Executive Summary / Key Takeaways

• Palisade Bio is a clinical-stage biopharmaceutical company focused on developing PALI-2108, a novel, gut-restricted PDE4 inhibitor, for autoimmune, inflammatory, and fibrotic diseases, particularly ulcerative colitis (UC) and fibrostenotic Crohn's disease (FSCD).
• PALI-2108's differentiated mechanism, involving localized bioactivation in the colon, has demonstrated positive Phase 1 safety, tolerability, and pharmacokinetic (PK) results, including a 100% clinical response rate in the Phase 1b UC cohort.
• The company is advancing PALI-2108 into a Phase 1b FSCD trial in H2 2025 (topline data Q1 2026) and plans for Phase 2 IND submissions in H1 2026, targeting a significant unmet need in FSCD where no approved anti-fibrotic therapies exist.
• Despite promising clinical progress, Palisade Bio faces substantial liquidity challenges, with cash sufficient only into Q1 2026, necessitating further capital raises that will likely result in shareholder dilution.
• The company operates in a competitive landscape dominated by large pharmaceutical players, but PALI-2108's targeted approach and dual anti-inflammatory/anti-fibrotic action offer a unique value proposition, particularly in FSCD.

The Unmet Need and Palisade's Strategic Reorientation

Palisade Bio, Inc. (PALI) stands at a pivotal juncture, aiming to transform the treatment landscape for autoimmune, inflammatory, and fibrotic diseases with its lead product candidate, PALI-2108. The company's strategic focus is sharply honed on inflammatory bowel disease (IBD), particularly ulcerative colitis (UC) and the challenging fibrostenotic Crohn's disease (FSCD). This focus addresses a critical unmet medical need, especially in FSCD, where up to half of Crohn's patients develop the condition, yet no approved anti-fibrotic therapies currently exist. Existing treatments primarily manage symptoms, often leading to repeated interventions and surgeries.

Palisade Bio's journey has been one of strategic evolution. Initially operating as Leading Biosciences, Inc. (LBS) with assets like LB1148, a significant shift occurred with its merger with Seneca Biopharma in April 2021. This was followed by a strategic divestiture of non-core assets, including NSI-189.00 to Alto Neuroscience (ANRO) and NSI-532.00.IGF-1.00 to the University of Michigan. The definitive pivot came in September 2023 with the exclusive worldwide license agreement for PALI-2108 and PALI-1908 from Giiant Pharma, Inc., establishing PALI-2108 as the new lead. This reorientation was accompanied by a 25% reduction-in-workforce in October 2023, streamlining resources to align with the PALI-2108 program. By October 2024, PALI-2108 achieved Proof of Concept, transferring full development and commercialization costs to Palisade Bio, underscoring the company's commitment to this asset.

PALI-2108: A Precision Approach to IBD

PALI-2108 represents a differentiated technological approach in the IBD space. It is an orally administered prodrug designed for gut-restricted delivery of phosphodiesterase-4 (PDE4) B/D inhibition specifically to the terminal ileum and colon. This precision is achieved through localized bioactivation by the colonic bacterium enzyme β-glucuronidase. The core benefit of this targeted delivery is to maximize anti-inflammatory and anti-fibrotic effects directly at the site of disease, while significantly minimizing systemic exposure.

This localized action is crucial for addressing a key limitation of systemic PDE4 inhibitors, which have historically been associated with class-related tolerability issues such as nausea and headache. By inhibiting PDE4, PALI-2108 elevates intracellular cyclic Adenosine Monophosphate (cAMP) levels, leading to a reduction in inflammatory molecules and an increase in anti-inflammatory ones. Furthermore, it may prevent the movement of inflammatory cells into colon tissues, thereby lowering the activity of proteins that contribute to fibrosis. Preclinical data presented at Digestive Disease Week (DDW) 2025 highlighted PALI-2108's high potency towards PDE4 B and D compared to other PDE4 inhibitors, demonstrating its potential for excellent tolerability at comparable dose levels. Palisade Bio is also developing a biomarker-based patient selection approach using clinical and multiomics data to identify PDE4-related biomarkers, with the stated goal of developing regulatory-approved tests to select optimal responders to PALI-2108. This precision medicine strategy aims to improve clinical response rates and further differentiate PALI-2108 in the market.

