Palvella Therapeutics, Inc. ($PVLA)

Good morning, and thank you for being with us here today. My name is Elizabeth Webster, and I'm on the biotech equity research team at Goldman Sachs, and I'm joined by Wes Kaupinen, the Founder and CEO of Palvella Therapeutics.

So to start, Wes, help us level set here and provide a brief intro to the company and the QTORIN platform and your near-term catalyst path.

Great. Well, thank you, Elizabeth, for having me today at the Goldman Conference. I would like to start with the name Palvella. Palvella in Finnish means to serve. So the mission of our company is to serve patients that have serious rare skin diseases and vascular malformations that currently have no FDA-approved therapies. Our corporate strategy can be summed up in a word, which is, first, we want to be first for patients who do not have a single FDA-approved treatment. And our goal is to not only to develop but also to commercialize on a stand-alone basis and to bring those targeted therapies to these patients with rare skin diseases and vascular malformations. Our vision is to build an enduring leader in the area of rare skin disease. We want to be the company that leads in this area. It's been estimated that there's approximately 600 rare skin diseases. Fewer than 2% of those have an FDA-approved therapy. So we view this area as high unmet need, but also importantly, low competitive intensity. So it has dynamics which we think are ideally suited for us to be the leader in the space. What we've built over the last many years is both a late-stage pipeline as well as a platform called QTORIN. Our lead product candidate is called QTORIN rapamycin. We were excited earlier this year to announce positive Phase III data in a rare, serious, chronically debilitating disease called microcystic lymphatic malformations. It affects more than 30,000 patients. We estimate in the United States, no FDA-approved therapies. We met our primary endpoint, key secondary endpoint and all of our prespecified secondary endpoints. So we are on the cusp of filing our NDA, and that is the first clinical indication for QTORIN rapamycin. We believe it's a pipeline and a product and that there are many additional mTOR-driven skin disease that we're either currently pursuing, which we'll talk about or intend to pursue in the future. We also have a platform called QTORIN. QTORIN allows us to reproducibly generate novel topical product candidates, which can be evaluated in these rare skin diseases. Very excited to have a strong capital base in place. Thanks to our investors, we closed last quarter with about $260 million in cash. So we have significant capital to take us through many of these key milestones, which I've already highlighted.

Great. Thank you. Super helpful overview. I just want to focus on the QTORIN platform before diving into the specific programs. And maybe just talk about how broad that could go and the kind of platform-driven capabilities that you have with that?

Sure. So we developed QTORIN internally. We own the platform. And really what it's designed to do is to reproducibly generate novel topical product candidates, which can be evaluated in serious rare skin diseases or vascular malformations. We've now tested over 15 molecules with the platform. And what we've shown is the ability to get high payloads of active molecules, so high concentrations into our anhydrous vehicle. That's a key feature of QTORIN. We're also able to take these APIs and deliver them to the lower layer of the skin to the dermis. And that's really important because many of the diseases we target manifest in that lower layer of the skin. So the ability for the technology to deliver the drug at site of pathophysiology, we think, translates into a significant clinical benefit, similar to what we saw in our Phase III study. We also, with QTORIN, there are certain aspects of the technology that allow us to retain the drug in the skin. So we're oftentimes working with potent molecules where you want to see low levels of systemic absorption, not inflicting unwanted toxicities on patients that have localized skin diseases or localized vascular malformations. And with each product candidate that we bring into the platform, we filed new IP. That's formulation IP, method of use IP. The goal there is to get long-duration, defensible intellectual property claims. So different than a lot of companies, the growth of Palvella does not depend upon external in-licensing and acquisition. We certainly spend some resources there. We're always evaluating those opportunities, but we think we have an internal product development engine where we can bring molecules into the platform, formulate these drugs and then evaluate them in these rare skin diseases, many of which in vascular malformations represent multibillion-dollar total addressable markets.

That was wonderful. Thank you. And moving to mLM, the microcystic lymphatic malformations. Walk us through the Phase III results that you've generated and highlights from the ISSVA World Congress and any other recent scientific meetings?

