Palvella Therapeutics (PVLA) S-4/ARegistration of securities issued in business combination transactions (amended)

Table of Contents

As filed with the Securities and Exchange Commission on November 5, 2024

Registration No. 333-281459

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________

Amendment No. 4 to

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

__________________________

PIERIS PHARMACEUTICALS, INC.

(Exact name of co-registrant as specified in its charter)

__________________________

225 Franklin Street, 26^th Floor

Boston, Massachusetts 02110

(857) 246-8998

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Pieris Pharmaceuticals, Inc.

225 Franklin Street, 26^th Floor

Boston, Massachusetts 02110

(857) 246-8998

(Name, address, including zip code, and telephone number, including area code, of agent for service)

__________________________

Copies to:

__________________________

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) ☐

__________________________

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this proxy statement/prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED November 5, 2024

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

_____________________________________________

To the Stockholders of Pieris Pharmaceuticals, Inc. and Palvella Therapeutics, Inc.,

Pieris Pharmaceuticals, Inc., a Nevada corporation, or “Pieris”, and Palvella Therapeutics, Inc., a Delaware corporation, or “Palvella”, entered into an Agreement and Plan of Merger, or the “Merger Agreement”, on July 23, 2024, pursuant to which, subject to the terms and conditions thereof, Polo Merger Sub, Inc., or “Merger Sub”, a Delaware corporation and a wholly owned subsidiary of Pieris, will merge with and into Palvella, with Palvella surviving as a wholly owned subsidiary of Pieris, and the surviving corporation of the merger, which transaction is referred to herein as the “Merger”.

Immediately prior to the effective time of the Merger, or the “Effective Time” each share of Palvella capital stock will be converted into the right to receive a number of shares of Pieris common stock equal to the exchange ratio described in more detail in the section titled “The Merger—Exchange Ratio” beginning on page 152 of the accompanying proxy statement/prospectus. Based on Pieris’ and Palvella’s capitalization as of July 23, 2024, the date the Merger Agreement was executed, the exchange ratio is estimated to be equal to approximately 0.315478222 shares of Pieris common stock for each share of Palvella capital stock. The final exchange ratio is subject to adjustment prior to closing of the Merger based upon Pieris’ net cash at as of the date immediately preceding the closing of the Merger.

In connection with the Merger, each option to purchase Palvella common stock, whether vested or unvested, and all stock or equity-related plans, agreements or arrangements, each and collectively a “Palvella Stock Plan”, that is outstanding immediately prior to the Effective Time will be assumed by Pieris and will become an option to acquire, on the same terms and conditions as were applicable to such Palvella stock option immediately prior to the Effective Time, a number of shares of Pieris common stock equal to the number of shares of Palvella common stock subject to the unexercised portion of the Palvella stock option immediately prior to the Effective Time, multiplied by the exchange ratio (rounded down to the nearest whole share number), with an exercise price per share for the options equal to the exercise price per share of such Palvella stock option immediately prior to the Effective Time divided by the exchange ratio (rounded up to the nearest whole cent). Such assumed options will continue to be governed by the terms and conditions of the Palvella Stock Plan.

Immediately after the Merger, but without giving effect to the PIPE Financing (as defined below), Pieris securityholders as of immediately prior to the Merger are expected to own approximately 18% of the outstanding shares of capital stock of the combined company and former Palvella securityholders, are expected to own approximately 82% of the outstanding shares of capital stock of the combined company, in each case, on a fully-diluted basis, calculated using the treasury stock method, subject to certain assumptions, including, but not limited to, a valuation for Pieris equal to $21 million, provided, that (a) if Pieris’ net cash as of the closing is greater than $11 million, then Pieris’ valuation will be adjusted upwards on a dollar-for-dollar basis by the difference of: (i) Pieris’ net cash, minus (ii) $11 million, and (b) if Pieris’ net cash is less than $11 million, then Pieris’ valuation will be adjusted downwards on a dollar-for-dollar basis by the difference of: (i) $11 million, minus (ii) Pieris’ net cash, as further described in the Merger Agreement.

Certain investors (including the holders of outstanding convertible notes issued by Palvella), or the “PIPE Investors” have agreed to subscribe for and purchase (in cash or by cancellation of convertible notes) an aggregate of approximately 3,154,241 of shares of Pieris common stock, at a price per share equal to $13.7299, multiplied by (x) 0.315478222 divided by (y) the exchange ratio, or the “Purchase Price”, subject to adjustment as set forth in the securities purchase agreement, by and among Pieris and certain investors, or the “Purchase Agreement”, and/or in lieu of Pieris common stock to certain purchasers who so choose, pre-funded warrants, or the Pre-Funded Warrants, to purchase up to 2,592,585 shares of the combined company common stock, at a purchase price per Pre-Funded Warrant equal to the Purchase Price minus $0.001, referred to as the “PIPE Financing”, which is expected to close immediately following the closing of the Merger. The gross proceeds from the PIPE Financing are expected to be approximately $78.9 million, consisting of approximately $60.0 million in cash and the conversion of approximately $18.9 million of principal and interest payable under the outstanding convertible notes issued by Palvella, before paying estimated expenses. The closing of the PIPE Financing is conditioned upon the closing of the Merger, as well as certain other conditions.

Additionally, immediately following the PIPE Financing, the Pieris securityholders as of immediately prior to the Merger are expected to hold approximately 10.47% of the shares of combined company capital stock, the Palvella securityholders as of immediately prior to the Merger are expected to hold approximately 50.18% of the shares of combined company capital stock, and the PIPE Investors are expected to hold approximately 39.35% of the shares of combined company capital stock, in each case, on a fully diluted basis, subject to certain assumptions.

Shares of Pieris common stock are currently listed on The Nasdaq Capital Market under the symbol “PIRS.” On                   , 2024, the last trading day before the date of the accompanying proxy statement/prospectus, the closing sale price of Pieris common stock was $                   per share. Palvella intends to file a listing application for the combined company with The Nasdaq Stock Market Inc., or “Nasdaq”. After completion of the Merger, the combined company will be renamed “Palvella Therapeutics, Inc.” and, assuming approval of the initial listing application, the common stock of the combined company will trade on The Nasdaq Capital Market under the symbol “PVLA.” However, Nasdaq’s determination may not be known at the time stockholders are asked to vote on the Merger.

Pieris stockholders are cordially invited to attend the special meeting of Pieris stockholders, or the Pieris special meeting. Pieris is holding the Pieris special meeting, on Wednesday, December 11, 2024, at 9:00 a.m. Eastern Time, unless postponed or adjourned to a later date, in order to obtain the stockholder approvals necessary to complete the Merger and related matters. The Pieris special meeting will be held entirely online. Pieris stockholders will be able to attend and participate in the Pieris special meeting online by visiting www.virtualshareholdermeeting.com/PIRS2024SM, where they will be able to listen to the meeting live, submit questions and vote. At the Pieris special meeting, Pieris will ask its stockholders:

As described in the accompanying proxy statement/prospectus, certain Pieris stockholders who in the aggregate owned approximately 19.6% of the outstanding shares Pieris common stock as of July 23, 2024, and certain Palvella stockholders who in the aggregate owned approximately 64.3% of the outstanding shares of Palvella voting capital stock as of July 23, 2024, are parties to stockholder support agreements with Pieris and Palvella, respectively, whereby such stockholders have agreed, subject to the terms of the support agreements, to vote in favor of the approval of the transactions contemplated therein, including, with respect to Palvella stockholders, adoption of the Merger Agreement and approval of the Merger and, with respect to such Pieris stockholders, approval of the issuance of Pieris common stock in the Merger pursuant to the Merger Agreement, and the approval and ratification, respectively, of the amendments to the amended and restated articles of incorporation of Pieris to increase the number of authorized shares and change the name of the corporation from “Pieris Pharmaceuticals, Inc.” to “Palvella Therapeutics, Inc.” Following the effectiveness of this Registration Statement on Form S-4 of which the accompanying proxy statement/prospectus is a part and pursuant to the Merger Agreement, Palvella stockholders holding a sufficient number of shares of Palvella voting capital stock to adopt the Merger Agreement and approve the Merger and related transactions will be asked to execute written consents providing for such adoption and approval.

After careful consideration, each of the Pieris and Palvella boards of directors has approved the Merger Agreement and has determined that it is advisable to consummate the Merger and the other transactions contemplated by the Merger Agreement. The Pieris board of directors has approved the proposals described in the accompanying proxy statement/prospectus and recommends that its stockholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus.

_____________________________________________

More information about Pieris, Palvella, the Merger Agreement and transactions contemplated thereby and the foregoing proposals is contained in the accompanying proxy statement/prospectus. Pieris urges you to read the accompanying proxy statement/prospectus carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 25 OF THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.

Each of Pieris and Palvella are excited about the opportunities the Merger brings to Pieris and Palvella stockholders and thank you for your consideration and continued support.

Sincerely,

Neither the Securities and Exchange Commission, or “SEC”, nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the accompanying proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated                   ,                   and is first being mailed to Pieris stockholders on or about                   ,                   .

PIERIS PHARMACEUTICALS, INC.

225 Franklin Street, 26^th Floor

Boston, Massachusetts 02110

(857) 246-8998

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the stockholders of Pieris Pharmaceuticals, Inc.:

NOTICE IS HEREBY GIVEN that the Pieris special meeting will be held on Wednesday, December 11, 2024, at 9:00 a.m. Eastern Time, unless postponed or adjourned to a later date. The Pieris special meeting will be held entirely online. You will be able to attend and participate in the Pieris special meeting online by visiting www.virtualshareholdermeeting.com/PIRS2024SM, where you will be able to listen to the meeting live, submit questions and vote.

The Pieris special meeting will be held for the following purposes:

Your vote is important. Assuming a quorum is present (i) the affirmative vote of the holders of a majority in voting power of the outstanding shares of Pieris common stock and preferred stock, voting as a single class, entitled to vote thereon is required for approval of Proposal No. 2 and (ii) the affirmative vote of the holders of a majority of the votes cast on the proposal by the holders of shares of Pieris common stock present or represented at the meeting (with abstentions and broker non-votes not considered as votes cast) is required for approval of Proposal Nos. 1, 3, 4 and 5. Approval of Proposal Nos. 1 and 2 is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1 and 2.

Pieris requests that you sign and return the enclosed proxy or submit a proxy to vote online, by telephone or by mail before the special meeting date to ensure that your shares will be represented at the Pieris special meeting, even if you plan to virtually attend. You may change or revoke your proxy at any time before it is voted at the Pieris special meeting.

THE PIERIS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS FAIR TO, IN THE BEST INTERESTS OF, AND ADVISABLE TO PIERIS AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE PIERIS BOARD OF DIRECTORS RECOMMENDS THAT PIERIS STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

By Order of the Pieris board of directors,

Boston, Massachusetts

, 2024

REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Pieris that is not included in or delivered with this document. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the Corporate Secretary of Pieris Pharmaceuticals, Inc., 225 Franklin Street, 26^th Floor, Boston, Massachusetts 02110, by calling (857) 246-8998 or via email to info@pieris.com.

You may also request this information from our proxy solicitor, Alliance Advisors LLC, or “Alliance Advisors”, using the following contact information:

Alliance Advisors LLC

200 Broadacres Drive, 3^rd Floor

Bloomfield, New Jersey 07003

833-782-7190 (toll free)

PIRS@allianceadvisors.com (Email)

To ensure timely delivery of these documents, any request should be made no later than                   to                   receive them before the Pieris special meeting.

For additional details about where you can find information about Pieris, please see the section titled “Where You Can Find More Information” beginning on page 336 of this proxy statement/prospectus.

TABLE OF CONTENTS

Page

QUESTIONS AND ANSWERS ABOUT THE MERGER

The following section provides answers to frequently asked questions about the Merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections. You should carefully read this entire proxy statement/prospectus, including each of the annexes.

Q: What is the Merger?

A: Pieris and Palvella have entered into the Merger Agreement, dated as of July 23, 2024, a copy of which is attached as Annex A to this proxy statement/prospectus. The Merger Agreement contains the terms and conditions of the proposed business combination of Pieris and Palvella. Pursuant to the Merger Agreement, Merger Sub a Delaware corporation and a wholly-owned subsidiary of Pieris, will merge with and into Palvella, with Palvella surviving as a wholly owned subsidiary of Pieris. After the completion of the Merger, Pieris will change its corporate name to “Palvella Therapeutics, Inc.” The combined company following the Merger is referred to herein as the “combined company”.

Immediately prior to the Effective Time, each share of Palvella capital stock will be converted into the right to receive a number of shares of Pieris common stock equal to the Exchange Ratio described in more detail in the section titled “The Merger—Exchange Ratio” beginning on page 152 of the accompanying proxy statement/prospectus. Based on Pieris’ and Palvella’s capitalization as of July 23, 2024, the date the Merger Agreement was executed, the exchange ratio is estimated to be equal to approximately 0.315478222 shares of Pieris common stock for each share of Palvella capital stock. The final exchange ratio is subject to adjustment prior to closing of the Merger based upon Pieris’ net cash as of the date immediately preceding the closing of the Merger.

In connection with the Merger, each stock option granted under the Palvella Stock Plan, that is outstanding immediately prior to the Effective Time will be assumed by Pieris and will become an option to acquire, on the same terms and conditions as were applicable to such Palvella stock option immediately prior to the Effective Time, a number of shares of Pieris common stock equal to the number of shares of Palvella common stock subject to the unexercised portion of the Palvella stock option immediately prior to the Effective Time, multiplied by the exchange ratio (rounded down to the nearest whole share number), with an exercise price per share for the options equal to the exercise price per share of such Palvella stock option immediately prior to the Effective Time divided by the exchange ratio (rounded up to the nearest whole cent). Such assumed options will continue to be governed by the terms and conditions of the Palvella Stock Plan.

Each share of Pieris common stock and option to purchase Pieris common stock that is issued and outstanding at the Effective Time will remain issued and outstanding and such shares and options will be unaffected by the Merger. Immediately after the Merger, but without giving effect to the PIPE Financing, Pieris securityholders as of immediately prior to the Merger are expected to own approximately 18% of the outstanding shares of capital stock of the combined company and former Palvella securityholders, are expected to own approximately 82% of the outstanding shares of capital stock of the combined company, in each case, on a fully-diluted basis, calculated using the treasury stock method, subject to certain assumptions, including, but not limited to, a valuation for Pieris equal to $21 million, provided, that (a) if Pieris’ net cash as of the closing is greater than $11 million, then Pieris’ valuation will be adjusted upwards on a dollar-for-dollar basis by the difference of: (i) Pieris’ net cash, minus (ii) $11 million, and (b) if Pieris’ net cash is less than $11 million, then Pieris’ valuation will be adjusted downwards on a dollar-for-dollar basis by the difference of: (i) $11 million, minus (ii) Pieris’ net cash, as further described in the Merger Agreement.

The PIPE Investors have agreed to subscribe for and purchase (in cash or by cancellation of convertible notes) an aggregate of approximately 3,154,241 of shares of Pieris common stock, at a price per share equal to the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, and/or in lieu of Pieris common stock to certain purchasers who so choose, Pre-Funded Warrants to purchase up to 2,592,585 shares of the combined company common stock, at a purchase price per Pre-Funded Warrant equal to the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, minus $0.001, referred to as the “PIPE Financing”, which is expected to close immediately following the closing of the Merger. The gross proceeds from the PIPE Financing are expected to be approximately $78.9 million, consisting of approximately $60.0 million in cash and the conversion of approximately $18.9 million of principal and interest payable under the outstanding convertible notes issued by Palvella, before paying estimated expenses. The closing of the PIPE Financing is conditioned upon the closing of the Merger as well as certain other conditions.

Additionally, immediately following the PIPE Financing, the Pieris securityholders as of immediately prior to the Merger are expected to hold approximately 10.47% of the shares of combined company capital stock, the Palvella securityholders as of immediately prior to the Merger are expected to hold approximately 50.18% of the shares of combined company capital stock, and the PIPE Investors are expected to hold approximately 39.35% of the shares of combined company capital stock, in each case, on a fully diluted basis, subject to certain assumptions.

Q: Why are the two companies proposing to merge?

A: Pieris’ and Palvella’s management believe that combining the two companies will result in a company with a robust pipeline, strong leadership team and substantial capital resources, positioning it to potentially become a leading company focused on developing and, if approved, commercializing novel therapies to treat patients suffering from rare skin diseases for which there are no U.S. Food and Drug Administration, or “FDA,” approved therapies. ”. For a more complete description of the reasons for the Merger, please see the sections titled “The Merger—Pieris Reasons for the Merger” and “The Merger—Palvella Reasons for the Merger” beginning on pages 135 and 137, respectively, of this proxy statement/prospectus.

Q: Why am I receiving this proxy statement/prospectus?

A: You are receiving this proxy statement/prospectus because you have been identified as a stockholder of Pieris as of the close of business on October 28, 2024, or the “record date”, and you are entitled to vote at the Pieris special meeting to approve the matters set forth herein. This document serves as:

Q: What is the PIPE Financing?

A: On July 23, 2024, Pieris entered into the Purchase Agreement with the PIPE Investors, pursuant to which the investors have agreed to subscribe for and purchase (in cash or by cancellation of convertible notes) an aggregate of approximately 3,154,241 of shares of Pieris common stock, at a price per share equal to the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, and/or in lieu of Pieris common stock to certain purchasers who so choose, Pre-Funded Warrants to purchase up to 2,592,585 shares of the combined company common stock, at a purchase price per Pre-Funded Warrant equal to the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, minus $0.001, referred to as the “PIPE Financing”, which is expected to close immediately following the closing of the Merger. The gross proceeds from the PIPE Financing are expected to be approximately $78.9 million, consisting of approximately $60.0 million in cash and the conversion of approximately $18.9 million of principal and interest payable under the outstanding convertible notes issued by Palvella, before paying estimated expenses. The closing of the PIPE Financing is conditioned upon the closing of the Merger as well as certain other conditions.

Additionally, immediately following the PIPE Financing, the Pieris securityholders as of immediately prior to the Merger are expected to hold approximately 10.47% of the shares of combined company capital stock, the Palvella securityholders as of immediately prior to the Merger are expected to hold approximately 50.18% of the shares of combined company capital stock, and the PIPE Investors are expected to hold approximately 39.35% of the shares of combined company capital stock, in each case, on a fully diluted basis, subject to certain assumptions.

Q: What proposals will be voted on at the Pieris special meeting the approval of which are conditions to the closing of the Merger?

A: Pursuant to the terms of the Merger Agreement, the following proposals must be approved by the requisite stockholder vote at the Pieris special meeting in order for the Merger to close:

Approval of each of Proposal Nos. 1 and 2 is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1 and 2.

In addition to the requirement of obtaining Pieris stockholder approval, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 172 of this proxy statement/prospectus.

Q: What proposals are to be voted on at the Pieris special meeting, other than Proposal Nos. 1 and 2?

A: At the Pieris special meeting, the holders of Pieris common stock will also be asked to consider the following proposals:

The approval of Proposal Nos. 3, 4 and 5 are not a condition to the Merger. Such proposals, together with Proposal Nos. 1 and 2, are referred to collectively in this proxy statement/prospectus as the “Proposals”. Pursuant to Section 78.390(8) of the NRS, no stockholder approval is required in connection with the amendment to Pieris’ amended and restated articles of incorporation to change the corporation’s name as described above. However, the Pieris board of directors believes it is important to receive the views of its stockholders in connection with the proposed amendment, and seeks ratification of the Pieris board of directors’ approval of the amendment in Proposal No. 4.

The presence, by attending online or being represented by proxy, at the Pieris special meeting of the holders of a majority in voting power of the shares of Pieris capital stock outstanding and entitled to vote at the Pieris special meeting is necessary to constitute a quorum at the meeting for the purpose of approving the Proposals.

Q: What stockholder votes are required to approve the proposals at the Pieris special meeting?

A: Assuming a quorum is present, the affirmative vote of the holders of a majority of the votes cast on the proposal by the holders of shares of Pieris common stock present or represented at the meeting is required for approval of Proposal Nos. 1, 3, 4 and 5. Abstentions and broker non-votes, if any, are not considered votes cast and therefore will have no effect on the outcome of Proposal Nos. 1, 3, 4 and 5.