Clinical Momentum and Future Catalysts

Palisade Bio has demonstrated significant clinical momentum for PALI-2108. Following Health Canada's No Objection Letter in October 2024, the Phase 1 clinical study for ulcerative colitis commenced in November 2024. This study, a single-center, randomized, double-blinded, placebo-controlled trial, has completed dosing for 89 subjects across its Single Ascending Dose (SAD), Multiple Ascending Dose (MAD), and Food Effects (FE) cohorts in healthy volunteers, as well as all five UC patients in the UC cohort.

The results have been compelling. In May 2025, the company announced positive topline data from the SAD, MAD, and FE cohorts in healthy volunteers, followed by equally positive results from the UC cohort in August 2025. The study successfully met its primary endpoints of safety, tolerability, and PK, with no serious adverse events (SAEs) or treatment-emergent adverse events (TEAEs) related to laboratory values or EKGs observed. Notably, the Phase 1b ulcerative colitis cohort demonstrated a 100% clinical response rate. These results are a significant de-risking event, validating PALI-2108's mechanism and targeted delivery.

Building on this success, Palisade Bio plans to initiate an additional safety, tolerability, and PKPD exploratory Phase 1b cohort in FSCD in the second half of 2025, with topline data anticipated in Q1 2026. This will be followed by the initiation of Phase 2 clinical programs to assess PALI-2108's efficacy, safety, and tolerability in patients with both FSCD and moderate-to-severe UC. The company also anticipates submitting an Investigational New Drug (IND) application with the U.S. FDA for Phase 2 studies in the first half of 2026, with U.S. clinical trials expected to commence in H1 2026 if approved. These upcoming milestones represent critical catalysts for future value creation.

Competitive Landscape: A Niche Innovator Against Giants

Palisade Bio operates in a highly competitive biopharmaceutical market, primarily against much larger, established players like AbbVie (ABBV), Takeda (TAK), Johnson & Johnson (JNJ), and Pfizer (PFE). These pharmaceutical giants possess extensive resources, diversified product portfolios, global distribution networks, and robust R&D capabilities, leading to superior financial performance, including higher revenues, profitability margins, and cash flow generation. For example, AbbVie's Gross Profit Margin is 0.70, Operating Profit Margin is 0.16, and its Return On Equity is 1.29, starkly contrasting with Palisade Bio's current negative margins as a clinical-stage company.

Despite this formidable competition, Palisade Bio aims to carve out a significant niche through its specialized focus and PALI-2108's differentiated profile. The company's lead candidate offers a unique value proposition as a dual anti-inflammatory and anti-fibrotic therapy, particularly in FSCD, a condition with no currently approved anti-fibrotic treatments. This positions PALI-2108 to address a critical unmet need that larger competitors' broader portfolios may not adequately cover. PALI-2108's oral, gut-restricted delivery is designed to reduce the systemic side effects often associated with other PDE4 inhibitors, potentially offering a more patient-friendly and tolerable treatment option compared to many existing injectable biologics from competitors.

While Palisade Bio lags in operational scale, financial resources, and market share, its agility in innovation and targeted R&D for enzyme-based therapies could allow for faster development in specific acute GI care settings. The appointment of Dr. Emil Chuang, a veteran clinical leader with deep IBD expertise, to the Board of Directors further strengthens the company's strategic guidance in this competitive environment. The company's AI-driven approach to IBD heterogeneity and efficacy also suggests a commitment to leveraging advanced tools, potentially enhancing R&D efficiency, though larger rivals may have greater capacity to deploy such technologies.

Financial Health and Funding Imperatives

Palisade Bio's financial profile reflects its early-stage clinical development status. The company has a limited operating history and has not generated any revenues from product sales, consistently reporting net losses and negative cash flows from operations since its inception. As of June 30, 2025, the company reported an accumulated deficit of $141 million and cash and cash equivalents of approximately $5.4 million.