Sure. So we ran a Phase III study. This was designed to be a 40-patient study. This was a single-arm baseline controlled. We enrolled 51 patients into the study. Our clinical operations team did a fantastic job of over-enrolling the study. The study read out in Q1. Our primary endpoint was the Microcystic Lymphatic Malformation Investigator Global Assessment. Single item instrument, the scale ranges from negative 3, very much worse to plus 3 very much improved. And so the physician is scoring at the end of 24 weeks that lesion severity at the end of treatment compared to baseline, utilizing a baseline photo to help inform an objective assessment. What we saw with the Phase III results, we met the primary endpoint, highly statistically significant, a key secondary endpoint, which was a blinded analysis of photos and all of our prespecified secondary endpoints. Most importantly, we saw that 95% of patients on the primary endpoint improved. 86% of patients achieved the high end of the scale, which is a plus 2 or a plus 3. So they were much or very much improved. We saw a low incidence of adverse events in the study and very low systemic absorption on average. So we're thrilled with the outcome of the Phase III study. We're grateful to the FDA for their collaboration. This program post Phase II was granted breakthrough therapy designation. We also have Fast Track Designation, orphan designation. And the FDA has granted us capital through their small nondilutive pool called the FDA Orphan Drug Grant to support that Phase III study. You asked about ISSVA. ISSVA stands for the International Society for the Study of Vascular Anomalies. Their annual conference was held in Philadelphia just a couple of weeks ago. Jim Treat, who is a senior dermatologist at the Children's Hospital of Philadelphia. He's worked closely with us over many years in our Phase II study, our Phase III study. He presented a lot of new data on microcystic lymphatic malformations. I'll just highlight 2 of the data points that he brought forward. Number one is we looked at our cohort of younger patients, that's patients aged 6 to 11 who are in the trial. That cohort, all 100% of patients were either much or very much improved. And we think about QTORIN rapamycin, given the genetic basis of the disease as not only a treatment, but also a chronic therapy. So one thing we evaluated in this younger cohort was what percentage of the patients rolled over and stayed on drug in the treatment extension period, and we saw 100% of patients stay on drug even after they achieved that much or very much improved outcome on the primary endpoint. So we were excited with those results. We also presented results Jim did on leaking and bleeding. So one of the major clinical issues that these patients have when these genetically malformed lymphatic vessels protrude through the skin, they leak lymph fluid. It's called lymphorrhea. It can cause infections such as acute cellulitis, it can cause hospitalization. And we measured that clinical sign and the improvement on that clinical sign as part of our Phase III protocol. And there, we saw a large effect size on what's called the Microcystic Lymphatic Malformation Investigator Global Assessment for leaking and bleeding. So Jim did a great job highlighting not only the statistically significant results, but also the clinical meaningfulness to the patients.

Great. And just on the patients that rolled over into the extension period, I guess when we think about this being a chronic therapy, how long do you think patients will be on this therapy in the real-world setting?

Sure. So I'll start with the genetics of the disease. It is a PI3K mutation, mTOR is hyperactivated. The biological driver is constitutively active. It is turned on. And so even for patients who on our drug in our clinical studies showed large effect sizes, what we learned from our Phase II is that when therapy is withdrawn, the disease can come back, and it's because of that biological driver. So we think the right thing for the patient, which is to keep so that you're counteracting that causal biological driver. If the patient has a treatment effect while on our drug, we want to try to maintain that treatment effect and not run the risk of withdrawing therapy, which could result in the return of the lymphorrhea, the leaking, the bleeding, the functionally debilitating aspects that come with these lesions.

Got it. Super helpful. And you're guiding to an NDA submission in the second half of this year and just completed the pre-NDA meeting. So any color you can provide on kind of how the meeting went and how you think you're positioned post that meeting? And then also the FDA's understanding of your endpoints, which you did so much work around.

