 3 study using clinician assessments.

We recently completed SELVA, a Phase 3, single-arm, baseline-controlled clinical trial evaluating once-daily QTORIN rapamycin in individuals aged ≥ 3 years with microcystic LMs and announced positive topline results. Of the 51 participants enrolled, 50 initiated treatment, including 49 participants aged ≥ 6 years and 1 participant in the exploratory 3- to 5-year-old cohort. In accordance with the statistical analysis plan, efficacy results were reported for participants aged ≥ 6 years, which constituted the Intent-to-Treat ("ITT") population. The study was originally designed to enroll 40 participants across leading U.S. vascular anomaly centers and exceeded its target enrollment.

The primary endpoint, the microcystic lymphatic malformation Investigator Global Assessment ("mLM-IGA"), is a 7-point clinician-assessed dynamic scale measuring change in disease severity from baseline ranging from "Very Much Worse" (-3) to "Very Much Improved" (+3). On the mLM-IGA in the ITT population (n=49), QTORIN rapamycin demonstrated a mean improvement of +2.13 points, meeting the study's primary endpoint (p<0.001). Of the participants aged ≥ 6 who completed the efficacy evaluation period, 95% (41/43) demonstrated at least a 1-point improvement, and 86% (37/43) were either "Much Improved" (+2) or "Very Much Improved" (+3). In the 3- to 5-year-old cohort, one participant enrolled and was "Very Much Improved" (+3) on the mLM-IGA at Week 24.

Similar to previous clinical trials of QTORIN rapamycin, in the Phase 3 SELVA study, QTORIN rapamycin was well-tolerated. Amongst the 50 participants who initiated treatment, 35 participants (70%) experienced treatment-emergent adverse events ("TEAEs"). Four experienced serious adverse events, of which one experienced a severe TEAE; all were deemed unrelated to study drug by investigators. Amongst the TEAEs, a total of 17 participants experienced treatment-related adverse events ("TRAEs"), all of which were rated mild or moderate. The most common TRAEs included application site acne, application site discoloration, and application site pruritus (all n=3, 6%). Rapamycin levels were below 2 ng/mL in systemic circulation for all participants at all timepoints in the study.

In May 2026, we presented new microcystic LM data from our Phase 3 SELVA study demonstrating that QTORIN rapamycin produced significant improvements across multiple efficacy measures in patients with microcystic LMs, at the ISSVA. 100% of participants (13/13) aged 6-11 years were rated as "Much Improved" (+2) or "Very Much Improved" (+3) on the Microcystic Lymphatic Malformation Investigator Global Assessment (mLM-IGA) scale at Week 24, with a mean improvement of +2.46 (p<0.001). 87% of participants (20/23) in SELVA with moderate or worse leaking/bleeding at baseline were rated as "Much Improved" (+2) or "Very Much Improved" (+3) on the mLM-IGA Leaking/Bleeding at Week 24, with a mean improvement of +2.48 (p<0.001). 100% of SELVA participants who completed the efficacy evaluation period (43/43) were at least somewhat satisfied with QTORIN™ rapamycin on the TSQM-9 overall satisfaction item at Week 24, with 84% reporting extremely satisfied, very satisfied, or satisfied. A blinded independent review demonstrated pre-treatment stability during the 8-week run-in period, followed by marked improvement on QTORIN™ rapamycin, supporting SELVA's single-arm, baseline-controlled design.

We previously announced topline Phase 2 clinical trial results from our multi-center, open-label, baseline-controlled study of 12 subjects receiving QTORIN rapamycin administered once daily for 12 weeks for the treatment of microcystic LMs. The Phase 2 clinical trial featured multiple pre-specified efficacy assessments, including clinician and patient global impression assessments as well as assessments of individual clinical manifestations that are important disease burdens for individuals living with microcystic LMs. All participants in the Phase 2 clinical trial demonstrated improvements on the Clinician Global Impression of Change scale, a 7-point clinician-rated change scale, with all participants in the study rated as either "Much Improved" (n=7, 58%) or "Very Much Improved" (n=5, 42%) after 12-weeks of treatment compared to the pre-treatment baseline period.

