Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements in this Quarterly Report on Form 10-Q that are not strictly historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. Some of these factors are more fully discussed in the section of this Quarterly Report on Form 10-Q entitled "Risk Factors" and elsewhere herein. We do not undertake to update any of these forward-looking statements or announce the results of any revisions to these forward-looking statements except as required by law.

We recommend investors read this entire Quarterly Report on Form 10-Q, including the "Risk Factors" section, the condensed consolidated financial statements, and related notes thereto. As used in this Quarterly Report on Form 10-Q, unless the context indicates or otherwise requires, "Palisade," "Palisade Bio," the "Company," "we," "us," and "our" or similar designations in this report refer to Palisade Bio, Inc., a Delaware Corporation, and its subsidiaries. Any reference to "common shares" or "common stock," refers to our $0.01 par value common stock. Any reference to "Series A Preferred Stock" refers to our Series A 4.5% Convertible Preferred Stock. Any reference herein that refers to preclinical studies also refers to nonclinical studies.

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided, in addition to the accompanying condensed consolidated financial statements and notes, to assist you in understanding our results of operations, financial condition and cash flows. The MD&A is organized as follows:

Executive Overview

We are a clinical-stage biopharmaceutical company developing next-generation, once-daily, oral phosphodiesterase-4 ("PDE4") inhibitor prodrugs designed for targeted delivery to the terminal ileum and colon. Our lead clinical product candidate, PALI-2108, is being developed as a treatment for patients living with inflammatory bowel disease ("IBD"), including ulcerative colitis ("UC") and Crohn's disease ("CD").

Our Precision Medicine Approach

We are developing a biomarker-based patient selection approach that we believe may aid clinicians in identifying patients who may better respond to PALI-2108, thereby improving the rate of clinical response previously demonstrated with PDE4 inhibitors. Our approach involves the use of clinical and multiomics data from large patient populations to identify PDE4-related biomarkers that are correlated with IBD, its severity, and which are modified with local PDE4-inhibitor therapy in the colon. Based on our research, we have initiated the development of corresponding biomarker assays for these PDE4-related biomarkers that we expect to use in our future clinical studies with the aim of developing regulatory approved tests for selecting potential responders to PALI-2108.

PALI-2108

Our lead clinical product candidate, PALI-2108, is a once-daily, oral prodrug designed for targeted delivery of PDE4 inhibition to the terminal ileum and colon through local bacterial bioactivation. The prodrug is pharmacologically inactive until it reaches the lower intestine, where bacterial enzymes convert it into the active PDE4 inhibitor at sites of inflammation and fibrosis. This targeted activation strategy prevents absorption in the upper gut, enables sustained

local exposure with controlled systemic distribution, and is engineered to reduce peak plasma levels, thereby improving the overall therapeutic index and reducing tolerability limitations such as diarrhea, nausea and headache that have constrained systemic PDE4 inhibitors.

With a glucuronic acid-derived moiety, PALI-2108 is intended to limit absorption until activated by the colonic bacterium enzyme β-glucuronidase. We believe that localized bioactivation may help focus the effects of PALI-2108 where it would be most beneficial to a patient suffering from IBD.

Phase 1 Clinical Study of PALI-2108

The Phase 1 clinical study of PALI-2108 is a single-center, randomized, double-blinded, placebo-controlled clinical study focused on safety, tolerability, and pharmacokinetics ("PK") in both healthy volunteers and UC patients. The clinical study included an open-label UC patient cohort with multiple dosing arms in which we evaluated the pharmacodynamics ("PD") of PALI-2108 in healthy volunteers.

On October 9, 2024, Health Canada issued a No Objection Letter for our Phase 1 human clinical study of PALI-2108 for the treatment of UC. We officially began the study on November 7, 2024. We have completed the dosing of 89 subjects across all planned cohorts of the study. Each of the five Single Ascending Dose ("SAD") cohorts and the four Multiple Ascending Dose ("MAD") cohorts consisted of eight subjects, with six subjects receiving the drug and two subjects receiving a placebo. The food effects ("FE") study included two cohorts each of six subjects, of which one cohort was in a fasted state and the other cohort in a fed state. Finally, we have completed the dosing of all five UC patients in the UC cohort of the study.