Sure. So the FDA has been very supportive throughout the development of this program. We're developing a drug in a serious, rare lifelong disease that affects kids and adults as well. They granted us early on in the development, Fast Track Designation post Phase II. They granted us breakthrough designation. And as I mentioned, they help support the Phase III study with their own nondilutive funding through the FDA orphan drug grant. So we were able to meet with the FDA as part of our pre-NDA meeting. We put out a press release noting that we are on track to submit the NDA in the second half of this year. We'll submit our Phase III data, our Phase II data, plus the FDA has made a recent movement around drug repurposing. We're working with rapamycin, also known as Sirolimus, and we're repurposing that into a PI3K/mTOR-driven disease that is rare, that's chronic in nature. So we think what we're doing is consistent with that initiative as well, and we look forward to putting together a very robust NDA submission and submitting in the second half of this year.

Got it. And then looking ahead, potentially after that NDA submission and review, help us understand what the commercial path looks like and how you're preparing for that at the moment and any prelaunch activities and just your overall strategy for the launch.

I think on the commercial market, this is a key point of the time we're moving into a new rare disease. The disease has to be serious, rare, nothing approved where we can be first, but we also want to have a commercially attractive market. With microcystic lymphatic malformations, we've invested in claims analysis. So we've been able to go out and quantify the estimated number of diagnosed patients that are currently within clinical medicine. We estimate that there's more than 30,000 patients that are diagnosed in the United States within clinical medicine that have microcystic lymphatic malformations. So it is an order of magnitude greater than what one would estimate in ultra-orphan disease. When you overlay orphan pricing of $100,000 to $200,000 per patient per year, you start to look at a total addressable market opportunity in the order of $3 billion to $6 billion, again, with nothing that's currently approved, and we believe based on our market research that we have the potential to be first line in standard of care in this disease. From a market research perspective, we have gone out and surveyed physicians. We asked them with a product profile if they would consider our drug first-line therapy, 98% said they would consider it first line and that they would prescribe the drug to an estimated 3/4 of their patients. So that's very encouraging. On the commercial build, we have hired a Chief Commercial Officer. We did so about a year ago. Her name is Ashley Klein. Ashley is a proven commercial veteran in the orphan space. She previously launched a topical therapy called Oxervate for a disease called neurotrophic keratitis. Under Ashley's leadership, she built out a U.S. commercial organization, was able to grow the sales of that drug from 0 to north of $500 million, and it's continued to grow. That drug now does north of $1 billion. Ashley has been tasked with recruiting an exceptional leadership team. And just earlier this year, we were able to add 2 key talents to the team. Number one is Jennifer McDonough. Jennifer previously led market access and reimbursement for Krystal Biotech, has had a very successful launch of a topical therapy for a serious rare genetic disease. We've also hired Kent Taylor to lead our sales organization. Kent previously led the sales organization at Arcutis. So that team is out driving a disease state awareness campaign, which is called Beyond mLM. We also have a relatively concentrated market with about half the patients in 400 centers. We've identified those centers. We're out talking to those centers now about disease state awareness. So very active pre-commercial effort underway.

Great. And then maybe briefly, just what size sales force do you think is required to target these patients across those 400 centers? And then kind of can you go broader than those centers to -- over time to capture the remaining prevalent patients?

Sure. So there's multiple tiers to the market. There's that first tier, which is 400 centers, and we believe that, that constitutes about half the market. So of the 30,000, the 400 centers have about 15,000. That's going to be a key point of focus for our sales force. We expect to hire upwards of 40 sales reps. We had previously guided 20 to 40. We think the right approach is to hire 40 reps to promote, once approved, not only to that first tier, but also there's a second and a third tier. In that second and third tier, you have oftentimes dermatologists that are in the community that have patients with microcystic lymphatic malformations that can be outside of the academic centers. So it's key that we build relationships with that Tier 2 and the Tier 3 as well. We'll do that not only through our sales force, but nonpersonal promotion as well, digital marketing. We can also build an inside sales effort. These are some of the tactics that Ashley used very effectively with her launch with Oxervate at Dompe. So we're going to use best practices from all the experience that she's accumulated from the Oxervate launch, Kent's experience in the atopic dermatitis space and the success Jennifer McDonough had with the Krystal launch.