We have received Breakthrough Therapy Designation, Fast Track Designation, and Orphan Drug Designation from the FDA for QTORIN rapamycin for the treatment of microcystic LMs. Orphan Drug Designation has also been granted by the European Medicines Agency. In addition, we have been awarded an FDA Products Clinical Trials Grant for up to $2.6 million supporting the SELVA Phase 3 study and have received $1.1 million to date.

In June 2026, we completed a pre-NDA meeting with the FDA which addressed nonclinical, clinical pharmacology, and clinical information for the planned NDA and included an in-person discussion with FDA and receipt of official meeting minutes. Subsequent to the pre-NDA meeting, the FDA granted rolling review of our NDA for QTORIN™ rapamycin for the treatment of microcystic lymphatic malformations.

In June 2026, we submitted the first module of our rolling NDA. We remain on track to submit the remaining modules and complete the NDA submission in the second half of 2026. We are preparing for a planned standalone U.S. commercial launch of QTORIN™ rapamycin for the treatment of microcystic lymphatic malformations in the first half of 2027, subject to obtaining FDA approval.

QTORIN rapamycin for the treatment of cutaneous VMs

Cutaneous venous malformation is a serious disease with a high unmet need characterized by dysregulated growth of malformed veins impacting the skin, causing functional impairment and deformity. It is estimated that there are more than 75,000 diagnosed patients in the United States with cutaneous VMs.

In December 2025, we announced positive topline efficacy results from TOIVA, a multicenter, single-arm, open-label, baseline-controlled, Phase 2 clinical trial designed to evaluate the safety and efficacy of QTORIN rapamycin for the treatment of cutaneous VMs. The study enrolled 16 participants, ages six and older, at leading vascular anomaly centers across the U.S. Key findings from among the study's pre-specified efficacy endpoints at Week 12 demonstrated nominally statistically significant (p<0.001) improvements at Week 12 on several of the clinically relevant and important efficacy endpoints evaluated when compared to pre-treatment (baseline), including many of the static and impression of change global instruments evaluated, including the Overall Cutaneous VM Investigator Global Assessment ("Overall cVM-IGA"). The Overall cVM-IGA is a 7-point, clinician-assessed, single-item efficacy endpoint measuring change in severity from baseline, with the numeric rating scale ranging from "Very Much Worse" (-3) to "Very Much Improved" (+3). On the Overall cVM-IGA at Week 12, 73% (11/15) participants improved, with 67% (10/15) either "Much Improved" (+2) or "Very Much Improved" (+3). No trial participants (0/15) were "Minimally Worse" (-1), "Much Worse" (-2), or "Very Much Worse" (-3).

Similar to previous clinical trials of QTORIN rapamycin, in the Phase 2 TOIVA study QTORIN rapamycin was generally well-tolerated, with the most common treatment-emergent adverse events being application site reactions (erythema, 25%). All treatment-related adverse events were moderate or mild, with no unexpected adverse events reported. Rapamycin levels were below 2 ng/mL in systemic circulation for all participants at all timepoints in the study.

In May 2026, at the 83rd Annual Meeting of the Society for Investigative Dermatology ("SID"), we presented new data from our Phase 2 TOIVA trial of QTORIN rapamycin for the treatment of cutaneous VMs demonstrating 100% of patients with bleeding at baseline demonstrated improvement on the Cutaneous Venous Malformations Investigator Global Assessment Bleeding scale ("cVM-IGA Bleeding") at Week 12 (+2.5 point mean improvement).

In May 2026, at the ISSVA World Congress 2026, James Treat, MD presented additional data from our Phase 2 TOIVA study demonstrating statistically significant improvements in both cVM-MCSS Height and cVM-MCSS Appearance at all time points measured, with increasing clinical response observed with longer duration of QTORIN rapamycin therapy.

After completing our Preliminary Breakthrough Therapy Designation Advice meeting with the FDA, we applied to the FDA for Breakthrough Therapy Designation in the second quarter of 2026. Following the FDA's decision in July 2026 to not grant the designation at this time, we are currently planning a resubmission incorporating TOIVA patient interviews and new 24-week data.

We are planning for our End-of-Phase 2 meeting with FDA and expect to commence a Phase 3 pivotal study in the fourth quarter of 2026.

