PALI

Business Context and Reporting Period

Company: Palisade Bio, Inc. (PALI)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2026
Business Overview: Palisade Bio is a clinical-stage biopharmaceutical company developing PALI-2108, a next-generation, once-daily, oral phosphodiesterase-4 (PDE4) inhibitor prodrug designed for targeted delivery to the terminal ileum and colon for the treatment of inflammatory bowel disease (IBD), including ulcerative colitis (UC) and Crohn's disease (CD). The Company operates as a single reporting segment.

Key Financial Metrics

Cash Flow Summary (Q1 2026):
- Net cash used in operating activities: $(3,890) thousand
- Net cash provided by financing activities: $3,133 thousand
- Net decrease in cash: $(757) thousand

Material Changes vs. Prior Period

• Operating Expenses: Increased by $8.4 million (365%) to $10.7 million.
  • Research & Development (R&D): Rose $5.4 million (573%) to $6.4 million, driven by increased employee-related costs (including $2.0 million in stock-based compensation), clinical trial expenses ($1.2 million increase), and Chemistry, Manufacturing, and Controls (CMC) expenses ($1.2 million increase).
  • General & Administrative (G&A): Rose $3.0 million (220%) to $4.4 million, primarily due to a $2.3 million increase in stock-based compensation and higher professional fees.
• Other Income: Increased $1.1 million to $1.1 million, attributable to higher dividend income from money market funds following the October 2025 equity offering.
• Liquidity Position: Cash and cash equivalents increased significantly from $7.2 million in Q1 2025 to $132.6 million in Q1 2026, largely due to the October 2025 underwritten offering which generated net proceeds of $127.6 million.
• Share Count: Weighted average shares outstanding increased from 4.8 million in Q1 2025 to 209.7 million in Q1 2026, reflecting the October 2025 offering and subsequent warrant exercises.

Guidance, Outlook, and Risks

Outlook and Clinical Progress:
- PALI-2108 Phase 1/1b: Completed dosing of 89 subjects in Phase 1 (healthy volunteers and UC patients) and 5 patients in an exploratory Phase 1b cohort for fibrostenotic Crohn's disease (FSCD). Positive results announced in March 2026 regarding safety, tolerability, and pharmacodynamics in FSCD.
- Future Milestones: Anticipates dosing the first patient in a Phase 2 UC trial in Q3 2026. Plans to submit Investigational New Drug (IND) applications to the FDA for Phase 2 UC and CD studies in Q2 and H2 2026, respectively.
- Liquidity Runway: Management believes current cash of $132.6 million is sufficient to fund operations through major clinical milestones, including Phase 2 primary efficacy readouts for UC (expected H2 2027) and CD (expected early 2028).

Material Risks and Contingencies:
- Internal Controls: The Company disclosed a material weakness in internal control over financial reporting related to the financial closing process, segregation of duties, and journal entry controls. Remediation efforts are ongoing but the weakness remains as of March 31, 2026.
- Regulatory Approval: Success depends on FDA acceptance of data from Canadian Phase 1 trials and successful completion of future U.S. clinical trials.
- Third-Party Dependence: Reliance on third-party CROs and contract manufacturers (including suppliers in China) for clinical trials and API supply.
- Intellectual Property: Dependence on the license agreement with Giiant Pharma Inc. for PALI-2108; termination could halt development.

Investor Verification Checklist

• Internal Control Remediation: Verify the status of remediation plans for the material weakness in internal controls over financial reporting and the timeline for attesting to effectiveness.
• Cash Burn Rate: Monitor quarterly cash usage against the stated runway to H2 2027/early 2028, particularly given the significant increase in R&D spend.
• Regulatory Acceptance: Confirm FDA acceptance of Canadian Phase 1 data and the timeline for IND clearance for U.S. Phase 2 trials.
• Supply Chain Resilience: Assess risks associated with reliance on two qualified suppliers for the active pharmaceutical ingredient (API), including potential impacts of the BIOSECURE Act or geopolitical tensions.
• Dilution Risk: Review outstanding warrants (57.8 million as of March 31, 2026) and potential future financing needs that may dilute existing shareholders.