Assuming a quorum is present, the affirmative vote of the holders of a majority in voting power of the outstanding shares of Pieris common stock and preferred stock, voting as a single class, entitled to vote at the Pieris special meeting is required for approval of Proposal No. 2. Abstentions and broker non-votes, if any, will have the same effect as “AGAINST” votes on Proposal No. 2, but will not be considered as votes cast “AGAINST” for the purposes of determining the proportion of Series F Preferred stock votes that will be cast “FOR” and “AGAINST”.

As of October 28, 2024, the directors and certain executive officers of Pieris owned or controlled approximately 0.07% of the outstanding shares of Pieris common stock entitled to vote at the Pieris special meeting. As of October 28, 2024, the Pieris stockholders that are party to support agreements, including the directors and certain executive officers of Pieris, owned an aggregate of 258,496 shares of Pieris common stock representing approximately 19.6% of the outstanding shares of Pieris common stock. Pursuant to the support agreements, these stockholders, including the directors and certain executive officers of Pieris, have agreed to vote all shares of Pieris common stock owned by them as of the record date in favor of Proposal Nos. 1, 2, 3 and 4.

Q: How many votes can be cast by all stockholders?

A: As of October 28, 2024, a total of 1,320,240 shares of Pieris common stock were outstanding, all of which are entitled to vote with respect to all matters to be acted upon at the Pieris special meeting. Each stockholder of record is entitled to one vote for each share of our common stock held by such stockholder.

There was one share of our Series F Preferred Stock, par value $0.001 per share, or the “Series F Preferred Stock”, authorized and outstanding on the record date. The Series F Preferred Stock is designed to ensure the Authorized Shares Increase Proposal will be approved if the holders of a majority of the Pieris common stock actually vote in favor of the Authorized Shares Increase Proposal. To that end, the Series F Preferred Stock entitles and requires the holder thereof, as such, to (i) vote together with the holders of Pieris common stock as a single class on the Authorized Shares Increase Proposal and (ii) cast 25,000,000 votes, in person or by proxy, on such Authorized Shares Increase Proposal in a manner that is proportionate to the manner in which all shares of Pieris common stock are voted FOR and AGAINST the Authorized Shares Increase Proposal, excluding any shares of common stock that are not voted “FOR” or “AGAINST” such proposal for any reason, including, without limitation, any abstentions or broker non-votes. As an example, if 50.5% of the shares of Pieris common stock that are voted either “FOR” or “AGAINST” the Authorized Shares Increase Proposal are voted FOR the Authorized Shares Increase Proposal, 50.5% of the votes cast by the holder of the Series F Preferred Stock will be cast as votes FOR the Authorized Shares Increase Proposal. Abstentions and broker non-votes, if any, will have the same effect as “AGAINST” votes on the Authorized Shares Increase Proposal, but will not be considered as votes cast “AGAINST” for the purposes of determining the proportion of Series F Preferred stock votes that will be cast “FOR” and “AGAINST”.

Q: How is a quorum reached?

A: Pieris’ amended and restated bylaws, as amended, or the “amended and restated bylaws”, provide that the holders of a majority of the voting power of all of the shares of capital stock of the corporation entitled to vote at the meeting, present or represented by proxy, will constitute a quorum for the transaction of business at the Pieris special meeting.

Under Nevada law, abstentions and “broker non-votes” (shares held by a broker or nominee that are represented at the Pieris special meeting, but with respect to which the broker or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal) are counted as present for purposes of determining whether a quorum is present at the Pieris special meeting.

For purposes of determining the existence of a quorum at the Pieris special meeting, only the voting power represented by the shares of Pieris common stock outstanding on the record date will be counted as present for purposes of determining whether a quorum is present at the Pieris special meeting. The voting power represented by the one outstanding share of Series F Preferred Stock will not be counted as present for purposes of determining whether a quorum is present at the Pieris special meeting.

If, for any reason, a quorum is not present, the meeting may be adjourned until a quorum is obtained.

Q: What will be the impact of the Series F Preferred Stock on the Authorized Shares Increase Proposal?

A: On August 7, 2024, the Pieris board of directors authorized the designation of one (1) share of Series F Preferred Stock to ensure the Authorized Shares Increase Proposal will be approved if a majority of votes cast by the Pieris stockholders at the Pieris special meeting are voted in favor of the Authorized Shares Increase Proposal. On August 7, 2024, Pieris also entered into the Subscription and Investment Representation Agreement (the “Preferred Subscription Agreement”) with James Geraghty, Chairman of the Pieris board of directors, pursuant to which Pieris agreed to issue and sell one (1) share of Series F Preferred Stock for $1.00 cash.

Under Nevada law, the affirmative vote of the holders of a majority in voting power of the outstanding shares of Pieris common stock and preferred stock, voting as a single class, entitled to vote thereon is required to approve the Authorized Shares Increase Proposal. The Series F Preferred Stock was issued to Mr. Geraghty to address the increasing challenge faced by many corporations in obtaining stockholder approval on proposals which require a majority in voting power of a company’s outstanding shares, given that many outstanding shares of public companies are held by brokers and other record holders in “street name.” Recently, several large brokerage firms have eliminated discretionary voting, which has the effect of decreasing the number of shares represented at stockholder meetings. As a result, public companies with significant retail stockholders are finding it difficult to obtain stockholder participation sufficient to achieve a majority in voting power of the outstanding shares. At the Pieris 2023 annual meeting of stockholders, only 34% of Pieris’ common stock was voted FOR or AGAINST the non-discretionary matters being voted upon at the special meeting. By issuing the Series F Preferred Stock to Mr. Geraghty, the Pieris board of directors aimed to address the challenge of stockholder proposals failing due to the higher majority in voting power of the outstanding shares voting threshold, despite a majority of the votes cast at the special meeting being voted in favor of the proposal. Additionally, the Pieris board of directors assessed (a) the likelihood that the Authorized Shares Increase Proposal will be treated as non-routine under Rule 452 of the New York Stock Exchange and be excluded from the list of proposals on which a broker may vote shares held in “street name” in the absence of stockholder voting instructions and (b) that the Authorized Shares Increase Proposal is a condition to completion of the Merger. Consequently, the Pieris board of directors considered issuance of the Series F Preferred Stock to Mr. Geraghty necessary to achieve the required vote on the Authorized Shares Increase Proposal. 

The Series F Preferred Stock requires the holder thereof, as such, to (i) vote together with the holders of Pieris common stock on the Authorized Shares Increase Proposal and (ii) cast a portion of the 25,000,000 votes of the Series F Preferred Stock, in person or by proxy, FOR the Authorized Shares Increase Proposal in a manner that is proportionate to the percentage of shares of Pieris common stock that are voted FOR the Authorized Shares Increase Proposal as compared with the total shares of Pieris common stock that are voted FOR and AGAINST the Authorized Shares Increase Proposal. For the avoidance of doubt, the Series F Preferred Stock votes on a proportionate basis to the shares voted FOR and AGAINST the Authorized Shares Increase Proposal and does not reflect any shares of common stock that are not voted “FOR” or “AGAINST” such proposal for any reason, including, without limitation, any abstentions or broker non-votes. As an example, if 50.5% of the shares of Pieris common stock that are voted either “FOR” or “AGAINST” the Authorized Shares Increase Proposal are voted FOR the Authorized Shares Increase Proposal, 50.5% of the votes cast by the holder of the Series F Preferred Stock will be cast as votes FOR the Authorized Shares Increase Proposal. Abstentions and broker non-votes, if any, will have the same effect as “AGAINST” votes on the Authorized Shares Increase Proposal, but will not be considered as votes cast as “AGAINST” for the purposes of determining the proportion of Series F Preferred Stock votes that will be cast “FOR” and “AGAINST”.

Below is an illustration of the significant impact of the Series F Preferred Stock on the vote needed to pass the Authorized Shares Increase Proposal. Given that the Authorized Shares Increase Proposal will likely be treated as non-routine under Rule 452 of the New York Stock Exchange and be excluded from the list of proposals on which a broker may vote shares held in “street name” in the absence of stockholder voting instructions, there will be a significant impact on the likelihood of achieving the vote needed to pass the Authorized Shares Increase Proposal if Pieris common stockholders abstain from voting on or decline to provide voting instructions with respect to the Authorized Shares Increase Proposal.

The below scenarios both assume that (i) forty-five percent of the common stock vote FOR or AGAINST the Authorized Shares Increase Proposal, which we believe is a realistic amount based on the historical vote total from Pieris’ prior stockholder proposal votes on non-discretionary matters at its previous two annual meetings of stockholders, which range from 34% to 43% of the common stock, (ii) a minimum of 258,496 shares of Pieris common stock held by Pieris stockholders that are party to a support agreement, representing approximately 19.58% of the outstanding shares of Pieris common stock as of October 28, 2024, vote FOR the Authorized Shares Increase Proposal, which they are required to do in accordance with the support agreement, and (iii) a minimum quorum of a majority of the voting power of Pieris common stock is present at the Pieris special meeting (which includes shares constituting broker non-votes, if any, which will be treated as shares present for the purpose of determining the presence of a quorum).

WITHOUT SERIES F PREFERRED: Assuming only 45% of Pieris common stock (594,108 shares) votes FOR or AGAINST the Authorized Shares Increase Proposal without Series F Preferred Stock:

^FN1: There are 1,320,240 shares of common stock votes comprising total outstanding voting power.

* Includes 258,496 shares of Pieris common stock held by Pieris stockholders that are party to a support agreement.

WITH SERIES F PREFERRED: Assuming only 45% of Pieris common stock (594,108 shares) vote FOR or AGAINST the Authorized Shares Increase Proposal with Series F Preferred Stock:

^FN1:  Reflects the sum of the votes cast by holders of Pieris common stock FOR the Authorized Shares Increase Proposal, plus the number of votes of the Series F Preferred Stock cast FOR the Authorized Shares Increase Proposal. The number of votes of the Series F Preferred Stock cast FOR the Authorized Shares Increase Proposal is equal to the product of (a) 25,000,000 multiplied by (b) a fraction, whereby (x) the numerator is the total number of common stock votes FOR the Authorized Shares Increase Proposal, and (y) the denominator is the sum of (i) the total number of common stock votes FOR the Authorized Shares Increase Proposal, plus (ii) the total number of common stock votes AGAINST the Authorized Shares Increase Proposal.

^FN2: There are 26,320,240 votes comprising total outstanding voting power, including 1,320,240 votes of Pieris common stock and 25,000,000 votes of Series F Preferred Stock.

^FN3: Reflects the sum of the votes cast by holders of Pieris common stock AGAINST the Authorized Shares Increase Proposal, plus the number of votes of the Series F Preferred Stock cast AGAINST the Authorized Shares Increase Proposal. The number of votes of the Series F Preferred Stock cast AGAINST the Authorized Shares Increase Proposal is equal to the product of (a) 25,000,000 multiplied by (b) a fraction, whereby (x) the numerator is the total number of common stock votes AGAINST the Authorized Shares Increase Proposal, and (y) the denominator is the sum of (i) the total number of common stock votes FOR the Authorized Shares Increase Proposal, plus (ii) the total number of common stock votes AGAINST the Authorized Shares Increase Proposal.

Q: What will Pieris Stockholders, Pieris Option Holders and Pieris Warrant Holders receive in the Merger?

A: At the Effective Time, Pieris stockholders will continue to own and hold their existing shares of Pieris common stock and Pieris preferred stock, as applicable.

All options to purchase Pieris common stock that are issued and outstanding at the Effective Time will remain in effect pursuant to their terms and will be unaffected by the Merger.

The terms governing any Pieris warrants outstanding as of immediately prior to the Effective Time will remain in full force and effect following the Closing of the Merger.

In addition, at or prior to the effective time of the Merger, Pieris, a rights agent and a CVR holder representative will enter into a Contingent Value Rights Agreement, or CVR Agreement, pursuant to which Pieris stockholders as of the close of business on the last business day prior to the day on which the Effective Time occurs will receive a dividend of one contingent value right, or CVR, for each outstanding share of Pieris common stock held by such stockholder, or each share of common stock underlying Pieris preferred stock outstanding and entitled to receive such dividend in accordance with the terms of such Pieris preferred stock held by such stockholder, as applicable, on such date. Furthermore, to the extent a holder of a Pieris warrant outstanding as of the date of the CVR Agreement exercises such Pieris warrant after the date of the CVR Agreement, a number of CVRs equal to the number of shares of Pieris common stock issued to such holder in connection with such exercise shall be issued to such holder, subject to and in accordance with the terms and conditions of such Pieris Warrant, as applicable.

Each CVR will represent the contractual right to receive cash payments (net of certain expenses and taxes) upon the receipt by Pieris or any of its affiliates of certain payments under strategic partner agreements, including existing collaboration agreements pursuant to which Pieris 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 Pieris or any of its affiliates, if any, in each case as set forth in, and subject to and in accordance with the terms and conditions of, the CVR Agreement.  Pursuant to the terms of the CVR Agreement, holders of CVRs would be entitled to cash payments (net of certain expenses and taxes) upon the receipt by Pieris or any of its affiliates of certain payments under any license, collaboration or similar agreement involving any legacy assets of Pieris entered into prior to the effective date of the CVR Agreement.  Pieris retains the ability under the Merger Agreement to seek to enter into such agreements related to its legacy assets and intellectual property, including PRS-400 and PRS-220, though currently does not have any such agreements in place and does not have any plans to divest any material assets. Pieris continues to explore potential transactions for PRS-400 and PRS-220. Management has determined that there is no value associated with the CVRs as the likelihood of any payments received in connection with Pieris’ legacy assets is remote.  Unless earlier terminated by the representative of the CVR holders and the combined company, the CVR Agreement will terminate on the date on which no strategic partner agreement is in effect and no payments are payable to Pieris or any of its affiliates under any Strategic Partner Agreement.

The contingent payments in respect of the CVRs, if they become payable, will become payable to a rights agent for subsequent distribution to the holders of the CVRs. In the event that no such proceeds are received, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. There can be no assurance that holders of CVRs will receive any amounts with respect thereto. The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the SEC. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in Pieris or any of its affiliates. No interest will accrue on any amounts payable in respect of the CVRs.

The foregoing description of the CVR Agreement does not purport to be complete and is qualified in its entirety by the full text of the form of CVR Agreement, which is included in Annex D to this proxy statement/prospectus.

Q: What will Palvella stockholders and option holders receive in the Merger?

A: Palvella stockholders will receive shares of Pieris common stock, and Palvella option holders will receive options to purchase Pieris common stock. Applying the exchange ratio, immediately after the Merger, but without giving effect to the PIPE Financing, Pieris securityholders as of immediately prior to the Merger are expected to own approximately 18% of the outstanding shares of capital stock of the combined company and former Palvella securityholders, are expected to own approximately 82% of the outstanding shares of capital stock of the combined company, in each case, on a fully-diluted basis, calculated using the treasury stock method, subject to certain assumptions, including, but not limited to, a valuation for Pieris equal to $21 million, provided, that (a) if Pieris’ net cash as of the closing is greater than $11 million, then Pieris’ valuation will be adjusted upwards on a dollar-for-dollar basis by the difference of: (i) Pieris’ net cash, minus (ii) $11 million, and (b) if Pieris’ net cash is less than $11 million, then Pieris’ valuation will be adjusted downwards on a dollar-for-dollar basis by the difference of: (i) $11 million, minus (ii) Pieris’ net cash, as further described in the Merger Agreement.

The PIPE Investors, have agreed to subscribe for and purchase (in cash or by cancellation of convertible notes) an aggregate of approximately 3,154,241 of shares of Pieris common stock, at the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, and/or in lieu of Pieris common stock to certain purchasers who so choose, Pre-Funded Warrants to purchase up to 2,592,585 shares of the combined company common stock, at a purchase price per Pre-Funded Warrant equal to the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, minus $0.001, referred to as the “PIPE Financing”, which is expected to close immediately following the closing of the Merger. The gross proceeds from the PIPE Financing are expected to be approximately $78.9 million, consisting of approximately $60.0 million in cash and the conversion of approximately $18.9 million of principal and interest payable under the outstanding convertible notes issued by Palvella, before paying estimated expenses. The closing of the PIPE Financing is conditioned upon the closing of the Merger as well as certain other conditions.

Additionally, immediately following the PIPE Financing, the Pieris securityholders as of immediately prior to the Merger are expected to hold approximately 10.47% of the shares of combined company capital stock, the Palvella securityholders as of immediately prior to the Merger are expected to hold approximately 50.18% of the shares of combined company capital stock, and the PIPE Investors are expected to hold approximately 39.35% of the shares of combined company capital stock, in each case, on a fully diluted basis, subject to certain assumptions.

In connection with the Merger, each stock option granted under the Palvella Stock Plan, that is outstanding immediately prior to the Effective Time will be assumed by Pieris and will become an option to acquire, on the same terms and conditions as were applicable to such Palvella stock option immediately prior to the Effective Time, a number of shares of Pieris common stock equal to the number of shares of Palvella common stock subject to the unexercised portion of the Palvella stock option immediately prior to the Effective Time, multiplied by the exchange ratio (rounded down to the nearest whole share number), with an exercise price per share for the options equal to the exercise price per share of such Palvella stock option immediately prior to the Effective Time divided by the exchange ratio (rounded up to the nearest whole cent). Such assumed options will continue to be governed by the terms and conditions of the Palvella Stock Plan.

For a more complete description of what Palvella stockholders and option holders will receive in the Merger, please see the sections titled “The Merger—Merger Consideration” and “The Merger—Exchange Ratio” beginning on pages 151 and 152, respectively, of this proxy statement/prospectus. For a description of the effect of the PIPE Financing on Pieris’ and Palvella’s current securityholders, please see the section titled “Agreements Related to the Merger—Securities Purchase Agreement” beginning on page 180 of this proxy statement/prospectus.

Q: Will the common stock of the combined company trade on an exchange?

A: Shares of Pieris common stock are currently listed on The Nasdaq Capital Market under the symbol “PIRS.” On                   , 2024, the last trading day before the date of this proxy statement/prospectus, the closing sale price of Pieris common stock was $ per share. Palvella intends to file a listing application for the combined company with Nasdaq. After completion of the Merger, the combined company will be renamed “Palvella Therapeutics, Inc.” and, assuming approval of the application for continued listing, the common stock of the combined company will trade on The Nasdaq Capital Market under the symbol “PVLA.” However, Nasdaq’s determination may not be known at the time stockholders are asked to vote on the Merger. Pieris has agreed to cause the shares of Pieris common stock to be issued in connection with the Merger to be approved for listing on Nasdaq at or prior to the Effective Time. In addition, under the Merger Agreement, each of Pieris’ and Palvella’s obligation to complete the Merger is subject to the satisfaction or waiver by each of the parties, at or prior to the Merger, of various conditions, including that the shares of Pieris common stock to be issued in the Merger have been approved for listing on Nasdaq, subject to notice of issuance, as of the closing of the Merger. The terms of the Merger Agreement permit that this condition may be waived by agreement between Pieris and Palvella, without recirculation or re-solicitation of this proxy statement/prospectus.

Q: Who will be the directors of the combined company following the Merger?

A: Immediately following the Merger, the combined company’s board of directors will be composed of five members, consisting of (i) one director appointed by Pieris, namely Christopher Kiritsy, a current member of the Pieris board of directors and (ii) four directors appointed by Palvella, namely Wesley H. Kaupinen, Todd C. Davis, George M. Jenkins and Tadd S. Wessel.

Q: Who will be the executive officers of the combined company immediately following the Merger?

A: Immediately following the Merger, the executive management team of the combined company is expected to consist of members of the Palvella executive management team prior to the Merger, including:

Q: As a Pieris stockholder, how does the Pieris board of directors recommend that I vote?

A: After careful consideration, the Pieris board of directors recommends that Pieris stockholders vote “FOR” all of the Proposals.

Q: What risks should I consider in deciding whether to vote in favor of the Merger?