We have received Fast Track Designation from the FDA for our cutaneous VMs program.

QTORIN rapamycin for the treatment of Clinically Significant Angiokeratomas

In September 2025, we announced the expansion of our QTORIN rapamycin development program into clinically significant angiokeratomas. No FDA-approved therapies currently exist for the estimated more than 50,000 diagnosed patients in the U.S.

Clinically significant angiokeratomas are superficial vascular malformations of lymphatic origin which can cause bleeding, pain, functional impairment, and risk of infection, with no tendency for spontaneous regression. Angiokeratomas were classified as an isolated lymphatic malformation in 2025 by ISSVA. Current treatment options include potentially destructive procedural interventions that carry significant risks of pain, scarring, and recurrence. Despite the substantial disease burden, there are currently no FDA-approved treatments available for clinically significant angiokeratomas.

We received written feedback from the FDA in February 2026 on the proposed design of a Phase 2 study of approximately 10-20 patients to evaluate QTORIN rapamycin for the treatment of clinically significant angiokeratomas. In April 2026, we dosed our first patients in the Phase 2 LOTU trial, a baseline-controlled clinical study of QTORIN rapamycin administered topically once daily for the treatment of clinically significant angiokeratomas. Topline results are expected in the second half of 2027.

Fast Track Designation from the FDA has been granted for our angiokeratomas program.

QTORIN pitavastatin for the treatment of Disseminated Superficial Actinic Porokeratosis

In November 2025, we announced a new product candidate, QTORIN pitavastatin, for the treatment of DSAP. QTORIN pitavastatin was developed leveraging our QTORIN platform.

DSAP is a premalignant genetic skin disease that presents as persistent, often extensive lesions that enlarge and increase in size, number, and extent over time, causing chronic loss of skin integrity which can severely impact quality-of-life; no FDA-approved therapies currently exist for the estimated more than 50,000 diagnosed patients in the U.S.

We received written feedback from the FDA in the first quarter of 2026 on the proposed design of a Phase 2 study to evaluate QTORIN pitavastatin for the treatment of DSAP. Trial initiation is anticipated in the second half of 2026.

The Business Combination

On December 13, 2024 (the "Closing Date"), we consummated the previously announced business combination contemplated by that certain Agreement and Plan of Merger, dated July 23, 2024 (the "Merger Agreement"), by and among the Company, Polo Merger Sub, Inc. ("Merger Sub"), and Palvella Therapeutics, Inc. ("Legacy Palvella"). Pursuant to the Merger Agreement, on the Closing Date, (i) Merger Sub merged with and into Legacy Palvella, with Legacy Palvella as the surviving company in the merger and, after giving effect to such merger, continuing as a wholly owned subsidiary of the Company (the "Merger" and, together with the other transactions contemplated by the Merger Agreement, the "Business Combination") and (ii) the Company's name was changed from Pieris Pharmaceuticals, Inc. to Palvella Therapeutics, Inc.

Contingent Value Rights Agreement

On December 13, 2024, immediately prior to closing of the Merger, we entered into a Contingent Value Rights Agreement (the "CVR Agreement") with a rights agent, pursuant to which our pre-Merger capital stockholders received one contingent value right (each, a "CVR") for each outstanding share of our Common Stock held by such stockholder, or share of Common Stock underlying preferred stock held by such stockholder, on such date. Each CVR represents the contractual right to receive payments upon the receipt of payments by us or any of its affiliates under certain strategic partner agreements, including existing collaboration agreements pursuant to which we may be entitled to milestones and royalties in the future and other out-licensing agreements for certain of Pieris' legacy assets, and upon the receipt of certain research and development tax credits in favor of us or any of its affiliates, in each case as set forth in, and subject to and in accordance with the terms and conditions of, the CVR Agreement. There can be no assurance that holders of CVRs will receive any amounts with respect thereto. In January 2026, we paid out $2.0 million to holders of CVRs in accordance with the CVR Agreement entered into immediately prior to closing of the Merger on December 13, 2024.