On May 27, 2025, we announced positive results from the SAD, MAD and FE cohorts in healthy volunteers and on August 7, 2025 and September 17, 2025, we announced positive results from the UC cohort portion of the study. The clinical study successfully met its primary endpoints of safety, tolerability, and PK. Although the results are preliminary and require validation in randomized, controlled trials, we also reported that the patients included in the UC cohort demonstrated rapid and consistent clinical activity, with all five of the patients responding to treatment.

On October 16, 2025, we dosed our first patients in an exploratory Phase 1b cohort in fibrostenotic Crohn's disease ("FSCD") to evaluate the safety, tolerability, PK, and PD of once-daily oral dosing of PALI-2108 over a 14-day treatment period as well as evaluate tissue-level pharmacology and molecular responses using paired ileal biopsies and peripheral blood mononuclear cells. The Phase 1b study incorporated paired ileal biopsies and advanced molecular analyses, including cAMP quantification and RNA sequencing, to characterize treatment-induced changes in inflammatory and fibrotic signaling pathways.

On March 30, 2026, we announced positive results from the exploratory Phase 1b cohort in FSCD. The study demonstrated favorable safety and tolerability, robust PD target engagement in ileal tissue, and encouraging early signals of clinical activity in the five patients with FSCD that were dosed. We believe these data support the continued development of PALI-2108 as a potential first therapy designed to address both inflammatory and fibrotic components of Crohn's disease.

We anticipate dosing the first patient in a Phase 2 clinical trial to assess PALI-2108's efficacy, safety, and tolerability in patients with moderate to severe UC in the third quarter of 2026.

Planned Clinical Trial in the United States

In addition to conducting clinical studies in Canada, we anticipate the results from the Phase 1/1b UC program together with the data from the exploratory Phase 1b cohort in FSCD will support Investigational New Drug Application ("IND") submissions to the FDA for a Phase 2 UC study in the second quarter of 2026 and a Phase 2 CD study in the second half of 2026.

RESULTS OF OPERATIONS

Research and Development Expenses

Our research and development expenses include:

Our direct research and development expenses are tracked by product candidate and consist primarily of external costs, such as fees paid under third-party license agreements and to outside consultants, CROs, clinical sites, contract manufacturing organizations ("CMOs") and research laboratories in connection with our process development, manufacturing, preclinical and clinical development, and regulatory activities. We do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including other indirect costs, to specific product candidates because these costs are deployed across multiple programs and, as such, are not separately classified. As needed, we manage third parties that are engaged to conduct our (i) research activities, (ii) preclinical, clinical and translational science development activities, (iii) drug manufacturing activities, and (iv) process development.

General and Administrative Expenses

Our general and administrative expenses consist primarily of (i) salary and employee-related costs and benefits, including stock-based compensation, (ii) professional fees for legal, intellectual property, investor and public relations, accounting and audit services, insurance costs, director and committee fees, and (iii) general corporate expenses.

Results of Operations

Comparison of the three months ended March 31, 2026 and 2025

The following table summarizes our results of operations for the three months ended March 31, 2026 and 2025 (in thousands):

Research and Development Expenses

Our research and development expenses increased by approximately $5.4 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase is primarily attributable to (i) an approximately $2.4 million increase in research and development employee-related expenses, (ii) an approximately $1.2 million net increase in clinical trial-related expenses associated with the ongoing clinical trials of PALI-2108, (iii) an approximately $1.2 million increase in chemistry, manufacturing and controls ("CMC") expenses, and (iv) an approximately $0.6 million reduction in research and development expenses directly related to the preclinical joint

development of PALI-2108 that was recognized in the three months ended March 31, 2025 and did not recur in three months ended March 31, 2026.

The increase in research and development employee-related expenses for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, was primarily due to an approximately $2.0 million increase in non-cash share-based compensation expense and an approximately $0.4 million increase in research and development salaries and benefits expense due to higher research and development headcount necessary to support our PALI-2108 development strategy.