Great. And then this might be an early question, but how do we think about pricing for this indication? And what are some analogs we can think about as reference points?

Sure. Definitely not too early to be thinking about pricing. I think a lot of the pricing is going to be governed by the seriousness of the disease. This disease is serious, functionally debilitating lifelong, what the current approaches are to treating. There's nothing approved, which predominantly used today. Our interventional techniques that are nonspecific in nature, don't have high efficacy rates, but do have high recurrence rates and then evaluating our safety and efficacy profile. So we've done a lot of payer testing directly with insurance companies through our third-party market research partners. We've guided on a pricing corridor of $100,000 to $200,000 per patient per year, and we think we would have favorable coverage policies within that pricing corridor. Some of the analogs you had asked about, I was fortunate enough to work on a drug that's now approved in the U.S., Europe and Japan called ARIKAYCE from Insmed. I think that's a good analog, although our efficacy rates are significantly higher than what ARIKAYCE showed in their Phase III study. We have Ashley's experience with Oxervate, topical therapy for progressive eye disease. We also look at TEPEZZA, treating thyroid eye disease, chronically debilitating disease as a good analog for where we may price.

Great. And I think we should move on to some of your other pipeline assets covering -- just covered mLM. So moving to angiokeratomas and DSAP. You will present Phase II data, I believe, in the second half of next year on angiokeratomas. So just discuss the structure of the trial, the endpoints and kind of what you're looking to see out of this data.

Sure. So angiokeratomas are a great Palvella disease. What do I mean by that? Clinically significant angiokeratomas are serious. They're chronically debilitating. There's nothing approved, and we have the opportunity to be first with a therapy. And there's very little, if any, development underway from other companies. They are a type of superficial lymphatic malformation. So we think that there is some overlap in the biology between a microcystic LM and an angiokeratoma. One of the layers of innovation that we have at Palvella, when we go into these diseases, we really try to understand epidemiology, and we try to understand diagnosed prevalence. That oftentimes has not been done because there's no companies in the space. When we did that with angiokeratomas, what we found is we estimate that there's more than 50,000 of these patients in the United States. So again, this is a large orphan market. We believe it to be currently uncontested, and we have the opportunity to be first. These lymphatic malformations, as I mentioned, they present superficially. The major problem with these malformations is they oftentimes present in anatomical areas where it can be functionally debilitating to patients, including in the genitals area. Oftentimes, these patients have bleeding and the approaches that are available to them today include things like surgical excision, electrocautery, cryotherapy. These are invasive. They are rarely durable. And so we have the opportunity to come in with a targeted topical therapy that offsets what we believe to be the key driver here, which is the mTOR and VEGF pathways. We're going to run a Phase II study. That study started early, credit to our clinical operations team. We thought it would start in the second half of this year. It started in the first half of this year. We're going to evaluate somewhere between 10 and 20 patients. We're utilizing endpoints similar to what we used in our microcystic lymphatic malformation study and our cutaneous venous malformation study. And what we'd like to see there is we'd like to see 30% or more of patients improve on drug. That's a benchmark that we put out for our cutaneous venous malformations Phase II study. And we think in a serious rare disease where there's nothing approved, if you can impact 30% of these patients positively, again, going back to ARIKAYCE as a nice analog, you can have a commercially viable drug. So our clinical operations team is ahead of plan in terms of starting the study. We're being very judicious about enrollment and very selective about what patients get into the study, and we're on track to read that study out in the second half of next year. Really importantly, from a regulatory perspective, we're using the same IND and the same drug product. So eventually, if we're approved in microcystic lymphatic malformations, adding this indication to the label would be through a supplemental NDA, not a new NDA.

Great. And then what would you like to see in that Phase II data? And would you need to run a Phase III post that?