Ligand Development Funding and Royalties Agreement

We are party to a Development Funding and Royalties Agreement with Ligand Pharmaceuticals, Inc. ("Ligand"), dated December 13, 2018, as amended May 22, 2020 and November 28, 2023 (the "Ligand Agreement"). Under the Ligand Agreement, Ligand has made payments totaling $15.0 million to fund the development of QTORIN rapamycin. As partial consideration for the funding received, we granted Ligand the right to receive up to $8.0 million in milestone payments upon the achievement of certain corporate, financing and regulatory milestones by us related to QTORIN rapamycin for the treatment of any and all indications, of which $5.0 million of potential future milestone payments remain under the arrangement. In addition, we agreed to pay to Ligand tiered royalties ranging from 8.0% to 9.8% of any aggregate annual worldwide net product sales of any products based on QTORIN rapamycin. See Note 4 of the accompanying notes to the condensed consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q.

Impact of Global and Macroeconomic Events

Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including increases in inflation, increased

U.S. trade tariffs and retaliatory tariffs, interest rate and currency rate fluctuations, new laws and regulations enacted by the Trump administration, including, but not limited to, the One Big Beautiful Bill Act, economic slowdown or recession, banking instability, monetary policy changes, and geopolitical factors, including the ongoing conflict between Russia and Ukraine, the current conflicts in Venezuela and the Middle East (including any escalation or expansion) and increasing tensions between China and Taiwan, rapid changes in our regulatory landscape in the United States, including significant staffing reductions and unexpected shifts in leadership of certain federal agencies, and an uncertain legislative environment and supply chain disruptions. While our management is closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, including the impacts on its participants in its clinical trials, employees, suppliers, vendors and business partners, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside our control and could exist for an extended period of time. Management will continue to evaluate the nature and extent of the potential impacts to our business, results of operations, liquidity and capital resources. For additional information, see Part I, Item 1A "Risk Factors" of our 2025 Form 10-K.

Components of Operating Results

Operating Expenses

Our operating expenses since inception have consisted primarily of research and development expenses and general and administrative costs.

We expect to continue to incur significant operating losses for the foreseeable future and to incur increased expenses as we continue to advance our product candidates through clinical trials and regulatory submissions. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that Legacy Palvella did not incur as a private company. If we receive regulatory approval for QTORIN rapamycin for treatment of microcystic LMs, cutaneous VM, clinically significant angiokeratomas, QTORIN pitavastatin for the treatment of disseminated superficial actinic porokeratosis or any future product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Our losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:

We expense all research and development expenses in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and other service providers. This process involves reviewing open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Any nonrefundable advance payments that we make for goods or

services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.

Our indirect research and development expenses are not currently tracked on a program-by-program basis. We use our personnel and infrastructure resources across multiple research and development programs to identify and develop product candidates.

Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in advancing our programs and conducting clinical trials. In particular, we expect to incur substantial research and development expenses to continue late-stage clinical development and pursue regulatory approvals of QTORIN rapamycin for the treatment of microcystic LMs, venous malformations and the development of our preclinical programs. Product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development.

Because of the numerous risks and uncertainties associated with product development and the current stage of development of our product candidates and programs, we cannot reasonably estimate or know the nature, timing and estimated costs necessary to complete the remainder of the development of our product candidates or programs. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:

A change in the outcome of any of these factors with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.

We may never succeed in achieving regulatory approval for any of our product candidates. Our preclinical studies and clinical trials may be unsuccessful. We may elect to discontinue, suspend or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct additional clinical trials beyond those that we currently anticipate will be required for the completion of any of our product candidates' clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or

clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development for such product candidates.

General and Administrative Expenses

Our general and administrative expenses consist primarily of the following costs:

We anticipate that our general and administrative expenses will increase substantially in the future as we increase our headcount to support our organizational growth. Following the completion of the Merger, we also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with our operations as a public company. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing organization to support product sales, marketing and distribution activities.

Other (Expense) Income

Our other (expense) income for the three and six months ended June 30, 2026 and 2025 primarily consists of: (i) non-cash interest (expense) income related to our obligation to make future royalty payments pursuant to the Amended Ligand Agreement, which was determined to be a debt instrument; (ii) fair value adjustments related to our obligation to make future milestone payments under the Amended Ligand Agreement, which was determined to be a derivative liability; (iii) fair value adjustments related to the CVRs, which met the definition of a derivative; and (iv) interest income, net.