We recognized clinical trial-related expenses of approximately $2.3 million for the three months ended March 31, 2026, compared to clinical trial-related expenses of $1.1 million for the three months ended March 31, 2025, an increase of approximately $1.2 million. CMC expenses increased from virtually none for the three months ended March 31, 2025 to approximately $1.2 million for the three months ended March 31, 2026. Both the increase in clinical trial-related expenses and CMC expenses was attributable to increased activity related to our ongoing clinical trials of PALI-2108.

We recognized no preclinical joint development costs associated with our research collaboration and license agreement with Giiant Pharma Inc. ("Giiant") for the three months ended March 31, 2026. For the three months ended March 31, 2025, we recognized a reduction in preclinical joint development costs of $0.6 million that was related to funds received by us from Giiant. We expect no significant preclinical joint development costs associated with our research collaboration and license agreement Giiant in future periods.

General and Administrative Expenses

Our general and administrative expenses increased by approximately $3.0 million from approximately $1.4 million for the three months ended March 31, 2025 to approximately $4.4 million for the three months ended March 31, 2026. The increase was primarily as a result of an approximately $2.5 million increase in general and administrative employee-related expenses due to an approximately $2.3 million increase in non-cash share-based compensation expense and an approximately $0.2 million increase in general and administrative salaries and benefits, and an approximately $0.5 million increase in professional fees, primarily legal fees.

Other (expense) income

Other income, net, for the three months ended March 31, 2026 and 2025 consists primarily of dividend income from our investments of excess cash in money market funds with maturities of three months or less. The increase of $1.1 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025, is due to the increased investment of excess cash in money market accounts after the October 2025 Offering, which is further described below.

Liquidity and Capital Resources

We expect to incur substantial losses for the foreseeable future. Since our inception, we have financed our operations through the sales of our securities, issuance of debt, the exercise of common stock warrants, and to a lesser degree, grants and research contracts as well as the licensing of our intellectual property to third parties.

The October 2025 Offering, as further described below, significantly increased our available working capital and our ability to fund our operations into the foreseeable future. Based on our current operating plan and our cash and cash equivalents balance of $132.6 million as of March 31, 2026, management believes that we have sufficient capital to fund our operations through major clinical development milestones including a Phase 2 primary efficacy readout of PALI-2108 for UC that is expected in the second half of 2027 and a Phase 2 primary efficacy readout of PALI-2108 for CD that is expected in early 2028.

Future capital requirements will depend upon many factors, including the timing and extent of spending on research and development and market acceptance of our products, if approved for commercial sale. We may seek additional funding through public and private financings, debt financings, collaboration agreements, strategic alliances and licensing agreements. Although we have been successful in raising capital in the past, there is no assurance of success in obtaining such additional financing on terms acceptable to us, if at all, and there is no assurance that we will be able to enter into collaborations or other arrangements. If we are unable to obtain funding, it could force delays, reduce or eliminate research and development programs, product portfolio expansion or commercialization efforts, which could adversely affect our future business prospects, and the ability to continue operations.

Pursuant to the underwritten offering of common stock and pre-funded warrants we completed on October 2, 2025 (the "October 2025 Offering"), we issued and sold (a) 113,240,564 shares of our common stock, par value $0.01 per share, at a public offering price of $0.70 per share, and (b) 83,914,280 pre-funded warrants to purchase one share of the our common stock, par value $0.01 per share, at a public offering price of $0.6999 per share. Net proceeds from the offering, including the full exercise of the underwriter's over-allotment option, were approximately $127.6 million, consisting of gross cash proceeds of $138.0 million less underwriting discounts and commissions and other cash equity issuance costs of approximately $10.4 million. We intend to use the net proceeds from the offering for working capital and general corporate purposes, including the development of PALI-2108 for the treatment of UC and CD.

Refer to Note 5, Stockholders' Equity in Part I Item 1 of this Quarterly Report on Form 10-Q for further details of our recent equity transactions.