A: You should carefully review the section titled “Risk Factors” beginning on page 25 of this proxy statement/prospectus and the annexes attached hereto and documents incorporated by reference herein, which set forth certain risks and uncertainties related to the Merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Pieris and Palvella, as independent companies, are subject.

Q: When do you expect the Merger to be consummated?

A: The Merger is anticipated to close promptly after the Pieris special meeting scheduled to be held on Wednesday, December 11, 2024, but the exact timing cannot be predicted. For more information, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 172 of this proxy statement/prospectus.

Q: What do I need to do now?

A: Pieris urges you to read this proxy statement/prospectus carefully, including the annexes attached hereto and the documents incorporated by reference, and to consider how the Merger affects you.

If you are a Pieris stockholder of record, you may vote or provide your proxy instructions in one of four different ways:

Your signed proxy card, telephonic proxy instructions, or internet proxy instructions must be received by December 10, 2024 at 11:59 p.m. Eastern Time to be counted.

If you hold your shares in “street name” (as described below), you may provide your proxy instructions via telephone or the internet by following the instructions on your vote instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Pieris special meeting.

Q: What happens if I do not return a proxy card or otherwise vote or provide proxy instructions, as applicable?

A: If you are a Pieris stockholder, the failure to return your proxy card or otherwise vote or provide proxy instructions will reduce the aggregate number of votes required to approve Proposal Nos. 1, 3, 4 and 5. Also, your shares will not be counted for purposes of determining whether a quorum is present at the Pieris special meeting unless your broker has, and exercises, discretionary authority to vote on certain matters.

Q: May I attend the Pieris special meeting and vote in person?

A: The Pieris special meeting will be held entirely online. Stockholders of record as of the close of business on October 28, 2024 will be able to attend and participate in the Pieris special meeting online by accessing www.virtualshareholdermeeting.com/PIRS2024SM. To join the Pieris special meeting, you will need to have your 16-digit control number which is included on your Notice of Internet Availability of Proxy Materials and your proxy card. If your shares are held in “street name,” you should contact your bank, broker or other nominee to obtain your 16-digit control number or otherwise vote through your bank, broker or other nominee.

Q: Who counts the votes?

A: Broadridge Financial Solutions, Inc., or Broadridge, will be engaged as Pieris’ independent agent to tabulate stockholder votes, which Pieris refers to as the inspector of election. If you are a stockholder of record of Pieris common stock or preferred stock, your executed proxy card is returned directly to Broadridge for tabulation.

Q: If my shares of Pieris common stock are held in “street name” by my broker, will my broker vote my shares for me?

A: Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Pieris common stock on matters requiring discretionary authority without instructions from you. If you do not give instructions to your broker, your broker can vote your Pieris shares with respect to “discretionary,” routine items but not with respect to “non-discretionary,” non-routine items. Discretionary items are proposals considered routine under Rule 452 of the New York Stock Exchange on which your broker may vote shares held in “street name” in the absence of your voting instructions. With respect to non-routine items for which you do not give your broker instructions, your Pieris shares will be treated as broker non-votes. Proposal Nos. 1, 2 and 3 at the Pieris special meeting will be non-routine. It is anticipated that Proposal Nos. 4 and 5 will be routine. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

Q: What are broker non-votes and do they count for determining a quorum?

A: Generally, broker non-votes occur when there is at least one discretionary and one non-discretionary proposal to be voted on at the meeting and shares held by a broker in “street name” for a beneficial owner are voted on at least one “routine” proposal but not voted with respect to a particular proposal because the broker (i) has not received voting instructions from the beneficial owner for that proposal or (ii) lacks discretionary voting power to vote those shares for that proposal. A broker is entitled to vote shares held for a beneficial owner on routine matters without instructions from the beneficial owner of those shares. On the other hand, absent instructions from the beneficial owner of such shares, a broker is not entitled to vote shares held for a beneficial owner on non-routine matters.

Broker non-votes, if any, will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Pieris special meeting. Broker non-votes will not be treated as votes cast for or against non-routine proposals. It is anticipated that Proposal Nos. 1, 2 and 3 will be non-routine. It is anticipated that Proposal Nos. 4 and 5 will be routine. Broker non-votes, if any, will not have any effect with respect to the outcome of Proposal Nos. 1, 3, 4 and 5, but will have the effect of a vote AGAINST Proposal No. 2.

Q: May I change my vote after I have submitted a proxy or provided proxy instructions?

A: Pieris stockholders of record, unless such stockholder’s vote is subject to a support agreement, may change their vote at any time before their proxy is voted at the Pieris special meeting in one of four ways:

Your signed proxy card, telephonic proxy instructions, internet proxy instructions, or written notice must be received by December 10, 2024 at 11:59 p.m. Eastern Time to be counted.

If a Pieris stockholder who owns Pieris shares in “street name” has instructed a broker to vote its shares of Pieris common stock, the stockholder must follow directions received from its broker to change those instructions.

Q: Who is paying for this proxy solicitation?

A: Pieris and Palvella will share equally the cost of printing and filing of this proxy statement/prospectus and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Pieris common stock for the forwarding of solicitation materials to the beneficial owners of Pieris common stock. Pieris will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Pieris will retain Alliance Advisors to assist it in soliciting proxies using the means referred to above. Pieris will pay the fees of Alliance Advisors, which Pieris expects to be approximately $50,000, plus reimbursement of out-of-pocket expenses.

Q: What are the material U.S. federal income tax consequences of the Merger to Pieris stockholders?

A: Pieris stockholders will not sell, exchange or dispose of any shares of Pieris common stock in the Merger. Thus, there will be no material U.S. federal income tax consequences to Pieris stockholders upon consummation of the Merger.

Q: What are the material U.S. federal income tax consequences of the Merger to Palvella U.S. holders?

A: Subject to the limitations and qualifications described in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” in the opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., or “Mintz”, and Troutman Pepper Hamilton Sanders LLP, or “Troutman”, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the “Code”, and a Palvella U.S. holder will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of shares of Pieris common stock in exchange for shares of Palvella capital stock in the Merger, except with respect to cash received in lieu of a fractional share of Pieris common stock. For a more detailed discussion of the material U.S. federal income tax consequences of the Merger, see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 155 of this proxy statement/prospectus.

Q: What are the material U.S. federal income tax consequences of the receipt of contingent value rights to Pieris stockholders?

A: The U.S. federal income tax treatment of Pieris stockholders’ receipt of the CVRs is unclear. Pieris intends to take the position that the fair market value of the CVRs cannot be reasonably ascertained on the date of the issuance of the CVRs and, accordingly, the issuance of the CVRs constitutes an “open transaction.” Accordingly, absent a change in law requiring otherwise after the date of the CVR Agreement, Pieris will not report the issuance of the CVRs to Pieris stockholders as a current distribution and will instead report each future payment (if any) on the CVRs as a distribution by Pieris for U.S. federal income tax purposes, with each such payment being reported as a dividend to the extent of Pieris’s current or accumulated earnings and profits in the year in which such payment is made. This position may be challenged by the Internal Revenue Service, or IRS, in which case holders of Pieris common stock could be required to recognize taxable income in respect of the CVRs without the corresponding receipt of cash. See the section titled “Agreements Related to the Merger—CVR Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” beginning on page 182 of this proxy statement/prospectus for a more complete description of the material U.S. federal income tax consequences of the receipt of CVRs to Pieris stockholders, including possible alternative treatments.

The tax consequences to you of the receipt of CVRs are subject to substantial uncertainty and may also depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you.

Q: Who can help answer my questions?

A: If you are a Pieris stockholder and would like additional copies of this proxy statement/prospectus without charge, you may (1) visit www.ProxyVote.com, (2) call 1-800-579-1639 or (3) send an email to sendmaterial@proxyvote.com.

If you are a Pieris stockholder and have questions about the Merger, including the procedures for voting your shares, you should contact:

Alliance Advisors LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

833-782-7190 (toll free)

PIRS@allianceadvisors.com (Email)

RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained or incorporated by reference in this proxy statement/prospectus, you should carefully consider the material risks described below before deciding how to vote your shares of Pieris common stock. You should also read and consider the other information in this proxy statement/prospectus and additional information about Pieris set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which is filed with the SEC as such risks may be updated or supplemented in its subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, each of which is incorporated by reference into this proxy statement/prospectus. Please see the section titled “Where You Can Find More Information” beginning on page 336 of this proxy statement/prospectus for further information regarding the documents incorporated by reference into this proxy statement/prospectus.

Risks Related to the Strategic Transactions

Risks Related to the Merger

The exchange ratio will not be adjusted based on the market price of Pieris common stock as the Exchange Ratio depends on the Pieris net cash as of the date immediately preceding the closing of the Merger and not the market price of Pieris common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

At the Effective Time, outstanding shares of Palvella capital stock will be converted into shares of Pieris common stock. Immediately after the Merger, but without giving effect to the PIPE Financing, applying the exchange ratio, Pieris securityholders immediately before the Merger are expected to own approximately 18% of the outstanding shares of capital stock of the combined company and the former Palvella securityholders immediately before the Merger are expected to own approximately 82% of the outstanding share of capital stock of the combined company, in each case, on a fully-diluted basis, calculated using the treasury stock method, subject to certain assumptions, including, but not limited to, a valuation for Pieris equal to $21 million, provided, that (a) if Pieris’ net cash as of the closing is greater than $11 million, then Pieris’ valuation will be adjusted upwards on a dollar-for-dollar basis by the difference of: (i) Pieris’ net cash, minus (ii) $11 million, and (b) if Pieris’ net cash is less than $11 million, then Pieris’ valuation will be adjusted downwards on a dollar-for-dollar basis by the difference of: (i) $11 million, minus (ii) Pieris’ net cash, as further described in the Merger Agreement.

Immediately following the PIPE Financing, the Pieris securityholders as of immediately prior to the Merger are expected to hold approximately 10.47% of the shares of combined company capital stock, the Palvella securityholders as of immediately prior to the Merger are expected to hold approximately 50.18% of the shares of combined company capital stock, and the PIPE Investors are expected to hold approximately 39.35% of the shares of combined company capital stock, in each case, on a fully diluted basis, subject to certain assumptions.

Any changes in the market price of Pieris stock before the completion of the Merger will not affect the number of shares Palvella stockholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger, the market price of Pieris common stock increases from the market price on the date of the Merger Agreement, then Palvella stockholders could receive merger consideration with substantially more value for their shares of Palvella capital stock than the parties had negotiated when they established the exchange ratio. Similarly, if before the completion of the Merger the market price of Pieris common stock declines from the market price on the date of the Merger Agreement, then Palvella stockholders could receive merger consideration with substantially lower value. The Merger Agreement does not include a price-based termination right.

Failure to complete the Merger may result in either Pieris or Palvella paying a termination fee to the other party, which could harm the common stock price of Pieris and future business and operations of each company.

If the Merger is not completed, Pieris and Palvella are subject to the following risks:

If the Merger Agreement is terminated and the Pieris board of directors or the Palvella board of directors determines to seek another business combination, there can be no assurance that either Pieris or Palvella will be able to find a partner with whom a business combination would yield greater benefits than the benefits to be provided under the Merger Agreement.

If the conditions to the Merger are not satisfied or waived, the Merger may not occur.

The completion of the Merger is not assured. Even if the Merger Agreement is adopted by the stockholders of Palvella and the Merger and the issuance of Pieris common stock pursuant thereto are approved by the stockholders of Pieris, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 172 of this proxy statement/prospectus. Pieris and Palvella cannot assure you that all of the conditions to the consummation of the Merger will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur or the closing may be delayed, and Pieris and Palvella each may lose some or all of the intended benefits of the Merger.

Transfers of the combined company’s securities utilizing Rule 144 of the Securities Act may be limited.

A significant portion of the combined company’s securities will be restricted from immediate resale. Holders should be aware that transfers of the combined company’s securities pursuant to Rule 144 may be limited as Rule 144 is not available, subject to certain exceptions, for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. At the time of the Merger, Pieris will be a shell company due to its expected nominal operations and assets, immediately following the dividend of the CVR and following the discontinuation of its historical research and development efforts. Pieris anticipates that following the consummation of the Merger, the combined company will no longer be a shell company. As a result, Pieris anticipates that holders will not be able to sell their restricted combined company securities pursuant to Rule 144 without registration until one year after the combined company files the Current Report on Form 8-K following the closing that includes the required Form 10 information that reflects that the combined company is no longer a shell company.

At the time of the Merger, Pieris will be a shell company due to its expected nominal operations and assets following the discontinuation of historical research and development efforts. As a result, the combined company will be subject to more stringent reporting requirements, offering limitations and resale restrictions.

According to SEC guidance, the requirements applicable to reporting shell company business combinations apply to any company that sells or otherwise disposes of its historical assets or operations in connection with or as part of a plan to combine with a non-shell private company in order to convert the private company into a public one.  At the time of the Merger, Pieris will be a shell company immediately following the dividend of the CVR, because it will not have more than nominal operations and assets following the discontinuation of historical research and development efforts. Further, it is expected that, immediately following the Merger, Palvella’s stockholders will have a majority of the voting power of the combined company, Palvella will control four of five seats on the board of directors of the combined company, and Palvella’s senior management will comprise all of the senior management of the combined company.  As such, Pieris will become a shell company upon consummation of the Merger, and its Merger with Palvella would be subject to the requirements applicable to shell company business combinations.

The requirements applicable to shell company business combinations are as follows:

The foregoing SEC requirements would increase the combined company’s time and cost of raising capital, offering stock under equity plans, and complying with securities laws. Further, such requirements will add burdensome restrictions on the resale of combined company shares by affiliates of Palvella and any holders of “restricted” or “control” securities.

Palvella or Pieris may waive one or more of the conditions to the Merger without re-soliciting stockholder approval.

Certain conditions to Palvella’s or Pieris’ obligations to complete the Merger may be waived, in whole or in part, to the extent permitted by law, either unilaterally or by agreement of Palvella and Pieris. In the event of a waiver of a condition, the Pieris board of directors will evaluate the materiality of any such waiver to determine whether amendment of this proxy statement/prospectus and re-solicitation of proxies is necessary.

In the event that the Pieris board of directors, in its own reasonable discretion, determines any such waiver is not significant enough to require re-solicitation of its stockholders, it will have the discretion to complete the Merger without seeking further stockholder approval, which decision may have a material adverse effect on the Pieris stockholders. For example, if Palvella and Pieris agree to waive the requirement that the Nasdaq application be accepted for listing prior to the consummation of the Merger, and their respective boards of directors elected to proceed with the closing of the Merger, Nasdaq may notify the combined company of its determination to delist the company’s securities based upon the failure to satisfy the initial inclusion criteria. The combined company may appeal the determination to a hearings panel, which will stay the delisting action pending a panel decision. If the combined company does not appeal the determination, its common stock will be delisted.

For more information about the conditions to the completion of the Merger, see the section titled “The Merger Agreement—Conditions to the Completion of the Merger.”

Palvella or Pieris may waive one or more of the conditions to the Merger.

Palvella or Pieris may agree to waive, in whole or in part, some of the conditions to each party’s obligations to complete the Merger, to the extent permitted by applicable law. For example, it is a condition to Palvella’s obligations to close the Merger that certain of Pieris’ representations and warranties are true and correct in all respects as of the closing of the Merger, except where the failure of such representants and warranties to be true and correct, individually or in the aggregate, has not had and is not reasonably likely to have a material adverse effect with respect to Pieris. However, if the Palvella board of directors determines that it is in the best interest of the stockholders of Palvella to waive any such breach, then the Palvella board of directors may elect to waive that condition and consummate the Merger, which decision may have an adverse effect on the stockholders of the combined company following the Merger. For example, if such a breach was the result of a material adverse effect with respect to Pieris, the market could react negatively to such information, which may cause a substantial decline in the price of the common stock of the combined company following the Merger.

Notwithstanding the foregoing, certain closing conditions may not be waived due to applicable law or otherwise. The following closing conditions may not be waived: receipt of the requisite stockholder approvals; the effectiveness of the Registration Statement on Form S-4 of which this proxy statement/prospectus forms a part; and the absence of any order or injunction that has the effect of prohibiting the consummation of the Merger; See the section “The Merger Agreement—Conditions to the Completion of the Merger” for further information.

The Merger may be completed even though a material adverse effect may result from the announcement of the Merger, industry-wide changes or other causes.

In general, neither Pieris nor Palvella is obligated to complete the Merger if there is a material adverse effect affecting the other party between July 23, 2024, the date of the Merger Agreement, and the closing of the Merger. However, certain types of changes are excluded from the concept of a “material adverse effect.” Such exclusions include but are not limited to changes in general economic or market conditions, industry wide changes, changes in GAAP, changes in laws, rules or regulations of general applicability or interpretations thereof, natural disasters, epidemics, pandemics or other disease outbreaks, outbreaks of major hostilities or acts of terrorism, changes resulting from the announcement or pendency of the Merger, and failures to meet internal guidance, budgets, plans or forecasts. Therefore, if any of these events were to occur impacting Pieris or Palvella, the other party would still be obliged to consummate the closing of the Merger. If any such adverse changes occur and Pieris and Palvella consummate the closing of the Merger, the stock price of the combined company may suffer. This in turn may reduce the value of the Merger to the stockholders of Pieris, Palvella or both. Additionally, if there is a material adverse effect, the PIPE Investors will not be obligated to consummate the purchase of shares of Pieris common stock in connection with the PIPE Financing, which, in turn, may reduce the value of the Merger to the stockholders of Pieris, Palvella, or both. For a more complete discussion of what constitutes a material adverse effect on Pieris or Palvella, see the section titled “The Merger Agreement—Conditions to Completion of the Merger” beginning on page 172 of this proxy statement/prospectus.

If Pieris and Palvella complete the Merger and the PIPE Financing closes, the combined company will need to raise additional capital by issuing equity securities or additional debt or through licensing arrangements, which may cause significant dilution to the combined company’s stockholders or restrict the combined company’s operations.

On July 23, 2024, Pieris entered into the Purchase Agreement with the PIPE Investors, pursuant to which, among other things, the PIPE Investors agreed to subscribe for and purchase (either for cash or in exchange for the termination and cancellation of outstanding convertible notes issued by Palvella) an aggregate of approximately 3,154,241 of shares of Pieris common stock at a price per share equal to the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, and/or in lieu of Pieris common stock to certain purchasers who so choose, Pre-Funded Warrants to purchase up to 2,592,585 shares of the combined company common stock at a purchase price per Pre-Funded Warrant equal to the Purchase Price, subject to adjustment as set forth in the Purchase Agreement, minus $0.001, which is expected to close immediately following the closing of the Merger. The closing of the PIPE financing is conditioned upon the closing of the Merger.

Even if the PIPE Financing closes as expected, the combined company may need to raise additional capital in the future. Additional financing may not be available to the combined company when it is needed or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such financing will cause additional dilution to all securityholders of the combined company, including Pieris’ pre-Merger securityholders and Palvella’s former securityholders. It is also possible that the terms of any new equity securities may have preferences over the combined company common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing arrangements, it may be necessary to grant licenses on terms that are not favorable to the combined company.

Some Pieris and Palvella directors and executive officers may have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests.

Directors and executive officers of Pieris and Palvella may have interests in the Merger that are different from, or in addition to, the interests of other Pieris stockholders generally. These interests with respect to Pieris’ directors and executive officers may include, among others, that certain of Pieris’ executives are entitled to, in connection with a qualifying termination of employment, accelerated vesting of options and restricted stock units with respect to Pieris common stock and the payment of severance, that certain of Pieris’ executives are entitled to the extension of the applicable executive’s post-termination exercise period with respect to their options in the event of the executive’s continued employment through the closing of the Merger, and that all of Pieris’ directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. In addition, a current member of the Pieris board of directors, who is expected to be Christopher Kiritsy, is expected to continue as a director of the combined company after the Effective Time, and, following the closing of the Merger, will be eligible to be compensated as a non-employee director of the combined company pursuant to the Pieris non-employee director compensation policy that is expected to remain in place following the Effective Time. These interests with respect to Palvella’s directors and executive officers may include, among others, that certain of Palvella’s directors and executive officers have options, subject to vesting, to purchase shares of Palvella common stock which, after the Effective Time, will be converted into and become options to purchase shares of the common stock of the combined company; Palvella’s executive officers are expected to continue as executive officers of the combined company after the Effective Time; and all of Palvella’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. Further, four of the current members of the Palvella board of directors are expected to continue as directors of the combined company after the Effective Time, and, following the closing of the Merger, will be eligible to be compensated as non-employee directors of the combined company pursuant to the Pieris non-employee director compensation policy that is expected to remain in place following the Effective Time. The directors and executive officers own options to purchase the shares of their respective companies.