Our other (expense) income is subject to variability due to changes in the fair value of the derivative liabilities as well as the potential variability of the royalty agreement liability, both of which are based on significant estimates regarding the timing and success of future development and commercialization activities.

Income Taxes

Since May 2018, we have not recorded any income tax benefits for net operating losses ("NOLs"). We believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized. Accordingly, we have established a valuation allowance against such deferred tax assets for all periods since inception.

We assess our income tax positions and record tax benefits based upon management's evaluation of the facts, circumstances, and information available at the reporting date. For those tax positions where it is more likely than not that a tax benefit will be sustained, we record the amount of tax benefit with a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority having full knowledge of all relevant information. For those income tax positions for which it is not more likely than not that a tax benefit will be sustained, no tax benefit is recognized in the consolidated financial statements.

We had no provision for income taxes for the three and six months ended June 30, 2026 and 2025.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2026 and 2025

The following sets forth our results of operations (in thousands):

Research and Development Expenses

The table below summarizes our research and development expenses incurred by development program (in thousands):

Research and development expenses for the three months ended June 30, 2026 were $12.5 million, as compared to $5.1 million for the three months ended June 30, 2025. Research and development expenses for the six months ended June 30, 2026 were $21.8 million, as compared to $9.2 million for the three months ended June 30, 2025. The increase in research and development expenses was primarily due to increased spending on clinical, manufacturing and controls ("CMC") activities, the clinical development of QTORIN rapamycin for the treatment of angiokeratomas, costs associated with the submission of the first module of our rolling NDA, and costs resulting from increased headcount and consulting services in 2026.

General and Administrative Expenses

General and administrative expenses for the three months ended June 30, 2026 were $8.9 million, as compared to $4.1 million for the three months ended June 30, 2025. General and administrative expenses for the six months ended June 30, 2026 were $14.5 million, as compared to $7.9 million for the six months ended June 30, 2025. The increase in general and administrative expenses was primarily due to increased headcount in 2026, as well as increased professional services related to operating as a publicly-traded company.

Total Other (Expense) Income

Total other (expense) income, net for the three months ended June 30, 2026 was $0.5 million, as compared to $0.2 million of expense for the three months ended June 30, 2025. Total other (expense) income, net for the six months ended June 30, 2026 was $1.4 million, as compared to $0.5 million of expense for the six months ended June 30, 2025. The significant components of other (expense) income are more fully described below.

Interest expense - royalty agreement

During the three months ended June 30, 2026, we recorded interest expense of approximately $2.3 million, as compared to approximately $1.4 million for the three months ended June 30, 2025. During the six months ended June 30, 2026, we recorded interest expense of approximately $4.3 million, as compared to approximately $2.6 million for the six months ended June 30, 2025. Interest expense recorded in all periods related to the change in fair value of our royalty agreement liability.

Fair value adjustments on derivative liabilities - royalty agreement

During the three months ended June 30, 2026 and 2025, we recorded a non-cash loss on derivative liabilities of approximately $0.1 million. During the six months ended June 30, 2026 and 2025, we recorded a non-cash loss on derivative liabilities of approximately $0.2 million. The non-cash loss recorded in all periods related to the change in fair value of our obligation to make future milestone payments under the Amended Ligand Agreement, which was determined to be a derivative liability.

Fair value adjustments on derivative liabilities - contingent right liability

During the six months ended June 30, 2026, we recorded non-cash income of approximately $0.2 million related to fair value adjustments related to the CVRs which were issued in 2024 in connection with the Business Combination and determined to be derivative liabilities.

Interest income, net

During the three months ended June 30, 2026, we recorded interest income, net of $2.0 million, as compared to $0.7 million for the three months ended June 30, 2025. During the six months ended June 30, 2026, we recorded interest income, net of $3.0 million, as compared to $1.4 million for the six months ended June 30, 2025. The increase during each of the three and six months ended June 30, 2026, as compared to the corresponding periods in 2025, was primarily due to increases in the average balances held in interest-bearing cash and money market funds.