Sure. So in that Phase II data, we're looking at dynamic change instruments. So what that is, is it's the physician and the patient rating how they're doing at the end of the study compared to the beginning of the study. So you'd like to see 30% of those patients at a minimum improve while they're on drug. That's one key aspect of the study. The second is you want to use the -- looking at a lot of different endpoints in a rare disease where there hasn't been work done, you want to understand which of those endpoints is sensitive to detecting a treatment effect. So you're using that Phase II study to inform a Phase III design. In terms of your question on would we need a Phase III study. Ultimately, the Phase II data is going to govern what the development path is. Our base case is, yes, we would likely need a Phase III study. I think we're encouraged by the repurposing initiative that the FDA announced, and we will always try to find expedited pathways to bring our therapies to patients.

Great. And similarly, as you just outlined for that indication, can you speak to the DSAP indication and when we could see data there and the development path there as well.

Sure. So let's start commercially, disseminated superficial actinic porokeratosis. Again, we've done our own epi work to determine whether this is a commercially attractive market. We estimate that there's more than 50,000 patients that have DSAP in the United States. This is a -- that are diagnosed in clinical medicine. This is a genetic disease. These patients have pruritic lesions that are proliferative in nature. And one of the major issues with these lesions beyond being pruritic is there is a higher risk for malignant transformation into squamous cell carcinoma. Today, these patients are treated with more interventional approaches or they're treated with off-label therapies that are not FDA approved, and we think are nonspecific to the disease. So we have the opportunity to bring forward that first FDA-approved therapy, and that was the genesis of QTORIN pitavastatin. So work by Keith Choate, who's the Chair of Dermatology at Yale. He's done a lot of work on the genetics and the biology to show that you can take a pathogenesis-directed approach by intervening upstream of the causal pathway here, which is the mevalonate pathway. He's done some early work looking at off-label use of statins applied topically to try to validate the mechanism to try to validate the biology. What we've done is we've looked at 7 different APIs, 7 different molecules in that class, and then we've looked at those in QTORIN in our platform. What we emerged with was QTORIN pitavastatin. Pitavastatin has a low IC50. It's a potent drug. It was the most recently FDA-approved statin. And we're really excited about this program. Our intention is to run, again, a 10 to 20 patient Phase II study, initiate that study later this year. But we think this is a very significant commercial opportunity. We have the impact of -- we have the opportunity to really impact patients who have what we consider to be a serious disease. And so we think this will be a key value driver for Palvella on a going-forward basis.

Great. Thank you. I'm just going to open it up to the audience and see if there are any questions. Anyone in the room? Okay. What do you feel like is most kind of misunderstood or not appreciated from investors about your story?

Sure. Misunderstood or underappreciated. I think any time you're in rare diseases that don't have an approved therapy, there's a low investor awareness. In fact, when we come across these diseases, we have to work really diligently with our scientific team, R&D team, commercial team, finance team to really understand these diseases. And so I think for us, the size of these markets is underappreciated. Microcystic lymphatic malformations, this is a multibillion-dollar total addressable market based on 30,000 or more patients. Cutaneous venous malformations most common vascular malformation, more than 75,000 estimated patients in the United States. At orphan pricing, that's an $8 billion-plus opportunity. So I think that is perhaps underappreciated by investors. We've seen this before, though, with programs in disease states like hereditary angioedema, which at one point was thought to affect only 1,000 or 2,000 patients in the United States. Non-CF bronchiectasis was thought to be a smaller indication at one point. And I think Insmed is doing an amazing job just showing what a large commercial opportunity that is. So it's a phenomenon that exists within orphan, and that's why we're excited to go out and launch this drug, assuming FDA approval and prove out just how attractive this market is.

Great. And then we discussed the clinical programs, but is there anything in your pipeline or that you're working on preclinically that you'd like to highlight?