The Pieris board of directors considered that (i) BVF is a stockholder of Pieris, (ii) BVF is a stockholder of Palvella, and (iii) BVF agreed to participate in the PIPE Financing.

The Palvella board of directors considered that (i) Todd C. Davis, a director of Palvella, is the Chief Executive Officer Ligand Pharmaceuticals, Inc. or “Ligand”, a stockholder of Palvella, and (A) Ligand will receive proceeds as a result of the Merger akin to other stockholders of Palvella, (B) Mr. Davis and Ligand agreed to participate in the PIPE Financing, and (C) Mr. Davis will be appointed to the combined company’s board of directors in connection with the Merger; (ii) Tadd Wessel, a director of Palvella, is the founder and Managing Partner of Petrichor Healthcare Capital Management, or “Petrichor”, a stockholder of Palvella, and (A) Petrichor will receive proceeds as a result of the Merger akin to other stockholders of Palvella, (B) Petrichor agreed to participate in the PIPE Financing, and (C) Mr. Wessel will be appointed to the combined company’s board of directors in connection with the Merger, (iii) (A) Aditya Asokan, Ph.D., a director of Palvella, is affiliated with Samsara BioCapital L.P., or “Samsara”, a stockholder of Palvella and (B) Samsara will receive proceeds as a result of the Merger akin to other stockholders of Palvella; and (iv) each of Wesley H. Kaupinen, Chief Executive Officer and Director of Palvella, and George Jenkins, a director of Palvella, are stockholders of Palvella and (A) will receive proceeds as a result of the Merger akin to other stockholders of Palvella, (B) agreed to participate in the PIPE Financing and (C) will be appointed to the combined company’s board of directors.

The Pieris and Palvella boards of directors were aware of and considered those interests, among other things, in reaching their decisions to approve and adopt the Merger Agreement, approve the Merger, and recommend the approval of the Merger Agreement and certain related matters to Pieris and Palvella stockholders. These interests, among other factors, may have influenced the directors and executive officers of Pieris and Palvella to support or approve the Merger.

For more information regarding the interests of Pieris and Palvella directors and executive officers in the Merger, please see the sections titled “The Merger—Interests of Pieris Directors and Executive Officers in the Merger” beginning on page 148 and “The Merger—Interests of Palvella Directors and Executive Officers in the Merger” beginning on page 150 of this proxy statement/prospectus.

Pieris stockholders may potentially not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

The Merger Agreement contemplates that, prior to the Effective Time, Pieris will declare a dividend to each holder of record of shares of Pieris common stock and preferred stock entitled to receive a dividend in accordance with the terms of such preferred stock of the right to receive one CVR for each outstanding share of Pieris common stock held by such stockholder, or share of common stock underlying such preferred stock, held by such stockholder, on such date, and enter into a CVR Agreement with a rights agent and a CVR holder representative. Each CVR will represent the contractual right to receive payments upon the receipt of payments by Pieris or any of its affiliates under certain strategic partner agreements, including existing collaboration agreements pursuant to which Pieris may be entitled to milestones and royalties in the future and other outlicensing agreements for certain of Pieris’ legacy assets, and upon the receipt of certain research and development tax credits in favor of Pieris 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.

Pieris may not receive proceeds under the strategic partner agreements or other CVR events set forth in the CVR Agreement. If such events are not achieved for any reason within the time periods specified in the CVR Agreement, no payments will be made under the CVRs, and the CVRs will expire valueless.

Pieris stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, Pieris stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger.

If the Merger is not completed, Pieris’ stock price may fluctuate significantly.

The market price of Pieris common stock is subject to significant fluctuations. During the 12-month period ended October 28, 2024, the closing sales price of Pieris common stock on The Nasdaq Capital Market ranged from a high of $22.21 on November 7, 2023 to a low of $6.53 on July 7, 2024. Market prices for securities of pharmaceutical, biotechnology and other life science companies have historically been particularly volatile. In addition, the market price of Pieris common stock will likely be volatile based on whether stockholders and other investors believe that Pieris can complete the Merger or otherwise raise additional capital to support Pieris’ operations if the Merger is not consummated and another strategic transaction cannot be identified, negotiated and consummated in a timely manner, if at all. The volatility of the market price of Pieris common stock is exacerbated by low trading volume. Additional factors that may cause the market price of Pieris common stock to fluctuate include:

Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of Pieris common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies.

Pieris and Palvella securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the Merger as compared to their current ownership and voting interests in the respective companies.

After the completion of the Merger, the current stockholders of Pieris and Palvella will own a smaller percentage of the combined company than their ownership of their respective companies prior to the Merger. Immediately after the Merger, but without giving effect to the PIPE Financing, Pieris securityholders as of immediately prior to the Merger are expected to own approximately 18% of the outstanding shares of capital stock of the combined company and former Palvella securityholders, are expected to own approximately 82% of the outstanding shares of capital stock of the combined company, in each case, on a fully-diluted basis, calculated using the treasury stock method, subject to certain assumptions, including, but not limited to, a valuation for Pieris equal to $21 million, provided, that (a) if Pieris’ net cash as of the closing is greater than $11 million, then Pieris’ valuation will be adjusted upwards on a dollar-for-dollar basis by the difference of: (i) Pieris’ net cash, minus (ii) $11 million, and (b) if Pieris’ net cash is less than $11 million, then Pieris’ valuation will be adjusted downwards on a dollar-for-dollar basis by the difference of: (i) $11 million, minus (ii) Pieris’ net cash, as further described in the Merger Agreement.

Immediately following the PIPE Financing, the Pieris securityholders as of immediately prior to the Merger are expected to hold approximately 10.47% of the shares of combined company capital stock, the Palvella securityholders as of immediately prior to the Merger are expected to hold approximately 50.18% of the shares of combined company capital stock, and the PIPE Investors are expected to hold approximately 39.35% of the shares of combined company capital stock, in each case, on a fully diluted basis, subject to certain assumptions.

During the pendency of the Merger, Pieris and Palvella may not be able to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect their respective business prospects.

Covenants in the Merger Agreement impede the ability of Pieris and Palvella to make acquisitions during the pendency of the Merger, subject to specified exceptions. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, proposing, seeking, initiating or knowingly encouraging, facilitating or supporting any inquiries, indications of interest, proposals or offers that constitute or may reasonably be expected to lead to certain transactions involving a third party, including a merger, sale of assets or other business combination, subject to specified exceptions. Any such transactions could be favorable to such party’s stockholders, but the parties may be unable to pursue them. For more information, see the section titled “The Merger Agreement—Non-Solicitation” beginning on page 168 of this proxy statement/prospectus.

Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Pieris and Palvella from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances as described in further detail in the section titled “The Merger Agreement—Non-Solicitation.” In addition, if the Merger Agreement is terminated under specified circumstances, Pieris would be required to pay Palvella a termination fee of $1.0 million and Palvella will be required to pay Pieris a termination fee of $2.0 million. This termination fee may discourage third parties from submitting competing proposals to Pieris or its stockholders, and may cause the Pieris board of directors to be less inclined to recommend a competing proposal.

Because the lack of a public market for Palvella capital stock makes it difficult to evaluate the fair market value of Palvella capital stock, Pieris may pay more than the fair market value of Palvella capital stock and/or the stockholders of Palvella may receive consideration in the Merger that is less than the fair market value of Palvella capital stock.

The outstanding capital stock of Palvella is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Palvella capital stock. Because the percentage of Pieris equity to be issued to Palvella stockholders was determined based on negotiations between the parties, it is possible that the value of the Pieris common stock to be received by Palvella stockholders will be less than the fair market value of Palvella capital stock, or Pieris may pay more than the aggregate fair market value for Palvella capital stock.

The Merger may not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, resulting in recognition of taxable gain or loss by Palvella stockholders in respect of their Palvella capital stock.

As discussed more fully under the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” and subject to the qualifications and limitations set forth therein, in the opinion of Mintz and Troutman, the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming the Merger so qualifies, a Palvella U.S. holder will not recognize gain or loss for U.S. federal income tax purposes upon the receipt of shares of Pieris common stock in exchange for shares of Palvella capital stock in the Merger, except with respect to cash received in lieu of a fractional share of Pieris common stock.

However, none of the parties to the Merger Agreement have sought and do not intend to seek a ruling from the IRS regarding the intended tax treatment of the Merger and, even though an opinion of counsel has been sought and obtained by Pieris and Palvella, such opinions are not binding upon the IRS or a court. Consequently, there can be no assurance that the IRS will not challenge the intended tax treatment of the Merger and, if challenged, that a court would not sustain the IRS’ position. In the event that the Merger does not qualify as a “reorganization” within the meaning of Section 368(a) of the Code, each Palvella U.S. holder would recognize gain or loss upon the exchange of shares of Palvella common stock for Pieris common stock in the Merger equal to the difference between the fair market value of the shares of Pieris common stock received in exchange for the shares of Palvella capital stock (plus any cash received in lieu of a fractional share) and such Palvella U.S. holder’s adjusted tax basis in the shares of Palvella capital stock surrendered. Each Palvella stockholder is urged to consult with his, her or its own tax advisor with respect to the tax consequences of the Merger.

The U.S. federal income tax treatment of the CVRs is unclear, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.

The U.S. federal income tax treatment of the CVRs is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the IRS would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs. As discussed in the section titled “Agreements Related to the Merger—CVR Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs,” Pieris intends to take the position that the fair market value of the CVR cannot be reasonably ascertained on the date of the issuance of the CVRs and, accordingly, the issuance of the CVRs constitutes an “open transaction”. Accordingly, absent a change in law requiring otherwise after the date of the CVR Agreement, Pieris will not report to Pieris stockholders as a current distribution of property with respect to its stock and will instead report each future cash payment (if any) on the CVRs as a distribution by Pieris for U.S. federal income tax purposes, with each such payment being reported as a dividend to the extent of Pieris’ current or accumulated earnings and profits in the year in which such payment is made. This position may be challenged by the IRS, in which case holders of Pieris common stock could be required to recognize taxable income in respect of the CVRs at the time such CVRs are issued, without the corresponding receipt of cash as described further in the section titled “Agreements Related to the Merger—CVR Agreement—Material U.S. Federal Income Tax Consequences of the Receipt of CVRs” beginning on page 182 of this proxy statement/prospectus.

Lawsuits could delay or prevent the Merger.

Putative stockholder complaints, including stockholder class action complaints, and other complaints may be filed against Pieris, Palvella, and/or their respective boards of directors in connection with the transactions contemplated by the Merger Agreement.

The outcome of litigation is uncertain, and Pieris, Palvella, and/or their respective boards of directors may not be successful in defending against any such claims. Any such lawsuits that have been or may be filed against Pieris, Palvella, and/or their respective boards of directors could delay or prevent the Merger from becoming effective or from becoming effective within the intended timeframe, divert the attention of Pieris’ and/or Palvella’s management and employees from their respective day-to-day businesses and otherwise adversely affect their respective financial conditions.

The financial projections for Palvella included in the section entitled “The Merger—Certain Unaudited Financial Projections”, which were considered by the Pieris board of directors in evaluating the Merger and used by Pieris’ financial advisor in rendering the Stifel Opinion and performing its related financial analyses, reflect numerous variables, estimates and assumptions and are inherently uncertain. If any of these variables, estimates and assumptions prove to be wrong, such as the assumptions relating to the approval of Palvella’s product candidates, the actual results for the combined company’s business may be materially different from the results reflected in the financial projections.

As further described below in the section entitled “The Merger—Certain Unaudited Financial Projections”, in connection with the Pieris board of directors’ evaluation of the Merger, preliminary internal financial forecasts for Palvella were prepared by the management of Palvella and provided to the management of Pieris, for use by Pieris’ financial advisor, Stifel, in connection with the rendering of the Stifel Opinion and performing its related financial analyses, as described below under “The Merger—Opinion of Pieris’ Financial Advisor”. The financial forecasts and financial projections reflect numerous variables, estimates, and forecasts made by Palvella’s management at the time the initial financial forecasts were prepared by Palvella and approved by Palvella. If any of these variables, estimates and assumptions prove to be wrong, the actual results for the combined company’s business may differ materially from the results reflected in the financial projections.

The estimated probabilities of success included in the financial projections take into account a range of potential outcomes, including outcomes in which product candidates fail to achieve commercial launch due to commercial and regulatory uncertainty (including failure to obtain regulatory authorization to market the applicable product candidate), as well as economic and portfolio management decisions and competition, and these assumptions, including those with respect to regulatory approval and probability of success more broadly, are inherently uncertain and could prove inaccurate. If one or more of the Palvella product candidates do not receive marketing authorization when anticipated, for the indications anticipated, or at all, or the other assumptions reflected in the estimates as to probability of success prove untrue, the actual results of the combined company’s business will differ materially from the results reflected in the financial projections. For example, while the financial projections reflect the probability of success assessments described below in the section entitled “The Merger—Certain Unaudited Financial Projections” for each of Palvella’s product candidates, if one or both of these product candidates are not approved then actual results will differ materially, including the potential for one or both of these product candidates to generate no revenue at all.

In addition, the financial projections cover a significant period of time. This extended period was used in light of the anticipated timing for regulatory approval and the initiation of commercial sales of the Palvella product candidates. However, the risks and uncertainties regarding the financial projections, including the potential for adverse developments such as delays in obtaining or failure to obtain regulatory approvals or additional competition or changes in the competitive or regulatory landscape, increase with each successive year and the likelihood that the actual results will differ materially from the projected results increases with each successive year. The financial projections also do not reflect general business, economic, market and financial conditions and any changes in any of these conditions over the period of the projections could result in the actual results differing materially from the results reflected in the financial projections.

Risks Related to Pieris

If the Merger is not completed, Pieris will reconsider its strategic alternatives, including dissolving and liquidating its assets, pursuing another strategic transaction, or operating its business. If the Merger is not completed, Pieris will face various risks related to its financial condition and need for capital; its ability to execute on alternative strategies; its third party agreements, licenses, and collaborations; its intellectual property; regulatory and compliance matters; and its status as a public company, all as further discussed in the Risk Factors, including this subsection titled “—Risks Related to Pieris.”

Risks Related to Pieris’ Corporate Strategy

Pieris’ business strategy depends substantially upon its ability to receive future contingent milestone and royalty payments.

Pieris’ business strategy depends substantially upon its ability to receive future milestone and royalty payments from Pfizer, Inc. (formerly Seagen), or “Pfizer”, and BP Asset XII, Inc., or “Boston Pharmaceuticals”. On March 27, 2024, Pieris announced a strategy to maximize its ability to capture the potential milestones from licensing and collaboration agreements with its partners, including Pfizer and Boston Pharmaceuticals, while maintaining the capability to consider other strategic options. The Pieris board of directors implemented a series of measures designed to extend its cash runway into at least 2027 and maximize its ability to capture the potential milestone payments. These measures included discontinuing research and development activities and conducting further workforce reduction that affect additional employees and the executive leadership team. Pieris does not have any ongoing research or development activities.

Any failure to achieve the potential future milestones or a perception that the milestones may not be achieved will materially and adversely affect Pieris and the value of the common stock.

Even if some or all of the milestones or royalties set forth in the Pfizer Agreement or Boston Pharmaceuticals Agreement are achieved, it may take significantly longer than Pieris anticipates and could require Pieris to raise additional funding in order to maintain its ability to receive payment for such milestones.

Achievement of the milestones set forth in the Pfizer Agreement and the Boston Pharmaceuticals Agreement are not guaranteed and there is significant risk that some or all of such milestones will not be achieved when anticipated, if at all. If achievement of the milestones is delayed beyond what Pieris currently anticipates, it could require Pieris to raise additional funds in order to maintain its ability to receive payment for the potential future achievement of such milestones. Sources of funds may not be available or, if available, may not be available on terms satisfactory to Pieris. Raising additional funds could be dilutive or otherwise disadvantageous to Pieris stockholders. Any delay in receipt of the potential benefit to Pieris or its stockholders resulting from achievement of such milestones, in addition to any additional uncertainty as to whether such milestones will be achieved at all, would materially and adversely affect Pieris and the value of the common stock.

Time and costs associated with winding down Pieris’ research and development activities and any return of cash to stockholders may be significant.

There are significant costs associated with winding down Pieris’ normal historic operations, such as separation of employees, termination of contracts and engagement of external consultants, all of which have and may in the future reduce its cash resources. Additionally, if the Pieris board of directors decides to issue any cash dividends to its stockholders in the future, Pieris may incur third party costs associated with the distribution of such dividends, all of which would reduce its cash resources.

If some or all of Pieris’ partners terminate its partnerships for which Pieris may be entitled to milestone payments, the Pieris board of directors may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to Pieris stockholders will depend heavily on the timing of such liquidation, as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

There can be no assurance or guarantee that Pieris will realize all or some of the milestone payments in connection with its licensing and collaboration agreements, and in the event Pieris’ partners terminate their respective licensing and collaboration agreements, the Pieris board of directors may decide to pursue a dissolution and liquidate. In such an event, the amount of cash available for distribution to Pieris stockholders will depend heavily on the timing of such decision and, with the passage of time the amount of cash available for distribution will be reduced as Pieris continues to fund its operations. In addition, if the Pieris board of directors were to approve and recommend, and Pieris stockholders were to approve, a dissolution and liquidation, Pieris would be required under Nevada corporate law to pay its outstanding debts and other obligations prior to making any distributions in liquidation to its stockholders. As a result of this requirement, a portion of Pieris’ assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain. In addition, Pieris may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the Pieris board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Pieris common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up.

Pieris may rely on external consultants for the execution of its business strategy.

In connection with Pieris’ March 27, 2024 announcement, Pieris disclosed an additional reduction in force impacting additional employees and its executive leadership team, which was implemented in the third quarter of 2024. Pieris expects that as the number of employees is reduced, Pieris may become reliant on a limited number of external consultants for the operation of Pieris, any of whom may terminate their consultancy with Pieris at any time. The loss of some or all of Pieris’ consultants could delay or inhibit its ability to run its operations or consummate any divestitures of its remaining assets or could interfere with its ability to receive and distribute any potential milestones from Pfizer, Boston Pharmaceuticals, or any other future partner.

While Pieris has announced that it remains open to considering other strategic opportunities that might arise, there is no assurance that Pieris would be successful in pursuing any such strategic opportunities.

Since Pieris announced in July 2023 that it intends to explore engaging in one or more strategic transactions, Pieris’ strategic review process has included a focus on enhancing stockholder value, which includes the maximization of potential milestone payments Pieris is eligible to receive. Pieris’ management and the Pieris board of directors evaluated a broad spectrum of potential options, including asset in-licensing, out-licensing, royalty monetization, strategic transactions (including reverse mergers, strategic mergers, and sale), and liquidation. With the assistance of Pieris’ financial advisor, Stifel, more than 500 companies were contacted regarding a strategic transaction, and Pieris underwent a robust process to identify and negotiate with a select number of final candidates. Pieris entered into extended exclusivity with one party contemplating a strategic merger, which centered on that party’s interest in developing its clinical-stage asset cinrebafusp alfa, but after extensive diligence and negotiations, that counterparty was unable to secure adequate capitalization and offer acceptable terms. On March 27, 2024, Pieris announced a strategy that would maximize its ability to capture potential milestones from its licensing and collaboration agreements while maintaining the capability to consider other strategic opportunities, which Pieris believes offers the best opportunity to enhance stockholder value. Despite remaining open to considering other strategic opportunities that might arise, there can be no assurance that Pieris will be successful in pursuing any opportunity or that any opportunity, if pursued, will be completed on attractive terms or at all. Pieris may rely on the support of consultants and external advisors to assist in the review of strategic opportunities which may be costly. Additionally, there can be no assurance that any particular course of action, strategy to capture potential milestones or other strategy, business arrangement or transaction, or series of transactions, will be successfully pursued, consummated or lead to increased stockholder value. Such other strategies, business arrangement or transaction, or series of transactions could lead to increased costs, dilution to its existing stockholders’ percentage of ownership, or assumption of debt and liabilities.