Net Loss

As a result of the factors discussed above, our net loss applicable to common stockholders for the three months ended June 30, 2026 and 2025 was $21.9 million and $9.5 million, respectively, and our net loss applicable to common stockholders for the six months ended June 30, 2026 and 2025 was $37.6 million and $17.7 million, respectively.

Liquidity and Capital Resources

Sources of Liquidity

Since inception, we have incurred substantial losses, and have primarily funded our operations with proceeds from the Amended Ligand Agreement and the sale of debt and equity securities, including common stock, convertible preferred stock and convertible notes. During the six months ended June 30, 2026, we incurred a net loss of $37.6

million and reported net cash used in operating activities of $23.7 million. As of June 30, 2026, we had an accumulated deficit of $173.1 million and cash and cash equivalents and short-term investments of $250.6 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and, to a lesser extent, general and administrative expenditures.

We do not expect to generate commercial revenue or operating cash flows in the near-term. Our ability to continue as a going concern in the near term is largely dependent on our existing cash balance and our ability to obtain additional sources of financing in order to fund operating expenses, complete development of our product candidates, obtain regulatory approvals, launch, and commercialize our product candidates, and continue research and development programs.

Equity Financing

On February 25, 2026, we entered into an underwriting agreement (the "Underwriting Agreement") with TD Securities (USA) LLC, Cantor Fitzgerald & Co. and Stifel, Nicolaus & Company, Incorporated, as representatives (the "Representatives") of the several underwriters named therein (the "Underwriters"), pursuant to which we agreed to issue and sell an aggregate of 1,600,000 shares (the "Firm Shares") of our Common Stock, at a price to the public of $125.00. Under the terms of the Underwriting Agreement, we granted the Underwriters an option to purchase up to an additional 240,000 shares of our Common Stock at the public offering price, less underwriting discounts and commission. The option was exercised and the offering closed on February 27, 2026. The offering resulted in net proceeds of $215.8 million, after deducting underwriting discounts and commissions and other offering expenses.

PIPE Financing

Concurrently with the execution of the Merger Agreement on July 23, 2024, Pieris entered into a securities purchase agreement (the "Purchase Agreement") with certain investors, including BVF Partners, L.P., an existing stockholder of Pieris (the "PIPE Investors"), pursuant to which, among other things, on the Closing Date and immediately following the consummation of the Merger, the PIPE Investors purchased (either for cash or in exchange for the termination and cancellation of outstanding convertible promissory notes issued by Legacy Palvella), and the Company issued and sold to the PIPE Investors, (i) 3,168,048 shares of Common Stock and (ii) Pre-Funded Warrants, exercisable for 2,466,456 shares of Common Stock, at a purchase price of $13.9965 per share or $13.9955 per Pre-Funded Warrant, which represents the per share purchase price of Common Stock less the $0.001 per share exercise price for each Pre-Funded Warrant, for an aggregate purchase price of approximately $78.9 million, consisting of approximately $60.0 million in cash and the conversion of approximately $18.9 million of principal and interest under outstanding convertible notes issued by Legacy Palvella (the "PIPE Financing"). As of June 30, 2026, the Company has pre-funded warrants outstanding to purchase an aggregate of 1,394,780 shares of Common Stock.

Convertible Notes

On June 6, 2024, Legacy Palvella initiated a sequence of convertible notes with certain investors via a Convertible Note Purchase Agreement, pursuant to which the Company issued convertible notes in the aggregate principal amount of approximately $18.4 million (the "Convertible Notes") between June 2024 and December 2024. Simple interest accrued on the outstanding principal amount of the Convertible Notes at an annual rate of SOFR plus 2.0% per annum. Unless earlier converted, the maturity date of the Convertible Notes was the earliest to occur of (i) the date that Legacy Palvella received approval of an NDA by the FDA of QTORIN rapamycin in the United States, or (ii) June 3, 2027. Upon the closing of the PIPE Financing, the entire outstanding principal amount and unpaid accrued interest on the convertible notes automatically converted into an aggregate of 1,179,163 shares of Common Stock and 168,503 pre-funded warrants with all such pre-funded warrants remaining outstanding as of June 30, 2026.