Sure. Our Chief Scientific Officer is here today, Jeff Martini. Jeff and I have been working together for many years. We've known each other about 15 years. Jeff is doing phenomenal work with the preclinical pipeline. We're going to announce 2 additional programs later this year. So we'll exit 2026 being in 6 rare diseases where nothing is approved, where we have the opportunity to have that first approved therapy. The next announcement -- the next 2 announcements that we'll make, one will be announcing a new API with QTORIN that will be studied in a serious rare disease where nothing is approved where we have the opportunity to have the first approved drug. We also will announce the fourth indication for QTORIN rapamycin. So really important. Over the last couple of decades, it's been shown that there could be as many as 10 or 20 mTOR-driven skin diseases. So what we want to do with QTORIN rapamycin is continually grow the pool of patients that could be addressed with that product candidate. So we'll announce that fourth indication later this year. Jeff and his team have just done a fantastic job with that, and we're eager to share some of the things he's been working on for years with the market.

Awesome. And just moving to the financials. Just remind us of your cash runway and your cash position. And then as you think about kind of building out the sales force and the commercial considerations, how you're thinking about kind of spend over the next 12 months.

Sure. So we were fortunate enough on the heels of positive Phase III data. We went out to raise $150 million in capital. That turned out to be an oversubscribed upsized financing. We closed on $230 million, and we're grateful for the investors who participated in that financing, including many of our existing investors who have been with us for many years. So that capital base on top of our cash on hand, as I mentioned, we had $260 million as of the end of last quarter. That's enough capital to bring us through FDA approval well into the launch, commence our Phase III study in cutaneous venous malformations, read out our Phase II study in angiokeratomas, read out our Phase II study in disseminated superficial actinic porokeratosis as well as continue the great work that Jeff and our Chief Innovation Officer, David Osborne, are doing. So we are well capitalized. We've been very capital efficient. We try to keep the team small and have the senior people on the field doing the work. For us, it's about flushing out as much risk on the least amount of capital. We think that, that will drive value at the share price level.

Great. And in the last few minutes we have, I guess, just speak to kind of the leverage of your pipeline and how that could translate to commercial leverage as in these rare disorders, I think it's so important that you can kind of take advantage of that. Just kind of speak to that, if you will?

Sure. So the leverage in the pipeline is QTORIN. We've developed a platform that we can apply to many different molecules. And so our goal is when we find an existing molecule that has been used systemically to validate the mechanism and the biology in a rare skin disease or a vascular malformation, we can bring that into the platform. And our goal is to go from concept to Phase II data on less than $10 million, very capital efficient. So that's the R&D synergies as a function of what we can do with QTORIN. On the commercial side, in our first indication, microcystic lymphatic malformations, as we talked about, we're going to have a commercial footprint in vascular anomaly centers. Assuming we're FDA approved in cutaneous venous malformations, that is the same call point as microcystic lymphatic malformations. So a lot of commercial synergies with adding that second indication. We also will add -- the goal is to add angiokeratomas, which are lymphatic malformations. Many of those are treated by pediatric dermatologists and dermatologists. So we think that provides synergy as well. disseminated superficial actinic porokeratosis is also a dermatology call point. So we want to continue to stay on strategy, both with the diseases we select, but also ensuring that we have that commercial synergy as we add additional diseases where we have FDA-approved QTORIN molecules.

Wonderful. Thank you for that. I'm just going to open it up again to see if there's any questions from the audience. And in our last 2 minutes here, Wes, anything that you'd also like to highlight or that we should kind of think about the Palvella story?

Sure. From founding, I founded the company, we've always wanted to build an enduring biopharmaceutical company that both develops and successfully commercializes these therapies. I'm honored to work with the team that we've assembled at Palvella. They're very motivated to deliver for these patients and serve these patients. That's how we deliver on our mission. And we're going to repeatably unlock these orphan diseases that were previously thought to be untreatable. And by doing so, we're going to serve patients, and we're also going to open up multibillion-dollar total addressable market opportunities. So we're in a position of momentum with the team, the pipeline going from 4 diseases to 6 diseases by year-end as well as the balance sheet we've assembled.

Great. Well, thank you so much for joining us today. We really appreciate it.

Great. Thanks, Elizabeth.