Cash Flows

As of March 31, 2026, we had $132.7 million in cash, cash equivalents and restricted cash. The following table shows a summary of our cash flows for the three months ended March 31, 2026 and 2025 (in thousands):

Net Cash Used in Operating Activities

Cash used in operating activities was approximately $3.9 million for the three months ended March 31, 2026, which reflects an approximately $9.6 million net loss adjusted for (i) approximately $1.4 million of net cash inflows related to changes in operating assets and liabilities, and (ii) certain non-cash items impacting the net loss, consisting primarily of an approximately $4.3 million non-cash expense recognized for stock-based compensation and related charges. The net cash inflow from operating assets and liabilities was primarily attributable to an approximately $2.6 million cash inflow from an increase in accounts payable and accrued liabilities as of March 31, 2026, compared to December 31, 2025, primarily due to higher clinical trial-related expenses as a result of increased clinical trial activity, partially offset by net cash outflow of approximately $1.2 million driven by the payment of annual employee cash bonuses in the period.

Cash used in operating activities was approximately $2.3 million for the three months ended March 31, 2025, which reflects an approximately $2.2 million net loss adjusted for (i) approximately $0.2 million of net cash outflows related to changes in operating assets and liabilities, and (ii) certain non-cash items impacting the net loss, consisting primarily of an approximately $0.1 million non-cash expense recognized for stock-based compensation and related charges. The net cash outflow from operating assets and liabilities was primarily attributable to a net cash outflow of approximately $0.6 million driven by the payment of annual employee cash bonuses in the period, partially offset by an increase in accounts payable and accrued liabilities as of March 31, 2025, compared to December 31, 2024. The increase in accounts payable and accrued liabilities was primarily due to higher accrued clinical trial-related expenses partially offset by lower accrued joint development expenses associated with our research collaboration and license agreement with Giiant.

Net Cash Provided by Financing Activities

For the three months ended March 31, 2026, cash provided by financing activities of approximately $3.1 million was primarily attributable to net cash proceeds of approximately $3.2 million from the issuance of our common stock to an investor and the issuance of our common stock in association with the Crohn's and Colitis Foundation Research Program Funding Agreement, both of which are described in Note 5, Stockholders' Equity in Part I Item 1 of this Quarterly Report on Form 10-Q, partially offset by the payment of equity issuance costs related to the October 2025 Offering and payments made on our insurance financing arrangement, which totaled approximately $0.1 million.

For the three months ended March 31, 2025, cash used in financing activities of approximately $0.3 million was attributable to the payment of equity issuance costs of approximately $0.2 million, related to our underwritten equity offering completed in December of 2024, and payments made on our insurance financing arrangement of approximately $0.1 million.

Contractual Obligations

We currently have no significant contractual obligations.

Future Liquidity Needs

We have incurred significant operating losses and negative cash flows from operations since our inception. To date, we have not been able to generate significant revenues nor achieve operating profitability. Based upon our cash and cash equivalents balance of $132.6 million as of March 31, 2026, we believe we have sufficient capital to fund our operations through major clinical development milestones including a Phase 2 primary efficacy readout of PALI-2108 for UC that is expected in the second half of 2027 and a Phase 2 primary efficacy readout of PALI-2108 for CD that is expected in early 2028. Notwithstanding, should our anticipated level of operations significantly change, we may require additional financing sooner than anticipated. Further, beyond the readout expected in early 2028, we will require additional financing to continue at our expected level of operations, which would include a potential Phase 3 clinical trial and possible commercialization of PALI-2108 for the treatment of UC and CD.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates, judgments, and assumptions that impact the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of expenses during the reporting period. Our estimates are based on historical experience, known trends, events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies.

Our critical accounting estimates are identified in Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our most recently filed Annual Report on Form 10-K include the discussion of estimates used for accrued research and development expenses and our contingent consideration obligation. We believe there has been no significant changes in our critical accounting policies and significant judgments and estimates since those disclosed in our most recently filed Annual Report on Form 10-K.

Recently Issued or Adopted Accounting Pronouncements

See Note 2 to the notes to the condensed consolidated financial statements for the quarter ended March 31, 2026, included elsewhere in this Quarterly Report on Form 10-Q.