Pieris may be treated as a "public shell" company under the Nasdaq rules which could have negative consequences, including potential Nasdaq delisting of its common stock.

Pieris common stock is currently listed on The Nasdaq Capital Market and it has no current plans to delist its common stock from Nasdaq. At the time of the Merger, Pieris will be a shell company due to its expected nominal operations and assets following the discontinuation of historical research and development efforts. Pieris anticipates that following the consummation of the Merger, the combined company will no longer be a shell company. As a result, Pieris may be treated as a “public shell” company under the Nasdaq rules.  Although Nasdaq evaluates whether a listed company is a public shell company based on a facts and circumstances determination, a Nasdaq-listed company with no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets is generally considered to be a public shell company. Listed companies determined to be public shell companies by Nasdaq may be subject to delisting proceedings or additional and more stringent listing criteria.

In addition, among other requirements, a minimum $1.00 per share bid price requirement for continued inclusion on the Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2), or the “Bid Price Requirement”. The closing bid price for Pieris common stock must remain at or above $1.00 per share to comply with the Bid Price Requirement for continued listing. As previously disclosed, on May 15, 2023, Pieris received a deficiency letter, or the “Notice”, from the Nasdaq Listing Qualifications Department, or the “Staff”, notifying Pieris that because the closing bid price of its common stock had fallen below $1.00 per share for 30 consecutive business days, Pieris no longer met the Bid Price Requirement.

Pursuant to Nasdaq Listing Rule 5810(c)(3)(A), or the “Compliance Period Rule”, Pieris had an initial period of 180 calendar days, or until November 13, 2023, or the “Compliance Date”, to regain compliance with the Bid Price Requirement. To regain compliance, the closing bid price of Pieris common stock had to meet or exceed $1.00 per share for a minimum of ten consecutive business days as required under the Compliance Period Rule (unless the Staff exercises its discretion to extend this ten-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H)). However, if during the compliance period Pieris common stock had a closing bid price of $0.10 or less for ten consecutive trading days, Nasdaq will issue a Staff Delisting Determination with the potential opportunity for Pieris to appeal that determination.

Since the closing bid price of Pieris common stock did not meet or exceed $1.00 per share for a minimum of 10 consecutive business days prior to the Compliance Date, Pieris requested an additional 180 calendar day compliance period on November 6, 2023 in which to regain compliance, in which Pieris provided written notice to Nasdaq of Pieris’ intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. On November 14, 2023, Pieris received a second notice from Nasdaq providing it with the additional 180 calendar days to regain compliance. If the Staff had concluded that Pieris was not able to cure the deficiency, or if Pieris did not regain compliance with the Bid Price Requirement within such additional 180 calendar day compliance period, the Staff would have provided written notification to Pieris that its common stock would have been subject to delisting. At that time, Pieris would have had the ability to appeal the Staff’s delisting determination to a Nasdaq Listing Qualifications Panel, or the “Panel”. However, the Pieris board of directors approved a reverse stock split of Pieris’ authorized, issued and outstanding shares of common stock at a ratio of 1-for-80, effective on Monday, April 22, 2024. Pieris common stock began trading on a reverse split-adjusted basis under the Pieris’ existing trading symbol, “PIRS,” at the market open on April 23, 2024. As a result, Pieris common stock traded above $1.00 for ten consecutive trading days and Pieris regained compliance with the Bid Price Requirement.

If Pieris common stock is delisted from Nasdaq, whether because Nasdaq determines it is a “public shell”, Pieris fails to maintain compliance with the Bid Price Requirement, or otherwise, or if in the future Pieris determines to delist its common stock, Pieris would expect that such securities would qualify for trading over-the-counter, or “OTC”, in the United States on a market colloquially referred to as the “Pink Sheets.” Securities quoted OTC are generally subject to lesser requirements than securities listed for trading on a U.S. national stock exchange, such as Nasdaq, including reduced corporate governance and public reporting standards. If Nasdaq should delist Pieris common stock from trading, or if in the future Pieris determines to delist its common stock, a reduction in some or all of the following may occur, each of which could have a material adverse effect on holders of its common stock: the liquidity of its common stock; the market price of the common stock; the number of institutional and general investors that will consider investing in the common stock; the number of investors in general that will consider investing in the common stock; the number of market makers in Pieris common stock; the availability of information concerning the trading prices and volume of the common stock; and the number of broker-dealers willing to execute trades in Pieris common stock. In addition to the foregoing, there are certain consequences under the Securities Act of being a public shell company, including the unavailability of Rule 144 thereunder for the resale of restricted securities and the inability to utilize Form S-8 for the registration of employee benefit plan securities.

Pieris may become involved in litigation, including securities class action litigation, that could divert management’s attention and harm Pieris’ business, and insurance coverage may not be sufficient to cover all costs and damages.

In the past, litigation, including securities class action litigation, has often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative events, such as negative results from clinical trials. These events may also result in investigations by the SEC. Pieris may be exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources, which could adversely affect Pieris’ business and cash resources and its ability to execute its strategy to capture potential milestones from licensing and collaboration agreements while maintaining the ability to consider other strategic opportunities.

Any potential changes to Pieris’ leadership structure as a result of its workforce reduction and restructuring could adversely affect its business.

As a result of Pieris’ decision to conduct a workforce reduction and additional restructuring, Pieris may implement changes to its leadership and governance structure. Any personnel transition that may result could be difficult and inherently cause some loss of institutional knowledge and skills, which could negatively affect Pieris’ results of operations and financial condition. Pieris’ ability to execute its business strategies may be adversely affected by the uncertainty associated with these transitions and changes to leadership and governance structures, and the time and attention of the Pieris board of directors and management dedicated to such changes and transitions could disrupt Pieris’ business. Further, Pieris cannot guarantee that it will not face other transitions in the future. Although Pieris generally enters into employment agreements with its executives, its executive officers may terminate their employment relationship with Pieris at any time, and Pieris cannot ensure that it will be able to retain the services of any of them. Pieris’ leadership’s knowledge of its business and industry could be difficult to replace, and management turnover could negatively affect its business, growth, financial conditions, results of operations and cash flows.

Pieris may not be successful in identifying and implementing any strategic opportunities and any strategic opportunities that Pieris may consider and consummate in the future could have negative consequences.

On March 27, 2024, Pieris announced the implementation of a new strategy along with relevant cost-saving measures that are expected to extend its cash runway into at least 2027, while maximizing its ability to capture the potential milestones from its partnered 4-1BB bispecific Mabcalin protein IO assets, and allowing Pieris to consider, from time-to-time, other strategic opportunities that it believes may enhance stockholder value. If Pieris does consider or explore any strategic opportunities, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value. Furthermore, if Pieris considers any other strategic opportunities, the process of considering such strategic opportunities may be very costly, time-consuming and complex and Pieris has incurred, and may in the future incur, significant costs related to this evaluation, such as legal and accounting fees and expenses and other related charges. Pieris may also incur additional unanticipated expenses in connection with this process. A considerable portion of these costs will be incurred regardless of whether any such course of action is implemented or transaction is completed. Any such expenses will decrease the remaining cash available for use in Pieris’ business.

Further, despite remaining open to considering strategic options and transactions that might arise, there can be no assurance that Pieris will be successful in pursuing any transaction or that any transaction, if pursued, will be completed on attractive terms or at all. Additionally, there can be no assurances that any particular course of action, strategy to capture potential milestones or other strategy, business arrangement or transaction, or series of transactions, will be successfully pursued, consummated or lead to increased stockholder value.

In addition, potential counterparties in a strategic opportunity involving Pieris may place minimal or no value on its assets and its public listing. Pieris may also not be able to adequately limit or avoid future liabilities which may impair the value of any potential transaction or present additional challenges on consummating a potential strategic opportunity. In addition, any strategic opportunities, including business combination or other transactions, that Pieris may consider and consummate in the future could have a variety of negative consequences and Pieris may implement a course of action or consummate a transaction that yields unexpected results that adversely affects its business and decreases the remaining cash available for use in its business or the execution of its strategy. Any potential transaction resulting from a strategic opportunity would be dependent on a number of factors that may be beyond Pieris’ control, including, among other things, market conditions, industry trends, the interest of third parties in a potential transaction with Pieris, maintaining its Nasdaq listing, obtaining stockholder approval and the availability of financing to third parties in a potential transaction with Pieris on reasonable terms. Any failure of such potential transaction to achieve the anticipated results could significantly impair Pieris’ ability to continue executing its current strategy or consider future strategic opportunities. In addition, speculation regarding any developments related to the consideration of strategic opportunities and perceived uncertainties related to the future of Pieris could cause its stock price to fluctuate significantly.

Even if Pieris identifies and successfully consummates any strategic opportunity, including, but not limited to, any partnership, acquisition, merger, business combination and/or divestiture, Pieris may fail to realize all of the anticipated benefits of such opportunity, those benefits may take longer to realize than expected, or Pieris may encounter integration difficulties.

Pieris’ ability to realize the anticipated benefits of any potential business combination or any other result from any potential strategic opportunity Pieris considers and decides to pursue, are highly uncertain. Any anticipated benefits will depend on a number of factors, including Pieris’ ability to integrate with any future business partner, its ability to obtain value for its existing programs, if divested, and its ability to generate future stockholder value from existing programs Pieris may continue to pursue. The process may be disruptive to Pieris’ business and the expected benefits may not be achieved within the anticipated time frame, or at all. The failure to meet the challenges involved and to realize the anticipated benefits of any potential transaction could adversely affect Pieris’ business and financial condition.

If Pieris identifies and is successful in consummating a strategic opportunity, it may be exposed to other operational and financial risks.

If Pieris identifies and decides to pursue a strategic opportunity, the negotiation and consummation of any such opportunity will require significant time on the part of Pieris’ management, and the diversion of management’s attention may disrupt its business.

Additionally, Pieris’ ability to consummate a strategic opportunity depends in part on its ability to retain certain of its remaining personnel. If Pieris is unable to successfully retain certain of its remaining personnel, Pieris is at risk of a disruption to its exploration and consummation of a strategic alternative, as well as business operations.

The negotiation and consummation of any such opportunity may also require more time or greater cash resources than Pieris anticipates and expose Pieris to other operational and financial risks, including:

Any of the foregoing risks could have a material adverse effect on Pieris’ business, financial condition and prospects.

Risks Related to Pieris’ Business, Financial Position, Capital Requirements, Managing Its Growth and Other Legal Compliance Matters

Pieris has incurred significant losses since its inception and anticipates that it will continue to incur losses for the foreseeable future. Pieris currently has no product revenues and no approved products and will rely on its partnered IO programs to generate revenue.

Pieris was historically a clinical-stage biopharmaceutical company. To date, Pieris has not generated any commercial sales revenue, is not profitable, and has incurred losses since its inception in 2001. For the years ended December 31, 2023 and 2022, Pieris reported net losses of $24.5 million and $33.3 million, respectively. As of June 30, 2024, Pieris had an accumulated deficit of $323.4 million. Pieris expects to continue to incur losses for the foreseeable future.

Pieris has collaborations with Pfizer and Boston Pharmaceuticals in IO. Pieris’ IO partnered programs include SGN-BB228 (PRS-346) in partnership with Pfizer, and BOS-342 (PRS-342) in partnership with Boston Pharmaceuticals, which are currently both in Phase 1 studies.

In July 2023, AstraZeneca notified Pieris of its intention to terminate the license and collaboration agreement, or the “AstraZeneca Collaboration Agreement” and on-exclusive Anticalin platform technology license agreement, or the “AstraZeneca Platform License”, which terminations became effective October 15, 2023. AstraZeneca’s decision to terminate these agreements was based on non-clinical safety findings in a 13-week toxicology study of elarekibep in non-human primates. If Pieris’ research and development efforts, including preclinical studies or clinical trials for any of its partnered drug candidates fail or produce unsuccessful results and those drug candidates do not gain regulatory approval, or if any of its drug candidates, if approved, fail to achieve market acceptance, Pieris may never become profitable. In addition, the failure of one drug candidate or program may have an adverse impact on other drug candidates and programs within Pieris’ class of Anticalin-based therapies. Even if Pieris achieves profitability in the future, Pieris may not be able to sustain profitability in subsequent periods. Pieris’ prior losses, combined with expected future losses, have had and will continue to have an adverse effect on its stockholders’ equity and working capital.

On June 28, 2024, Servier provided Pieris with a written notice of termination of the License and Collaboration Agreement between Servier, Pieris, and Pieris Pharmaceuticals GmbH, dated January 4, 2017, as subsequently amended, or the “Collaboration Agreement”. The Non-Exclusive Anticalin® Platform Technology License Agreement, between Servier, Pieris, and Pieris Pharmaceuticals GmbH, dated January 4, 2017, or the “Non-Exclusive License Agreement”, terminates upon termination of the Collaboration Agreement. The Collaboration Agreement and Non-Exclusive License Agreement will terminate effective December 27, 2024, or 180 days from the date on which Servier notified Pieris of its intent to terminate the agreements. Pursuant to these agreements, Servier and Pieris agreed to collaborate on the research, development, and commercialization of Anticalin-based therapeutics as part of Pieris’ IO franchise, including S095012 (formerly, PRS-344), a 4-1BB/PD-L1 bispecific Mabcalin® protein that was being developed worldwide by Servier. With this notice, Servier will discontinue and cease dosing in the Phase 1 clinical study of S095012. Servier's decision to terminate the agreements was based on a potential safety concern in the S095012 Phase 1 clinical studies. Pieris does not intend to pursue any further development of S095012.

On March 27, 2024, Pieris announced a strategy to maximize its ability to collect potential milestones from its licensing and collaboration agreements while maintaining the ability to consider other strategic opportunities. Pieris is not developing and commercializing products and does not anticipate seeking to develop any new products with any of its existing cash or any future milestone payments it may receive. Pieris’ failure to achieve these potential milestone payments would depress the value of Pieris. A decline in the value of Pieris could also cause its stockholders to lose all or part of their investment.

In the event Pieris determines to pursue any future product development efforts, Pieris will need substantial additional funding to continue its operations. In that case, if Pieris is unable to raise capital when needed, Pieris would be forced to delay, reduce, or eliminate such product development programs or commercialization efforts.

Pieris’ operations have consumed substantial amounts of cash since its inception. Although Pieris is not developing any drug product candidates and does not have any current plans to do so, if Pieris determines to pursue any future product development efforts, Pieris expects that it would incur significant research and development expenses and will need substantial additional funding.

Furthermore, Pieris expects to continue to incur additional costs associated with operating as a public company. Pieris may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase its capital needs and/or cause it to spend its cash resources faster than it expects.

To date, Pieris has financed its operations through a mix of equity investments from private and public investors, the incurrence of debt, grant funding and the receipt of up-front and milestone payments due under its various collaboration agreements, and Pieris may require additional financing to fund operations in order to execute its current business strategy and maintain its ability to receive some or all of the milestones from its IO partnered programs. Additional funding may not be available when or in the amounts needed, on acceptable terms, or at all.

As of the filing of this proxy statement/prospectus, Pieris will be subject to the SEC general instructions of Form S-3 known as the “baby shelf rules.” Under these instructions, the amount of funds Pieris can raise through primary public offerings of securities in any 12-month period using its registration statement on Form S-3 is limited to one-third of the aggregate market value of the shares of its common stock held by non-affiliates. Therefore, Pieris will be limited in the amount of proceeds it is able to raise by selling shares of its common stock using its Form S-3, including under the ATM Program under a sales agreement with Jefferies LLC, as amended, pursuant to which Pieris may offer and sell shares of Pieris common stock, from time to time, up to an aggregate amount of gross sales proceeds of $75.0 million, the “ATM Program”, until such time as its public float exceeds $75 million. Furthermore, if Pieris is deemed to be a shell company, the baby shelf rules, and therefore its Form S-3, would not be available to Pieris.

Pieris’ ability to secure additional funding could be significantly impacted by a multitude of events that are beyond its control, including, but not limited to, changes in the macroeconomic environment and other events affecting the stock market, including the availability of research and other information, favorable or unfavorable, published by securities or industry analysts and news agencies.

Raising capital through the sale of equity or securities convertible into equity would result in dilution to Pieris’ then-existing stockholders, which could be significant depending on the price at which Pieris may be able to sell its securities. If Pieris raises additional capital through the incurrence of indebtedness, Pieris would likely become subject to covenants restricting its business activities, and holders of debt instruments may have rights and privileges senior to those of its equity investors. In addition, servicing the interest and principal repayment obligations under debt facilities could divert funds that would otherwise be available to support research and development, clinical or commercialization activities.

If Pieris obtains capital through collaborative or licensing arrangements, these arrangements could require Pieris to relinquish rights to its Anticalin-based technology or drug candidates and could result in receipt of only a portion of the revenues associated with the potential commercialization of its partnered drug candidates.

Pieris’ international operations pose currency risks, which may adversely affect its operating results and net income.

Due to Pieris’ operations outside of the United States, Pieris is exposed to market risk related to changes in foreign currency exchange rates. Changes in the relative values of currencies occur regularly and, in some instances, could materially adversely affect Pieris’ business, its financial condition, the results of its operations or its cash flows. Pieris’ operating results may be affected by volatility in currency exchange rates and its ability to effectively manage its currency transaction risks. Pieris’ reporting currency is the U.S. dollar, however, 81% of its operating expenses and all of its revenues are recorded in non-U.S. entities. As such, Pieris’ financial statements are translated for reporting purposes as follows: (1) asset and liability accounts at year-end rates, (2) income statement accounts at weighted average exchange rates for the year and (3) stockholders’ equity accounts at historical rates. Corresponding translation gains or losses are recorded in stockholders’ equity.

Pieris incurs currency transaction risks whenever it enters into either a purchase or a sale transaction using a currency other than the euro, its functional currency, particularly in its arrangements for the purchase of supplies or licensing and collaboration agreements with partners outside of the United States. In such cases, Pieris may suffer an exchange loss because it does not currently engage in currency swaps or other currency hedging strategies to address this risk.

Pieris does not manage its foreign currency exposure in a manner that would eliminate the effects of changes in foreign exchange rates. Therefore, changes in exchange rates between these foreign currencies and the U.S. dollar will affect its revenues and expenses and could result in exchange losses in any given reporting period.

Given the volatility of exchange rates, Pieris can give no assurance that it will be able to effectively manage its currency transaction risks or that any volatility in currency exchange rates will not have an adverse effect on its results of operations.

Pieris is subject to anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing its operations. If Pieris fails to comply with these laws, it could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect its business, results of operations and financial condition.

Pieris’ operations are subject to anti-corruption laws, including the Foreign Corrupt Practices Act, or “FCPA”, and other anti-corruption laws that apply in countries where Pieris does business and may do business in the future. The FCPA and these other laws generally prohibit Pieris, its officers, and its employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. Pieris may participate in collaborations and relationships with third parties whose actions could potentially subject Pieris to liability under the FCPA or local anti-corruption laws.

There is no assurance that Pieris will be completely effective in ensuring its compliance with all applicable anti-corruption laws, including the FCPA, or other legal requirements, including Trade Control laws. If Pieris is not in compliance with the FCPA and other anti-corruption laws or Trade Control laws, it may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on its business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the FCPA, other anti-corruption laws or Trade Control laws by U.S. or other authorities could also have an adverse impact on Pieris’ reputation, business, results of operations and financial condition.

If Pieris fails to comply with environmental, health and safety laws and regulations that apply to it, Pieris could become subject to fines or penalties or incur costs that could harm its business.

Pieris is subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Pieris’ operations have historically involved and may continue to involve the use of hazardous and flammable materials, including chemicals and biological materials. Pieris’ operations have historically involved and may continue to also produce hazardous waste products. Pieris generally contracts with third parties for the disposal of any hazardous materials and wastes. The use of these materials in Pieris’ business could result in contamination or injury, which could cause damage for which Pieris may be responsible but may not have sufficient resources to pay. Pieris also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with these laws and regulations, which it may not be able to afford.