Operating expenses for the three months ended June 30, 2025, totaled $2.84 million, a 32% decrease from $4.21 million in the prior year. This reduction was primarily driven by a $1.9 million decrease in preclinical joint development expenses for PALI-2108 and a $0.2 million decrease in employee-related costs. However, this was partially offset by a $1.1 million net increase in clinical trial expenses and chemistry, manufacturing, and controls (CMC) expenses as the Phase 1 clinical trial progressed. Clinical trial-related expenses rose from $0.1 million in Q2 2024 to $0.8 million in Q2 2025, reflecting the shift to active clinical development. General and administrative expenses also decreased by $0.4 million, or 26%, largely due to non-recurring share-based compensation in the prior year and reduced consultant costs.

The company's liquidity remains a significant concern. Following a warrant inducement transaction in July 2025, which generated approximately $3.9 million in gross cash proceeds, Palisade Bio believes it has sufficient cash to fund planned operations into the first quarter of 2026. However, management has explicitly stated "substantial doubt about the Company’s ability to continue as a going concern for a period of one year following the date that these condensed consolidated financial statements are issued," indicating a clear need for additional financing beyond Q1 2026. Historically, the company has relied on equity financings, and future capital raises are anticipated through equity offerings, debt, third-party funding, or licensing arrangements, which will likely result in substantial dilution for existing shareholders.

Risks and Remediation

Investing in Palisade Bio carries inherent risks typical of clinical-stage biopharmaceutical companies. The most pressing is the "going concern" warning, signaling that the company's current cash runway is limited and significant additional capital is required to sustain operations and advance PALI-2108. The ability to secure this funding on acceptable terms is not assured and is subject to broader economic and market conditions.

Furthermore, a material weakness in internal controls over financial reporting, identified in Q2 2021, persists as of June 30, 2025. This weakness, stemming from a lack of controls in financial closing and reporting processes, including segregation of duties, poses a risk of material misstatements in financial statements. Management is actively engaged in remediation efforts, including hiring additional finance personnel, implementing new accounting software, and updating policies and controls. The company also faces the risk of Nasdaq delisting due to non-compliance with the minimum bid price requirement, although it is currently under monitoring.

Clinical development itself is fraught with uncertainty, including the potential for unforeseen side effects, difficulties in patient enrollment, and the risk that data from Canadian trials may not be fully accepted by the FDA, potentially requiring additional costly trials. Even if PALI-2108 gains regulatory approval, its commercial success will depend on broad physician and patient adoption, as well as adequate reimbursement levels, which are uncertain. The company's heavy reliance on third-party contract research organizations (CROs) and contract manufacturing organizations (CMOs) for clinical trials and drug supply introduces further operational and quality control risks.

Conclusion

Palisade Bio presents a compelling, albeit high-risk, investment thesis centered on PALI-2108, its differentiated prodrug PDE4 inhibitor. The company's strategic pivot to focus on this asset, coupled with positive Phase 1 clinical data demonstrating safety, tolerability, and a 100% clinical response in UC patients, marks significant progress. PALI-2108's targeted delivery and dual anti-inflammatory/anti-fibrotic action position it uniquely to address the substantial unmet need in FSCD, a market currently devoid of approved anti-fibrotic therapies. The upcoming Phase 1b FSCD trial and planned Phase 2 IND submissions represent critical near-term catalysts that could further validate the technology and unlock significant value.

However, the path forward is heavily dependent on the company's ability to secure substantial additional financing beyond Q1 2026. While the clinical narrative is strengthening, the financial reality of a clinical-stage biopharma with a "going concern" warning cannot be understated. Investors must weigh the promising clinical advancements and the potential for PALI-2108 to establish a leadership position in niche IBD segments against the persistent need for capital, the inherent risks of drug development, and the ongoing efforts to strengthen internal controls. The success of PALI-2108 in subsequent trials and the company's ability to effectively fund its operations will be the ultimate determinants of its long-term viability and shareholder returns.