Future Funding Requirements

We have not generated product revenue or achieved profitability since our inception and expect to continue to incur net losses for the foreseeable future. As of June 30, 2026, we had approximately $250.6 million in cash and cash equivalents and short-term investments. Based on our current business plans, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operations for at least the one year period following the date of the filing of this Quarterly Report on Form 10-Q. Moreover, we expect our losses to increase as we continue to advance our product candidates through clinical trials and regulatory submissions. We may also incur expenses in connection

with the in-licensing or acquisition of additional product candidates and to build our commercial organization in preparation for the launch of our lead product candidate, QTORIN rapamycin for the treatment of microcystic LM, which is currently under review at the FDA, which may not be currently contemplated in our planned operations. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. Our primary uses of capital have been, and we expect will continue to be, compensation and related expenses, third-party clinical research, manufacturing and development services, license payments or milestone obligations that may arise, manufacturing costs, legal and other regulatory expenses and general overhead costs.

Based upon our current operating plan, we believe that our cash and cash equivalents and short-term investments on hand as of June 30, 2026 will be sufficient to fund our operating expenses for at least the next twelve months from the date of this Quarterly Report on Form 10-Q. To continue to finance our operations beyond that point, we may need to raise additional capital, the success of which cannot be assured. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect. If we receive regulatory approval for QTORIN rapamycin for the treatment of microcystic LM, cutaneous VMs, clinically significant angiokeratomas, QTORIN pitavastatin for the treatment of disseminated superficial actinic porokeratosis, or any of our future product candidates, we expect to incur significant commercialization expenses related to manufacturing, sales, marketing, and distribution, or from any out-licensing of the product. We are also responsible for up to $5.0 million in milestone payments to Ligand under the Amended Ligand Agreement upon the achievement of certain regulatory milestones by us related to QTORIN rapamycin, which may be triggered prior to the commercialization of any of our product candidates and ability to generate revenue.

To the extent that we raise additional capital by issuing equity securities, our existing stockholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences detrimental to the rights of our common stockholders. Any agreements for future debt or preferred equity financings, if available, may involve covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. We may seek additional capital due to favorable market conditions or strategic considerations even if we believe we has sufficient funds for our current or future operating plans.

Our future funding requirements depend on many factors, including, but not limited to:

Further, our development and commercialization operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities and commercialization of QTORIN rapamycin, if approved. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we may be unable to accurately estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.

Cash Flows

The following table summarizes our cash flows for the six months ended June 30, 2026 and 2025 (in thousands):

Net cash used in operating activities

Net cash used in operating activities for the six months ended June 30, 2026 and 2025 consisted of net loss for the period adjusted for non-cash items and changes in components of operating assets and liabilities. The primary use of cash was to fund our operations related to the development of our product candidates, including general and administrative support, which increased due to greater research and development efforts in 2026, increased costs to operate as a public company, as well as the timing of payments and increase in accounts payable.

Net cash used in investing activities

For the six months ended June 30, 2026, net cash used in investing activities was $62.5 million, consisting of the purchase and maturities of marketable securities.

Net cash provided by (used in) financing activities

For the six months ended June 30, 2026, net cash provided by financing activities was $216.0 million, consisting of proceeds from the issuance of common stock in connection with the equity financing in February 2026, the payment to holders of CVRs in accordance with the CVR Agreement entered into immediately prior to closing of the Merger on December 13, 2024, and proceeds from the exercise of stock options.

For the six months ended June 30, 2025, net cash used in financing activities was $0.9 million, consisting primarily of payments of transaction costs incurred in connection with the Business Combination and proceeds from the exercise of stock options.

Contractual Obligations and Commitments

During the six months ended June 30, 2026, there were no material changes outside the ordinary course of our business to our contractual obligations and cash requirements, as disclosed in our 2025 Form 10-K.

Critical Accounting Policies and Significant Judgments and Estimates

This management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including, but not limited to, those related to (i) research and development expenses and accruals, (ii) the Amended Ligand Agreement, including the related royalty agreement liability and derivative liability, (iii) the CVR Agreement, including contingent value right liability, (iv) stock-based compensation, and (v) the valuation allowance for deferred income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We regard an accounting estimate or assumption underlying our financial statements as a "critical accounting estimate" if:

During the six months ended June 30, 2026, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2025 Form 10-K.