Although Pieris maintain workers’ compensation insurance for its operations in Germany to cover it for costs and expenses it may incur due to injuries to its employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. Pieris does not maintain insurance for environmental liability or toxic tort claims that may be asserted against it in connection with its storage or disposal of biological, hazardous or radioactive materials.

In addition, Pieris may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations applicable to it. These current or future laws and regulations may impair Pieris’ research, development or production efforts or impact the research activities it pursues, particularly with respect to research involving human subjects or animal testing. Pieris’ failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions, which could cause its financial condition to suffer.

Pieris may be limited in its use of its net operating loss carryforwards.

As of December 31, 2023, Pieris had net operating loss, or “NOL”, carryforwards for U.S. federal income tax purposes of $43.4 million and NOL carryforwards for state income tax purposes of $46.7 million. Tax loss carryforwards that were generated prior to December 31, 2017 expire through 2037; U.S. federal tax loss carryforwards generated after that date do not expire. State loss carryforwards expire starting in 2035. In the United States, utilization of the NOL carryforwards may be subject to a substantial annual limitation under Section 382 of the Code, and similar state provisions due to ownership change limitations that have occurred previously or that could occur in the future. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income and tax, respectively. If Pieris were to lose the benefits of these loss carryforwards, its future earnings and cash resources would be materially and adversely affected. Pieris completed a Section 382 study through December 31, 2020. Based on the study, Pieris underwent an ownership change for Section 382 purposes which occurred in February 2018. As a result of the ownership change, Pieris’ NOL and tax credit carryforwards as of the ownership change dates are subject to limitation under Section 382; however, these limitations are not expected to result in any of the impacted NOL and tax credit carryforwards to expire unutilized. Any NOLs or tax credits generated after the February 2018 change are not subject to this annual limitation. However, subsequent ownership changes, as defined by Section 382, may potentially further limit the amount of NOL and tax credit carryforwards that could be utilized to offset future taxable income and tax.

As of December 31, 2023, Pieris had German corporate income tax and trade tax NOL carryforwards of approximately $187.6 million and $183.7 million, respectively, which may be used to reduce its future taxable income in Germany. Under current German laws, tax loss carryforwards may only be used to offset any relevant later assessment period (calendar year) by $1.2 million plus 60% of the exceeding taxable income and trade profit of such period and do not expire. In addition, certain transactions, including transfers of shares or interest in the loss holding entity, may result in the partial or total forfeiture of tax losses existing at that date. Partial or total forfeiture of tax losses may further occur in corporate reorganizations of the loss holding entity.

Pieris’ business and operations would suffer in the event of system failures, and its operations are vulnerable to interruption by natural disasters, terrorist activity, power loss, adverse public health events and other events beyond its control, the occurrence of which could materially harm its business and drug development efforts.

Despite the implementation of security measures, Pieris’ internal computer systems and those of its contractors and consultants are vulnerable to damage from computer viruses, hacking, ransomware, cyber-attacks, unauthorized access as well as telecommunication and electrical failures. Pieris’ information technology and other internal infrastructure systems, including corporate firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure that could materially disrupt its operations. Although Pieris has invested significant resources to enhance the security of its computer systems, there can be no assurances it will not experience unauthorized intrusions into its computer systems, or those of its contract research organizations, or “CROs”, vendors, contractors and consultants, that it will successfully detect future unauthorized intrusions in a timely manner or that future unauthorized intrusions will not result in material adverse effects on its financial condition, reputation or business prospects.

While Pieris has not experienced any such material system failure, accident or security breach to date, if such an event were to occur and cause interruptions in its operations, it could result in a material impact on Pieris’ business. In addition, certain data security breaches must be reported to affected individuals and the government, and in some cases to the media, under provisions of the federal Health Insurance Portability and Accountability Act of 1996, or “HIPAA”, as amended by the Health Information Technology for Economic and Clinical Health Act, or the “HITECH Act”, other U.S. federal and state law and requirements of non-U.S. jurisdictions, and financial penalties may also apply. If any disruption or security breach resulted in a loss of or damage to Pieris’ data or applications, or inappropriate disclosure of confidential or proprietary information, Pieris could incur liability.

Pieris is also vulnerable to accidents, electrical blackouts, labor strikes, terrorist activities, war, natural disasters, adverse public health events and other events beyond its control, and Pieris has not undertaken a systematic analysis of the potential consequences to its business as a result of all of such events and do not have an applicable recovery plan in place. Any disruption to Pieris’ operations or the operations of its collaborators from these kinds of events would likely impact its operating results and financial condition.

Although Pieris carries insurance to protect it against some losses or damages resulting from certain types of disasters, the extent of that insurance is limited in scope and amount, and Pieris cannot assure you that its insurance coverage will be sufficient to satisfy any damages and losses. Any business interruption may have a material adverse effect on Pieris’ business, financial position, results of operations, and prospects.

Pieris’ failure to comply with data protection laws and regulations could lead to government enforcement actions, private litigation and/or adverse publicity and could negatively affect its operating results and business.

Pieris is subject to data protection laws and regulations that address privacy and data security. The legislative and regulatory landscape for data protection continues to evolve, and there has been an increasing focus on privacy and data security issues with the potential to affect its business. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws and federal and state consumer protection laws govern the collection, use, disclosure and protection of health-related and other personal information. Failure to comply with data protection laws and regulations could result in government enforcement actions, which could include civil or criminal penalties, private litigation and/or adverse publicity and could negatively affect its operating results and business. For example, California enacted the California Consumer Privacy Act, or “CCPA”, which went into effect in January 2020. The CCPA creates data privacy obligations for covered businesses and establishes data privacy rights for California residents, including the right to opt out of certain disclosures of their information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches. Additionally, California voters passed the California Privacy Rights Act, or “CPRA”, which became effective January 1, 2023. The CPRA significantly amends the CCPA, and imposes additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive personal information. The CPRA also established a new regulatory authority, the California Privacy Protection Agency, which is tasked with enacting new regulations under the CPRA and will have expanded enforcement authority, which may result in increased privacy and information security enforcement in California. In addition to California, more U.S. states are enacting similar consumer privacy legislation, increasing compliance complexity and increasing risks of failures to comply. As of 2023, Virginia, Colorado, Connecticut and Utah enacted similar comprehensive data protection laws. Additional consumer privacy laws have also been enacted in Delaware, Indiana, Iowa, Montana, New Jersey, Oregon, Tennessee, and Texas, which laws will take effect over the next three years.

Numerous other countries have, or are developing, laws governing the collection, use and transmission of personal information as well. For example, the European Union’s General Data Protection Regulation, or “GDPR”, which took effect in 2018, imposed a broad data protection framework that expanded the scope of data protection law across the European Union and European Economic Area, or “EEA”, and can apply to non-EU entities that process, or control the processing of, personal data relating to individuals located in the EEA, including clinical trial data. The GDPR sets out a number of requirements that must be complied with when handling the personal data of EEA-based data subjects, including: providing expanded disclosures about how their personal data will be used; higher standards for organizations to demonstrate that they have obtained valid consent or have another legal basis to justify their data processing activities; the obligation to appoint data protection officers in certain circumstances; new rights for individuals to be “forgotten” and rights to data portability; an expansion of data subject rights with respect to access and control over their personal data (e.g., access requests); requirements for demonstrating compliance through policies, procedures, training and audit; and a new mandatory data breach reporting and notification regime. In particular, medical or health data, genetic data and biometric data are all classified as “special category” data under the GDPR and are therefore subject to additional compliance obligations. Further, EEA member states have a broad right to impose additional conditions—including restrictions—on these data categories in connection with permitted derogations from the requirements of the GDPR mainly in regard to specific processing situations (including special category data and processing for scientific or statistical purposes). Pieris is subject to the GDPR and the German federal data privacy law, the Bundesdatenschutzgesetz, and it is subject to the regulatory authority of the Bavarian data protection authority, the BayLDA. As the EU states continue to reframe their national legislation to harmonize with the GDPR, Pieris will monitor compliance with all relevant EU member states’ laws and regulations, including where permitted derogation from the GDPR are introduced.

Pieris is also subject to evolving EU laws on data export since it transfers data to countries outside of the EEA, including the United States and United Kingdom, to itself or third parties. The GDPR only permits exports of data outside of the EEA where there is a suitable data transfer mechanism in place to safeguard personal data (e.g., the EU Commission approved Standard Contractual Clauses). On July 16, 2020, the Court of Justice of the EU, or the “CJEU”, issued a landmark opinion in the case Maximilian Schrems vs. Facebook (Case C-311/18) (Schrems II). This decision calls into question certain data transfer mechanisms as between the EU member states and the United States. The CJEU is the highest court in Europe and the Schrems II decision heightens the burden on data importers to assess U.S. national security laws on their business and to evaluate risks of potential fines and penalties and/or data transfers from the EU being halted. On July 10, 2023, the EU Commission adopted an adequacy decision for a new mechanism for transferring data from the EU to the United States – the EU-US Data Privacy Framework, or the “Framework”. The Framework provides EU individuals with several new rights, including the right to obtain access to their data, or obtain correction or deletion of incorrect or unlawfully handled data. The adequacy decision followed the signing of an executive order introducing new binding safeguards to address the points raised in the Schrems II decision. Notably, the new obligations were geared to ensure that data can be accessed by U.S. intelligence agencies only to the extent necessary and proportionate and to establish an independent and impartial redress mechanism to handle complaints from Europeans concerning the collection of their data for national security purposes. The EU Commission will continually review developments in the United States along with its adequacy decision. Adequacy decisions can be adapted or even withdrawn in the event of developments affecting the level of protection in the applicable jurisdiction. Future actions of EU data protection authorities are difficult to predict. Reliance on the Framework to enable cross-border transfers without certain contractual and other representations is dependent upon certification to the Framework, which Pieris has not yet done.

If Pieris has to rely on third parties to carry out services for it, including processing personal data on its behalf, Pieris is required under GDPR to enter into contractual arrangements to help ensure that these third parties only process such data according to Pieris’ instructions and have sufficient security measures in place. Any security breach or non-compliance with its contractual terms or breach of applicable law by such third parties could result in enforcement actions, litigation, fines and penalties or adverse publicity and could harm consumer confidence in Pieris, which would have an adverse impact on its reputation and business. Any contractual arrangements requiring the processing of personal data from the EEA to Pieris in the United States will require greater scrutiny and assessments as required under Schrems II and may have an adverse impact on cross-border transfers of personal data, or increase costs of compliance. The GDPR provides an enforcement authority to impose large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of total global turnover from the preceding fiscal year of the noncompliant company, whichever is greater.

Applicable data privacy and data protection laws may conflict with each other, and by complying with the laws or regulations of one jurisdiction, Pieris cannot be assured of compliance with the laws or regulations of another jurisdiction. Despite Pieris’ efforts, it may not have fully complied in the past and may not in the future. That could require Pieris to incur significant expenses, which could significantly affect its business. Failure to comply with data protection laws may expose Pieris to risk of enforcement actions taken by data protection authorities or other regulatory agencies, private rights of action in some jurisdictions, and potential significant fines and penalties if it is found to be non-compliant.

Furthermore, the number of government investigations related to data security incidents and privacy violations continues to increase and government investigations typically require significant resources and generate negative publicity, which could harm Pieris’ business and reputation.

U.S. tax legislation and future changes to applicable U.S. or foreign tax laws and regulations may have a material adverse effect on Pieris’ business, financial condition and results of operations.

Pieris is subject to income and other taxes in the United States and foreign jurisdictions. Changes in laws and policy relating to taxes or trade may have an adverse effect on its business, financial condition and results of operations. This proxy statement/prospectus does not discuss any such tax legislation or changes to tax laws and regulations, or the manner in which it might affect Pieris or purchasers of its securities. Pieris urges its investors to consult with their own legal and tax advisors with respect to such legislation and the potential tax consequences of investing in its securities.

Pieris is also subject to different tax regulations in each of the jurisdictions where it conducts its business or where its management is located. Pieris expects the scope and extent of regulation in the jurisdictions in which it conducts its business, or where its management is located, as well as regulatory oversight and supervision, to generally continue to increase. Generally, future changes in applicable U.S. or foreign tax laws and regulations, or their interpretation and application could have an adverse effect on Pieris’ business, financial conditions and results of operations.

Pieris could be subject to product liability lawsuits based on the use of its drug candidates in clinical testing or, if obtained, following its products’ marketing approval and commercialization. If product liability lawsuits are brought against Pieris, it may incur substantial liabilities.

Pieris could be subject to product liability lawsuits if any drug candidate it develops allegedly causes injury or is found to be otherwise unsuitable for human use during product testing, manufacturing, marketing or sale. Any such product liability claim may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If Pieris cannot successfully defend itself against these claims, it will incur substantial liabilities. Even successful defense would require significant financial and management resources.

Regardless of merit or eventual outcome, liability claims may result in, among other things, reduced resources of Pieris’ management to pursue its business strategy, injury to its reputation and significant negative media attention, significant costs to defend the related litigation, substantial monetary awards to clinical trial participants or patients, and increased insurance costs.

While Pieris currently carries insurance in an amount and on terms and conditions that are customary for similarly situated companies and that are satisfactory to the Pieris board of directors, its insurance coverage may not reimburse Pieris or may not be sufficient to reimburse Pieris for any expenses or losses it may suffer.

Risks Related to the Development and Commercialization of Pieris’ Drug Candidates

Although Pieris has in the past depended heavily on the success of its drug candidates and programs, it does not have any product candidates currently in active development. Future clinical trials, if any, may not be successful and Pieris cannot be certain that it will receive regulatory approvals or be able to successfully commercialize its products even if it receives regulatory approvals.

Pieris currently has no products that are approved for commercial sale, and do not have plans to independently develop any drug product candidates. All of Pieris’ IO drug candidates are being developed in partnership with its collaborators. Accordingly, Pieris’ business is currently substantially dependent on the successful development, clinical testing, regulatory approval and commercialization of its partnered programs, which may never occur. For example, in July 2023, AstraZeneca notified Pieris of its intention to terminate the AstraZeneca Collaboration Agreement and the AstraZeneca Platform License, which terminations became effective October 15, 2023. AstraZeneca’s decision to terminate these agreements was based on non-clinical safety findings in a 13-week toxicology study of elarekibep in non-human primates. Additionally, on June 28, 2024, Servier provided Pieris with a written notice of termination of the Collaboration Agreement. The Non-Exclusive License Agreement with Servier terminates upon termination of the Collaboration Agreement. The Collaboration Agreement and Non-Exclusive License Agreement will terminate effective December 27, 2024 and Servier will discontinue and cease dosing in the Phase 1 clinical study of S095012. Servier's decision to terminate the agreements was based on a potential safety concern in the S095012 Phase 1 clinical studies. Pieris intends to review the safety data from the S095012 Phase 1 clinical study to understand the implications of the data. Pieris does not intend to pursue any further development of S095012.

In order for Pieris to achieve potential milestones or royalties from its partnered programs, its partners must complete some or all of the following activities, any one of which may not be successfully completed:

If Pieris’ partners are unable to address one or more of these factors in a timely manner or at all, there could be significant delays in the successful commercialization of, or an inability to successfully commercialize, Pieris’ product candidates, which would materially harm its business. If regulatory approvals are not received for one or more of Pieris’ product candidates, Pieris may not be able to continue its operations. Even if Pieris’ partners successfully obtain regulatory approvals to manufacture and market its product candidates, revenues will be dependent, in part, upon the size of the markets in the territories for which regulatory approval is obtained and where there are commercial rights, competitors’ products in the same markets, market acceptance, and other factors. If the markets for patient subsets that are targeted are not as significant as Pieris estimates, significant revenues may not be generated from sales of such products, if approved.

Clinical testing of Pieris’ IO partnered programs is ongoing, while clinical testing for other IO programs, for example the preclinical programs with Pfizer, have not yet commenced, and the results of any future clinical trials or preclinical studies of these programs, if unsuccessful, could lead to abandonment of the development of those drug candidates. If studies of these drug candidates produce unsuccessful results and its partners are forced or elect to cease their development, Pieris’ business and prospects could be substantially harmed.

Preclinical and clinical testing of drug candidates that has been conducted to date or will be conducted in the future may not have been or may not be performed in compliance with applicable regulatory requirements, which could lead to increased costs or material delays for their further development.

Given the complexity, as well as the uncertainty inherent in preclinical and other nonclinical studies and clinical trials, and because of Pieris’ limited operating experience, Pieris may discover that its own development activities are not in compliance with applicable regulatory requirements or are otherwise deficient, and therefore, determine that the development of its drug candidates on the basis of those trials and studies is not warranted or will be delayed.

Pieris has entered into license, partnership and option arrangements, such as with Pfizer and Boston Pharmaceuticals, relating to certain drug candidates and Pieris may continue to do so in the future. Under some of these arrangements, the development of some of those drug candidates has been, or in the future may be, conducted wholly by such partners or third parties with which the partners contract. As a result, Pieris has not been or may not be closely involved with or have any control over those development activities. Although some of Pieris’ partners have provided information regarding those drug candidates and the related studies conducted to date, including data that has been included in Pieris’ Annual Reports on Form 10-K, Pieris has not received and may not receive in the future, comprehensive information regarding all of those development activities, including the raw data from certain studies that have been conducted, information regarding the design, procedural implementation and structure and information regarding the manufacture of the drug candidates used in the studies. Because Pieris may have limited or no input on the development of these drug candidates, Pieris may discover that all or certain elements of the trials and studies its partners have performed have not been, or may not in the future be, in compliance with applicable regulatory standards or have otherwise been or may be deficient, and that advancement of the development of these drug candidates on the basis of those trials and studies is not warranted.

Further, the majority of Pieris’ development activities for each of its drug candidates, and any future clinical trials, have been, or may in the future be conducted in whole or in part outside of the United States, including in Europe, Australia or Asia. Pieris’ partners may also conduct future development activities in other countries or regions. As a result, although those studies may meet the standards of applicable foreign regulatory bodies, the structure and design of those clinical trials and preclinical studies may not meet applicable FDA requirements and also may not meet the requirements of the applicable regulatory authorities in other foreign countries in which Pieris desires to pursue marketing approval.

If the studies conducted by Pieris or its partners or collaborators do not comply with applicable regulatory requirements or are otherwise not eligible for continued development in the United States or abroad, then new studies may be required in order to progress the development of its drug candidates. Pieris’ partners may not have the funding or other resources to conduct or complete these additional studies, which would severely delay or prevent the development plans for these drug candidates and their commercialization. Any such deficiency and delay in the development of these drug candidates could significantly harm Pieris’ business plans, product revenues and prospects.

Clinical drug development involves a lengthy and expensive process with uncertain outcomes, clinical trials are difficult to design and implement, and any of Pieris’ partners' clinical trials could produce unsuccessful results or fail at any stage in the process.

Clinical trials conducted on humans are expensive and can take many years to complete, and outcomes are inherently uncertain. Failure can occur at any time during the process. Additionally, any positive results of preclinical studies and early clinical trials of a drug candidate may not be predictive of the results of later-stage clinical trials, such that drug candidates may reach later stages of clinical trials and fail to show the desired safety and efficacy traits despite having shown indications of those traits in preclinical studies and early-stage clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier phases of the trials. Therefore, the results of any ongoing or future clinical trials Pieris’ partners conduct may not be successful.

For example, in June 2023, AstraZeneca communicated to Pieris its decision to discontinue and cease dosing in the ongoing clinical studies of elarekibep. This decision was based on lung findings from a non-clinical 13-week GLP toxicology study with dry powder inhaler-formulated elarekibep, which did not support long-term use and progression to later-stage development. The 13-week non-human primates study included three active dose cohorts. AstraZeneca concluded that there were no clinical observations across any of the doses but that there were respiratory tract pathology findings. These findings included inflammation-mediated lung tissue damage, which did not appear to be dose related. AstraZeneca’s decision was made independent of any data from the Phase 2a study. In July 2023, AstraZeneca notified Pieris of its intention to terminate the AstraZeneca Collaboration Agreement and the AstraZeneca Platform License, which terminations became effective October 15, 2023. AstraZeneca’s decision to terminate these agreements was based on non-clinical safety findings in a 13-week toxicology study of elarekibep in non-human primates.

Additionally, on June 28, 2024, Servier provided Pieris with a written notice of termination of the Collaboration Agreement. The Non-Exclusive License Agreement with Servier terminates upon termination of the Collaboration Agreement. The Collaboration Agreement and Non-Exclusive License Agreement will terminate effective December 27, 2024 and Servier will discontinue and cease dosing in the Phase 1 clinical study of S095012. Servier's decision to terminate the agreements was based on a potential safety concern in the S095012 Phase 1 clinical studies. Pieris intends to review the safety data from the S095012 Phase 1 clinical study to understand the implications of the data. Pieris does not intend to pursue any further development of S095012.

Clinical trials may also be delayed, suspended or prematurely terminated for a variety of other reasons, such as:

Further, Pieris’ partners may also encounter delays if a clinical trial is suspended or terminated by Pieris, by any IRB or ethics committee, by a Data Safety Monitoring Board, or by the FDA, European Medicines Agency, or “EMA”, the Medicines and Healthcare Products Regulatory Agency, or “MHRA”, or other regulatory authority. A suspension or termination may occur due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements, inspection of the clinical trial operations or trial site by the FDA, EMA, MHRA or other regulatory authorities, exposing participants to health risks caused by unforeseen safety issues or adverse side effects, development of previously unseen safety issues, failure to demonstrate a benefit from using a drug candidate or changes in governmental regulations or administrative actions. Pieris cannot predict with any certainty the schedule for commencement or completion of any currently ongoing, planned or future clinical trials.

If Pieris’ partners experience delays in the commencement or completion of, or suspension or termination of, any clinical trial for its drug candidates, the commercial prospects of the drug candidate could be harmed, and ability to and ability to realize milestones or royalties. The occurrence of any of these events could harm Pieris’ business, financial condition, results of operations and prospects significantly.

Risks Related to Pieris’ Dependence on Third Parties

Disagreements with respect to the commercial terms of Pieris’ sales, licensing, purchase or manufacturing agreements may limit its commercial success.

The rights and obligations of the partners to which Pieris may license its Anticalin-based technology are governed by the licensing and collaboration agreements Pieris enters into with those partners. Pieris’ collaborators may include assumptions, understandings or agreements that are not included in Pieris’ agreements with them, or that are inaccurately or incompletely represented by their terms. In addition, key terms in such agreements may be misunderstood or contested, even when Pieris and the other party previously believed that they both had a mutual understanding of such terms.

Any differences in interpretation or misunderstandings between Pieris and other parties may result in substantial costs, and may negatively impact its revenues and operating results. Partners may fail to develop the drug candidates with the diligence or under the timeline or in the manner Pieris anticipated, and results may differ from the terms upon which Pieris had agreed. Resolution of these problems may entail costly and lengthy litigation or dispute resolution procedures. In addition, there is no guarantee that Pieris will prevail in any such dispute or, if Pieris does prevail, that any remedy it receives, whether legal or otherwise, will adequately redress the harm Pieris has suffered. The delays and costs associated with such disputes may themselves harm Pieris’ business and reputation.

Pieris depends on third parties and may to continue to license or collaborate with third parties, and events involving these strategic partners or any future collaboration could delay or prevent development or commercialization of drug products.

Pieris’ business strategy, along with its short- and long-term operating results, depend in part on its ability to execute on existing strategic collaborations and to license or partner with new strategic partners. Pieris has entered into and may in the future to enter into collaborative arrangements with both U.S.-based and foreign pharmaceutical and drug development companies, which will lead or otherwise collaborate with Pieris or assist it in the development, manufacturing and marketing of its drug products. Pieris believes collaborations allow Pieris to leverage its resources and technologies and Pieris may derive some revenues from research and development fees, license fees, milestone payments, and royalties from its collaborative partners.

Pieris’ prospects, therefore, may depend to some extent upon its ability to attract and retain collaborative partners. Pieris has limited control over the amount and timing of resources that its current collaborators or any future collaborators devote to its collaborations or potential products, in particular with respect to its collaborations with Boston Pharmaceuticals for the development of BOS-342, with Pfizer for the development of SGN-BB228 and other programs. These collaborators may breach or terminate their agreements with Pieris or otherwise fail to conduct their collaborative activities successfully and in a timely and reasonable manner. Termination of these agreements or reduction or elimination of Pieris’ rights under these agreements may result in Pieris having to negotiate new, amended or reinstated agreements with less favorable terms, or cause Pieris to lose its rights under these agreements, including its rights to important intellectual property or technology. Further, Pieris’ collaborators may not develop or commercialize products that arise out of its collaborative arrangements or devote sufficient resources to the development, manufacturing, marketing or sale of these products. In addition, Pieris’ collaborative partners may have the right to guide strategy regarding prosecution of relevant patent applications, abandon research projects and/or terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed-upon research terms.

Pieris’ collaborators may also decide to terminate these agreements based on findings in its clinical trials. For example, in July 2023, AstraZeneca notified Pieris of its intention to terminate the AstraZeneca Collaboration Agreement and the AstraZeneca Platform License, effective October 15, 2023. AstraZeneca’s decision to terminate the AstraZeneca Agreements was based on non-clinical safety findings in a 13-week toxicology study of elarekibep in non-human primates.

Additionally, on June 28, 2024, Servier provided Pieris with a written notice of termination of the Collaboration Agreement. The Non-Exclusive License Agreement with Servier terminates upon termination of the Collaboration Agreement. The Collaboration Agreement and Non-Exclusive License Agreement will terminate effective December 27, 2024 and Servier will discontinue and cease dosing in the Phase 1 clinical study of S095012. Servier's decision to terminate the agreements was based on a potential safety concern in the S095012 Phase 1 clinical studies. Pieris intends to review the safety data from the S095012 Phase 1 clinical study to understand the implications of the data. Pieris does not intend to pursue any further development of S095012.

By entering into such collaborations, Pieris may forego opportunities to collaborate with other third parties who do not wish to be associated with its existing third-party strategic partners. In the event of termination of a collaboration agreement, termination negotiations may result in less than favorable terms.

There can be no assurance that Pieris will be successful in establishing collaborative arrangements on acceptable terms or at all, that collaborative partners will not terminate funding before the completion of projects, that Pieris’ collaborative arrangements will result in successful product commercialization, or that Pieris will derive any revenues from such arrangements. Potential collaborators may reject collaborations based upon their assessment of Pieris’ financial, regulatory or intellectual property position and its internal capabilities. Additionally, the negotiation, documentation and implementation of collaborative arrangements are complex and time-consuming. Any discussions with potential collaborators may not lead to new collaborations on favorable terms and may have the potential to provide collaborators with access to Pieris’ key intellectual property rights.

Pieris’ success depends in part on the efforts of its current and possible future collaborators, who will likely have substantial control and discretion over the continued development and commercialization of drug candidates that are the subject of its collaborations.

Pieris’ current collaborators and future collaborators will have significant discretion in determining the effort and amount of resources that they dedicate to its collaborations. Pieris’ collaborators may determine not to proceed with clinical development or commercialization of a particular drug candidate for a number of reasons that are beyond Pieris’ control, even under circumstances where it might have continued such a program, currently including BOS-342 and SGN-BB228. In addition, Pieris’ rights to receive milestone payments and royalties from its collaborators will depend in part on its collaborators’ abilities to establish the safety and efficacy of its drug candidates, obtain regulatory approvals and achieve market acceptance of products developed from its drug candidates. Pieris may also depend on its collaborators to manufacture clinical scale quantities of some of its drug candidates and, possibly, for commercial scale manufacture, distribution, marketing and sales. Pieris’ collaborators may not be successful in manufacturing its drug candidates or successfully commercializing them.

Pieris faces additional risks in connection with its existing and future collaborations, including the following:

Pieris’ collaborative relationships may not produce the financial benefits that it is anticipating, which could cause its business to suffer.

Part of Pieris’ strategy is to partner with, or out-license selective products to, other pharmaceutical companies in order to mitigate the cost of developing a drug through clinical trials to commercialization. For example, in July 2023, AstraZeneca notified Pieris of its intention to terminate the AstraZeneca Collaboration Agreement and the AstraZeneca Platform License, effective October 15, 2023. AstraZeneca’s decision to terminate the AstraZeneca Agreements was based on non-clinical safety findings in a 13-week toxicology study of elarekibep in non-human primates. Additionally, on June 28, 2024, Servier provided Pieris with a written notice of termination of the Collaboration Agreement. The Non-Exclusive License Agreement with Servier terminates upon termination of the Collaboration Agreement. The Collaboration Agreement and Non-Exclusive License Agreement will terminate effective December 27, 2024 and Servier will discontinue and cease dosing in the Phase 1 clinical study of S095012. Servier's decision to terminate the agreements was based on a potential safety concern in the S095012 Phase 1 clinical studies. Pieris intends to review the safety data from the S095012 Phase 1 clinical study to understand the implications of the data. Pieris does not intend to pursue any further development of S095012. If Pieris’ collaboration with other similar partners is not successful, its future revenues and business will be harmed.

Pieris may not receive any further milestone, royalty or license payments under its current collaborations.

Although Pieris has received upfront, milestone and other payments to date under its current drug development collaborations, it may not receive any royalty payments or additional license and milestone fees under such agreements. In general, Pieris’ receipt of milestone, royalty or license payments depends on many factors, including whether its collaborators want and are able to continue to pursue potential drug candidates, intellectual property issues, the approval of biosimilars, unforeseen complications in the development or commercialization process, and the ultimate commercial success of the drugs.

Risks Related to Pieris’ Intellectual Property

If Pieris breaches any of the agreements under which it licenses from third parties the intellectual property rights or commercialization rights to its drug candidates, particularly its license agreements with TUM and Kelun, Pieris could lose license rights that are important to its business and its operations could be materially harmed.

Pieris in-licenses significant intellectual property related to its Anticalin platforms from Technische Universität München, or “TUM”. Under the terms of the research and licensing agreement by and between Pieris and TUM, or the “TUM License”, TUM assigns to Pieris certain materials and records resulting from the research. Pieris retains rights to inventions made by its employees, and TUM assigns to Pieris all inventions made under the agreement jointly by Pieris’ employees and TUM personnel, provided that Pieris’ employees have made a certain inventive contribution. With respect to all other inventions made in the course of the research, TUM grants to Pieris worldwide exclusive license rights under patents and patent applications claiming such inventions. TUM retains rights to practice these inventions for research and teaching purposes. Pieris bears the costs of filing, prosecuting and maintaining the patents assigned or licensed to Pieris under the TUM License.

As consideration for the assignments and licenses, Pieris is obliged to pay milestone payments to TUM on development of its proprietary products claimed by patents assigned or licensed to Pieris by TUM. Pieris is also obliged to pay low single-digit royalties, including annual minimum royalties, on the sales of such products. Should Pieris grant licenses or sublicenses to those patents to third parties, Pieris is obliged to pay to TUM certain undisclosed fees as a function of out-licensing revenues in connection with those patents, or “Out-License Fees”, where such Out-License Fees are creditable against annual license payments to TUM. Pieris’ payment obligations are reduced by its proportionate contribution to a joint invention. Payment obligations terminate on expiration or annulment of the last patent covered by the TUM License that covers a proprietary product or is sublicensed, as applicable.

Pieris and TUM initiated discussions in the second quarter of 2018, and may enter into an amendment to the license agreement in the future, to clarify, expand and restructure the TUM License, including the parties’ obligations under such license agreement. The contemplated amendment relates to revised commercial terms. Pieris recorded the probable expected impact of the amendment in research and development expense in 2019, although the final expense could be different than what Pieris currently has recorded.

In connection with Pieris’ efforts to develop multispecific Anticalin-based proteins designed to engage immunomodulatory targets, during the second quarter of 2017, Pieris entered into a license and transfer agreement, or the “Kelun Agreement” with Sichuan Kelun-Biotech Biopharmaceutical Co. Ltd., or “Kelun”. Under the Kelun Agreement, Kelun has granted to Pieris a non-exclusive worldwide license (with the right to sublicense) under certain intellectual property owned or controlled by Kelun to research, develop, manufacture and commercialize bi- and multi-specific fusion proteins that include an antibody developed by Kelun specific for an undisclosed target and one or more Anticalin proteins.

In addition to the TUM License and the Kelun Agreement, Pieris has other in-license agreements and may seek to enter into additional agreements with other third parties in the future granting similar license rights with respect to other potential drug candidates. If Pieris fails to comply with any of the conditions or obligations or otherwise breach the terms of the TUM License, the Kelun Agreement or any future license agreement Pieris may enter on which its business or drug candidates are dependent, TUM, Kelun or other licensors may have the right to terminate the applicable agreement in whole or in part and thereby extinguish its rights to the licensed technology and intellectual property and/or any rights Pieris has acquired to develop and commercialize certain drug candidates, including, with respect to the TUM License and Kelun Agreement, its Anticalin-based drug therapies. Under the TUM License, Pieris can terminate the licenses to any or all licensed patents upon specified advance notice to TUM. TUM may terminate the license provisions of the agreement only for cause. Termination of the TUM License does not terminate Pieris’ rights in patents assigned to it but would terminate its rights to patents licensed to it under the agreement. The loss of the rights licensed to Pieris under its license agreement with TUM or Kelun Agreement, or any future license agreement that it may enter granting it rights on which its business or drug candidates are dependent, would eliminate its ability to further develop the applicable drug candidates and may materially harm its business, prospects, financial condition and results of operations.

If Pieris’ efforts to protect the proprietary nature of the intellectual property related to its technologies are not adequate, Pieris may not be able to compete effectively and its business could be harmed.

Pieris relies upon a combination of patents, trade secret protection and confidentiality agreements, or “CDA” to protect the intellectual property related to its technologies. Any disclosure to, or misappropriation by, third parties of Pieris’ proprietary information could enable competitors to quickly duplicate or surpass its technological achievements, thus eroding any competitive advantage Pieris may derive from the proprietary information.

The strength of patents in the biotechnology and pharmaceutical fields can be uncertain and involve complex legal and scientific questions. No consistent policy regarding the breadth of claims allowed in patents has emerged to date in the United States. Accordingly, Pieris cannot predict the breadth of claims that may be allowed or enforced, or that the scope of any patent rights could provide a sufficient degree of protection that could permit Pieris to gain or keep its competitive advantage with respect to these products and technologies. For example, Pieris cannot predict:

As a result, the patent applications Pieris owns or license may fail to result in issued patents in the United States or in foreign countries. Third parties may challenge the validity, enforceability or scope of any issued patents Pieris owns or licenses or any applications that may issue as patents in the future, which may result in those patents being narrowed, invalidated or held unenforceable. Even if they are unchallenged, Pieris’ patents and patent applications may not adequately protect its intellectual property or prevent others from developing similar products that do not fall within the scope of its patents. If the breadth or strength of protection provided by the patents Pieris holds or pursues is threatened, its ability to commercialize any drug candidates with technology protected by those patents could be threatened. Further, if Pieris encounters delays in its clinical trials, the period of time during which Pieris would have patent protection for any covered drug candidates that obtain regulatory approval would be reduced. Since patent applications in the United States and most other countries are confidential for a period of time after filing, Pieris cannot be certain at the time of filing that it is the first to file any patent application related to its drug candidates.

While patent term extensions under the Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be available to extend its patent exclusivity for its drug candidates, the applicable patents may not meet the specified conditions for eligibility for any such term extension and, even if eligible, Pieris may not be able to obtain any such term extension. Further, because filing, prosecuting, defending and enforcing patents in multiple jurisdictions can be expensive, Pieris may elect to pursue patent protection relating to its drug candidates in only certain jurisdictions. As a result, competitors would be permitted to use Pieris’ technologies in jurisdictions where it has not obtained patent protection to develop their own products, any of which could compete with its drug candidates.

In addition to the protection afforded by patents, Pieris seeks to rely on trade secret protection and CDAs to protect proprietary know-how that is not patentable, processes for which patents are difficult to enforce and any other elements of its discovery platform and drug development processes that involve proprietary know-how, information or technology that is not covered by patents or not amenable to patent protection. Although Pieris requires all of its employees and certain consultants, third parties and advisors to assign inventions to it, they may refuse to assign the inventions which could create delay or risk assignment of inventions. Pieris also requires all of its employees, consultants, advisors and any third parties who have access to its proprietary know-how, information or technology to enter into CDAs, its trade secrets and other proprietary information may be disclosed or competitors may otherwise gain access to such information or independently develop or reverse engineer substantially equivalent information. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, Pieris may encounter significant difficulty in protecting and defending its intellectual property both in the United States and abroad. If Pieris is unable to prevent material disclosure of the trade secrets and other intellectual property related to its technologies to third parties, Pieris may not be able to establish or maintain the competitive advantage that it believes is provided by such intellectual property, adversely affecting its market position and business and operational results.

Claims that Pieris or its partners infringe the intellectual property rights of others may prevent or delay drug discovery and development efforts.

Pieris’ partnered drug candidates may infringe or be accused of infringing a patent or other form of intellectual property under which Pieris does not hold a license or other rights. Third parties may assert that Pieris is employing their proprietary technology without authorization.

There may be third-party patents of which Pieris is currently unaware with claims that cover the use or manufacture of its drug candidates or the practice of its related methods. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that Pieris’ partnered drug candidates may infringe. In addition, third parties may obtain patents in the future and claim that use of such drug candidates infringes upon one or more claims of these patents. If Pieris’ partnered drug candidates infringe the patents or other intellectual property rights of third parties, the holders of such intellectual property rights may be able to block the ability to commercialize such drug candidates unless Pieris or its partners obtain a license under the intellectual property rights or until any applicable patents expire or are determined to be invalid or unenforceable.

Defense of any intellectual property infringement claims against Pieris, regardless of their merit, would involve substantial litigation expense and would be a significant diversion of resources from its business. In the event of a successful claim of infringement against Pieris, it may have to pay substantial damages, obtain one or more licenses from third parties, limit its business to avoid the infringing activities, pay royalties and/or redesign its infringing drug candidates or alter related formulations, processes, methods or other technologies, any or all of which may be impossible or require substantial time and monetary expenditure. Further, if Pieris were to seek a license from the third-party holder of any applicable intellectual property rights, Pieris may not be able to obtain the applicable license rights when needed or on reasonable terms, or at all. Some of Pieris’ competitors may be able to sustain the costs of complex patent litigation or proceeding more effectively than Pieris due to their substantially greater resources. The occurrence of any of the above events could cause Pieris’ business to materially suffer.

The patent protection covering some of Pieris’ drug candidates may be dependent on third parties, who may not effectively maintain that protection.

While Pieris expects the right to fully prosecute any patents covering drug candidates Pieris may in-license from third-party owners, there may be instances when the prosecution and maintenance of issued patents and pending patent applications that cover its drug candidates remain controlled by its licensors. Similarly, some of Pieris’ future licensing partners may retain the right, or may seek the rights, to prosecute patents covering the drug candidates Pieris licenses to them and Pieris may grant such rights to those partners for business reasons. If such third parties fail to appropriately maintain that patent protection, Pieris may not be able to prevent competitors from developing and selling competing products or practicing competing methods and its ability to generate revenue from any commercialization of the affected drug candidates may suffer.

Pieris may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, which could be expensive, time-consuming and unsuccessful.

Competitors may infringe Pieris’ patents or the patents of its current or potential licensors. To attempt to stop infringement or unauthorized use, Pieris may need to enforce one or more of its patents, which can distract its management and divert its limited time and resources. Pieris’ standing to enforce such patents may sometimes be dependent on the licensor joining such suit, and a licensor's failure to join such suit may prevent Pieris from enforcing the patent. If Pieris pursues any litigation, a court may decide that a patent of Pieris’ or any of its licensors’ is not valid or is unenforceable or may refuse to stop the other party from using the relevant technology on the grounds that its patents do not cover the technology in question. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, which could reduce the likelihood of success of, or the amount of damages that could be awarded resulting from, any infringement proceeding Pieris pursues in any such jurisdiction. An adverse result in any infringement litigation or defense proceedings could put one or more of Pieris’ patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put its patent applications at risk of not issuing, which could limit its ability to exclude competitors from directly competing with Pieris in those jurisdictions.

Interference proceedings may also be provoked or suggested by third parties, or brought by the USPTO or at its foreign counterparts (such as the EPO), to determine the priority of inventions with respect to Pieris’ patents or patent applications or those of its licensors. An unfavorable outcome could require Pieris to cease using the related technology or to attempt to license rights to use it from the prevailing party. Pieris’ business could be harmed if the prevailing party does not offer Pieris a license on commercially reasonable terms, or at all.

Litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract Pieris’ management and other employees.

If Pieris is unsuccessful in obtaining or maintaining patent protection for intellectual property in development, its business and competitive position would be harmed.

Pieris may continue to seek patent protection of its technology and for its drug candidates. Patent prosecution is a challenging process and is not assured of success. If Pieris is unable to secure patent protection for its technology and drug candidates, its business may be adversely impacted.

Furthermore, issued patents and pending applications require regular maintenance. Failure to maintain Pieris’ portfolio may result in loss of rights that may adversely impact its intellectual property rights, such as rendering issued patents unenforceable or terminating pending applications prematurely.

In addition, under the European Union regulation on classification, labeling and packaging of substances and mixtures, and under other regulations in the United States or other countries related to the clinical development of Pieris’ drug candidates (including, for example, submissions to regulatory authorities such as the FDA and EMA, as well as submissions related to obtaining a non-proprietary, or international nonproprietary names, or “INN”, and United States adopted name, or “USAN”, name for Pieris’ clinical drug candidates to the World Health Organization, and USAN Council), Pieris or its partners may be required to publicly disclose the composition of its proprietary products or substances, which may facilitate infringement or avoidance of its intellectual property by third parties and may potentially reduce the margin Pieris is able to charge for its products by allowing competitors to more accurately determine its production costs. Future development of these regulations may have a further negative impact on Pieris’ revenues and a substantial negative impact on its business.

If Pieris is unable to protect the confidentiality of its trade secrets, its business and competitive position would be harmed.

In addition to seeking patents for Pieris’ Anticalin-brand technology and some of its drug candidates, Pieris also relies on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain its competitive position. Pieris currently, and expects in the future to continue to, seek to protect these trade secrets, in part by entering into CDAs with parties who have access to them, such as its employees, collaborators, CMOs, consultants, advisors, investigators and other third parties. Pieris also enters into confidentiality and invention or patent assignment agreements with its employees and consultants. Despite these efforts, any of these parties may breach the agreements and disclose Pieris’ proprietary information, including its trade secrets, and Pieris may not be able to obtain adequate remedies for any such disclosure. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of Pieris’ trade secrets were to be lawfully obtained or independently developed by a competitor, Pieris would have no right to prevent them, or those to whom they disclose the trade secrets, from using that technology or information to compete with Pieris. If any of Pieris trade secrets were to be disclosed to or independently developed by a competitor, its competitive position would be harmed.

Risks Related to Pieris’ Personnel

If Pieris is not able to retain highly qualified personnel, it may not be able to successfully implement its business objectives.

Pieris continues to rely on a limited number of employees and may rely on external consultants in the future for the operation of Pieris. Any of these employees or external consultants may terminate their relationship with Pieris at any time. Pieris may not be able to attract and retain consultants on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. Any future consultant or advisor may be employed by employers other than Pieris and may have commitments under consulting or advisory contracts with other entities that may limit their availability to Pieris. Pieris does not maintain “key person” insurance on any of its employees or consultants.

In addition, Pieris’ industry tends to experience a high rate of turnover of management personnel and its employees are generally able to terminate their relationships with it on short notice. Pursuant to German employment law, Pieris’ employment arrangements with employees of Pieris Pharmaceuticals GmbH are governed by employment contracts, which provide certain defined terms for either party to terminate the employment relationship.

Furthermore, to the extent Pieris pursues any strategic opportunities, Pieris’ ability to consummate such opportunities depends upon its ability to retain its employees and consultants required to consummate such a transaction, the loss of whose services may adversely impact the ability to consummate such transaction.

Pieris may be subject to labor claims brought by its employees against Pieris.

In the United States, an employment relationship with no specified duration is presumed to be employment “at-will” and the employer or employee may terminate the employment relationship at any time, with or without cause, except for public policy reasons including discrimination, participating in union activity, or refusing to carry out an activity that violates the law.

In contrast, in Germany, there is no analogous doctrine of “employment at will.” By law, German employees must have written employment contracts that reflect the key aspects of the employment relationship. Pieris’ relations between German employers and employees are extensively regulated under German labor and employment laws and regulations. Employment relationships may be terminated for cause without observing the ordinary notice period. If terminated without cause, the applicable ordinary notice period must be observed. German employees have special protection against dismissals provided the employee has been employed by a company for more than six months and such company employs more than ten full-time employees.

German employment termination law is regulated by various codes, in particular the Kündigungsschutzgesetz, or the German Termination Protection Act, and is intended to give the employee maximum protection against unfair dismissal, including among other things:

In July 2023, Pieris conducted a reduction in force that impacted 70% of its employees, and in March 2024, Pieris announced additional measures that would result in a further reduction in workforce that was implemented in the third quarter of 2024. In this regard, if Pieris downsizes for any reason and fails to adhere to the complex requirements articulated by the employee protection law, Pieris could face legal actions brought by affected employees or former employees, and, as a result, Pieris may incur operational or financial losses and divert the attention of its executive officers from managing its business.

Pieris may be subject to claims by third parties asserting that its employees or Pieris has misappropriated their intellectual property or claiming ownership of what Pieris regards as its own intellectual property.

Many of Pieris’ employees were previously employed at universities or other biotechnology or pharmaceutical companies, including its competitors or potential competitors. Pieris may be subject to claims that these employees or Pieris has used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employers. Litigation may be necessary to defend against any such claims.

In addition, while it is Pieris’ policy to require its employees and contractors, who may be involved in the development of intellectual property, to execute agreements assigning such intellectual property to Pieris, Pieris may be unsuccessful in executing such an agreement with each party who contributes to the development of intellectual property that Pieris regards as its own. Further, the terms of such assignment agreements may be breached and Pieris may not be able to successfully enforce their terms, which may force Pieris to bring claims against third parties, or defend claims they may bring against Pieris, to determine the ownership of intellectual property rights Pieris may regard and treat as its own.

Pieris’ employees, independent contractors, principal investigators, CROs, consultants, or vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could cause Pieris’ business to suffer.

Pieris is exposed to the risk that its employees, independent contractors, principal investigators, CROs, consultants, or vendors may engage in fraudulent or other illegal activity. Misconduct by any of these parties could include intentional, reckless, and/or negligent conduct that may include failures to comply with FDA, MHRA, EMA or other foreign jurisdiction regulations, provide accurate information to the FDA, MHRA, EMA or their comparable foreign equivalents, comply with manufacturing standards Pieris has established, comply with federal, state and international healthcare fraud and abuse laws and regulations as they may become applicable to Pieris’ operations, report financial information or data accurately or disclose unauthorized activities to Pieris. Employee and other third-party misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Pieris’ reputation. It is not always possible to identify and deter misconduct by Pieris’ employees and other third parties, and the precautions and procedures Pieris currently takes or may establish in the future as its operations and employee and third-party base expand to detect and prevent this type of activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Pieris from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Pieris, and Pieris is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business and results of operations, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid, and other federal healthcare programs, contractual damages, reputational harm, diminished potential profits and future earnings, and curtailment of its operations.

Certain of Pieris’ employees and their inventions are subject to German law.

Many of Pieris’ employees work in Germany and are subject to German employment law. Ideas, developments, discoveries and inventions made by such employees and consultants are subject to the provisions of the Gesetz über Arbeitnehmererfindungen, or the “German Act on Employees’ Inventions”, which regulates the ownership of, and compensation for, inventions made by employees. Pieris has experienced disputes and faces the risk that disputes may occur in the future between Pieris and such employees or ex-employees pertaining to alleged non-adherence to the provisions of this act. Such disputes can be costly to defend and take up Pieris’ management’s time and efforts whether it prevails or not. In addition, under the German Act on Employees’ Inventions, certain employees retained rights to patents they invented or co-invented prior to 2009. Although most of these employees have subsequently assigned their interest in these patents to Pieris, there is a risk that the compensation Pieris provides to them may be deemed insufficient and Pieris may be required under German law to increase the compensation due to such employees for the use of the patents. In those cases where employees have not assigned their interests to Pieris, Pieris may need to pay compensation for the use of those patents. If Pieris is required to pay additional compensation or face other disputes under the German Act on Employees’ Inventions, its results of operations could be adversely affected.

Risks Related to the Ownership of Pieris Common Stock

Pieris’ share price is volatile and may be influenced by numerous factors, some of which are beyond its control.

Market prices for shares of biotechnology companies such as Pieris’ are often volatile. Thus, the quoted price of Pieris common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond its control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this proxy statement/prospectus, these factors include:

In addition, the stock market in general, and the stocks of biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of Pieris common stock, regardless of its actual operating performance. Furthermore, other biotechnology companies or Pieris’ competitors’ programs could have positive or negative results that impact their stock prices and their results or stock fluctuations could have a positive or negative impact on Pieris’ stock price regardless of whether such impact is direct or not. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors”, could have a dramatic and material adverse impact on the market price of Pieris common stock.

Pieris has broad discretion in how it uses its cash, cash equivalents and investments, including the net proceeds from its collaborations, public and private securities offerings, and may not use these financial resources effectively, which could affect its results of operations and cause its stock price to decline.

Pieris’ management has considerable discretion in the application of its cash, cash equivalents and investments, including the fees and milestone payments from its collaborations and the net proceeds of its securities offerings. As a result, investors will be relying upon management’s judgment with only limited information about Pieris’ specific intentions for the use of the cash, cash equivalents and investments. Pieris may use the cash, cash equivalents and investments for purposes that do not yield a significant return or any return at all for its stockholders. In addition, pending their use, Pieris may invest the financial resources from its collaborations and securities offerings in a manner that does not produce income or that loses value. Pieris may also use the cash to pay out dividends to stockholders if it determines that there is sufficient cash and investments to achieve its near and long-term objectives.

If securities or industry analysts do not publish, or cease publishing, research or publish inaccurate or unfavorable research about Pieris’ business or its market, or if they change their recommendations regarding its stock adversely, its stock price and any trading volume could decline.

The trading market for Pieris common stock will depend in part on the research and reports that securities or industry analysts publish about Pieris or its business. Pieris does not have any control over these analysts. If only a few securities or industry analysts commence coverage of Pieris, the trading price for Pieris’ stock would likely be negatively affected and there can be no assurance that analysts will provide favorable coverage. If securities or industry analysts who initiate coverage downgrade Pieris’ stock or publish inaccurate or unfavorable research about its business or its market, its stock price would likely decline. If one or more of these analysts cease coverage of Pieris’ company or fail to publish reports on Pieris regularly, demand for Pieris’ stock could decrease, which might cause its stock price and any trading volume to decline.

If Pieris fails to maintain proper and effective internal controls, its ability to produce accurate and timely financial statements could be impaired, which could harm its operating results, its ability to operate its business and investors’ views of Pieris.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or “Section 404”, Pieris is required to furnish a report by its management on its internal control over financial reporting. However, as Pieris remains a smaller reporting company with less than $100 million in revenue, Pieris is not currently required to include an attestation report on internal control over financial reporting issued by its independent registered public accounting firm.

If Pieris cannot favorably assess the effectiveness of its internal controls over financial reporting, investor confidence and, in turn, its stock price could be materially adversely affected.

Ensuring that Pieris has adequate internal financial and accounting controls and procedures in place so that it can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Pieris’ failure to maintain the effectiveness of its internal controls in accordance with the requirements of the Sarbanes-Oxley Act could have a material adverse effect on the tradability of its common stock, which in turn would negatively impact its business. Pieris could lose investor confidence in the accuracy and completeness of its financial reports, which could have an adverse effect on the price of its common stock. In addition, if Pieris’ efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against Pieris and its business may be harmed.

Shares of Pieris common stock that have not been registered under federal securities laws are subject to resale restrictions imposed by Rule 144 of the Securities Act, including those set forth in Rule 144(i) which apply to a former “shell company.”

Pieris was previously deemed a “shell company” under applicable SEC rules and regulations, prior to the reverse merger transaction in which Pieris became a public company, because it had no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents, or assets consisting of any amount of cash and cash equivalents and nominal other assets. Sales of the restricted securities of a former shell company, such as Pieris, are not permitted pursuant to Rule 144 of the Securities Act, unless at the time of a proposed sale, (i) Pieris is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; and (ii) Pieris has filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding twelve months, other than current reports on Form 8-K. Additionally, Pieris’ previous status as a shell company could also limit its use of its securities to pay for any acquisitions it may seek to pursue in the future. The lack of liquidity of its securities as a result of the inability to sell under Rule 144 for a longer period of time than a non-former shell company could cause the market price of Pieris’ securities to decline.

If Pieris issues additional shares of its capital stock in the future, its existing stockholders will be diluted.

Pieris’ amended and restated articles of incorporation authorize the issuance of up to 3,750,000 shares of its common stock and up to 10,000,000 shares of preferred stock with the terms, limitations, voting rights, relative rights and preferences and variations of each series that the Pieris board of directors may determine from time to time. Possible business and financial uses for Pieris’ authorized capital stock include, without limitation, equity financing, future stock splits, acquiring other companies, businesses or products in exchange for shares of Pieris capital stock, issuing shares of its capital stock to partners or other collaborators in connection with strategic alliances, attracting and retaining employees by the issuance of additional securities under its equity compensation plan, or other transactions and corporate purposes that the Pieris board of directors deems are in the interests of Pieris. Furthermore, issuances of shares of Pieris capital stock could have the effect of delaying or preventing changes in control or Pieris’ management. Any future issuances of shares of Pieris capital stock may not be made on favorable terms or at all, they may have rights, preferences and privileges that are superior to those of Pieris common stock and may have an adverse effect on its business or the trading price of its common stock. The issuance of any additional shares of Pieris common stock will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of its common stock. Additionally, any such issuance will reduce the proportionate ownership and voting power of all of Pieris’ current stockholders.

Sales of a substantial number of shares of Pieris common stock in the public market, or the perception that such sales could occur, could cause its stock price to fall.

If Pieris’ existing stockholders sell, or indicate an intention to sell, substantial amounts of its common stock in the public market, the trading price of its common stock could decline. As of October 28, 2024, a total of 1,320,240 shares of Pieris common stock were outstanding. Any sales of those shares or any perception in the market that such sales may occur could cause the trading price of Pieris common stock to decline.

In addition, shares of Pieris common stock that are either subject to outstanding options or reserved for future issuance under Pieris’ equity incentive plan, or issuable upon the conversion of its outstanding preferred stock or upon the exercise of its outstanding warrants, will be eligible for sale in the public market to the extent permitted by the provisions of applicable vesting schedules and/or terms of such securities. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of Pieris common stock could decline.

The resale of shares covered by Pieris’ effective resale registration statements could adversely affect the market price of its common stock in the public market, which result would in turn negatively affect its ability to raise additional equity capital.

The sale, or availability for sale, of Pieris’ common stock in the public market may adversely affect the prevailing market price of its common stock and may impair its ability to raise additional equity capital. Pursuant to registration statements filed with the SEC, Pieris previously registered for resale shares of its common stock, which included all of the shares of its common stock issued in its private placements and in connection with the closing of the reverse merger transaction in which Pieris became a public company. For example, in March 2021, Pieris registered for resale 46,328 shares of common stock in connection with a private placement transaction with Pfizer, and 44,804 shares of common stock in connection with a private placement transaction with AstraZeneca, in both cases on a pre-split basis. The resale registration statements permit the resale of these shares at any time without restriction.

The resale of a substantial number of shares of Pieris common stock in the public market could adversely affect the market price for Pieris common stock and make it more difficult for investors to sell shares of its common stock at times and prices that investors feel are appropriate. Furthermore, because there are a large number of shares registered pursuant to the resale registration statements, Pieris may continue to offer shares covered by the resale registration statements for a significant period of time, the precise duration of which cannot be predicted. Accordingly, the adverse market and price pressures resulting from an offering pursuant to the resale registration statement may continue for an extended period of time and continued negative pressure on the market price of Pieris common stock could have a material adverse effect on its ability to raise additional equity capital, if Pieris seeks to do so in the future.

Future sales and issuances of Pieris common stock or rights to purchase common stock, including pursuant to its equity incentive plans or otherwise, could result in dilution of the percentage ownership of its stockholders and could cause its stock price to fall.

If Pieris seeks to raise capital in the future, Pieris may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner, in which Pieris may determine from time to time. If Pieris sells common stock, convertible securities or other equity securities in more than one transaction, investors in a prior transaction may be materially diluted. Additionally, new investors could gain rights, preferences and privileges senior to those of existing holders of Pieris common stock. Further, any future sales of Pieris common stock by Pieris or resales of its common stock by its existing stockholders could cause the market price of its common stock to decline.

As of June 30, 2024, there were 319,992 shares reserved for future issuance under Pieris’ equity compensation plans, and 135,941 shares reserved for issuance upon the exercise of outstanding equity awards. Pursuant to Pieris’ 2023 Employee Stock Purchase Plan, Pieris is authorized to sell 9,375 shares to its employees. Any future grants of options, warrants or other securities exercisable or convertible into Pieris common stock, or the exercise or conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the market price of its common stock.

Anti-takeover provisions in Pieris’ organizational documents could delay or prevent a change of control.

Certain provisions of Pieris’ amended and restated articles of incorporation and amended and restated bylaws may have an anti-takeover effect and may delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a stockholder might consider to be in its interests, including attempts that might result in a premium over the market price for the shares held by Pieris stockholders.

These provisions provide, among other things:

These anti-takeover provisions, including those noted above, could make it more difficult for a third party to acquire Pieris, even if the third party’s offer may be considered beneficial by many of Pieris stockholders. As a result, Pieris stockholders may be limited in their ability to obtain a premium for their shares.

Pieris may incur significant costs from class action litigation due to its expected stock volatility.

Pieris’ stock price may fluctuate for many reasons, including as a result of public announcements regarding Pieris’ strategic updates or the development efforts of current or future collaborators or competitors, the addition or departure of its key personnel, variations in its quarterly operating results and changes in market valuations of biopharmaceutical and biotechnology companies.

This risk is especially relevant to Pieris because biopharmaceutical and biotechnology companies have experienced significant stock price volatility in recent years. When the market price of a stock has been volatile, as Pieris’ stock price may be, holders of that stock have occasionally brought securities class action litigation against it that issued the stock. If any of the Pieris stockholders were to bring a lawsuit of this type against Pieris, even if the lawsuit was without merit, it could result in substantial costs incurred defending the lawsuit and diversion of the time, attention and resources of the Pieris board of directors and management, which could significantly harm its profitability and reputation.

Pieris’ amended and restated articles of incorporation designates the Eighth Judicial District Court of Clark County, Nevada, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by its stockholders, and therefore limit its stockholders’ ability to choose a forum for disputes with Pieris or its directors, officers, employees or agents.

Pieris’ amended and restated articles of incorporation provide that, to the fullest extent permitted by law, and unless Pieris consents to the selection of an alternative forum, the Eighth Judicial District Court of Clark County, Nevada shall be the sole and exclusive forum for any (i) derivative action or proceeding brought in the name or right of the corporation or on its behalf, (ii) action asserting a claim of breach of a fiduciary duty owed by any of its directors, officers, employees or agents to the corporation or any of its stockholders, (iii) any action arising or asserting a claim arising pursuant to any provision of Chapters 78 or 92A of the NRS or any provision of its amended and restated articles of incorporation or amended and restated bylaws, (iv) any action to interpret, apply, enforce or determine the validity of its articles of incorporation or bylaws or (v) any action asserting a claim governed by the internal affairs doctrine. Pieris’ amended and restated articles of incorporation further provide that any person purchasing or otherwise acquiring any interest in shares of its capital stock shall be deemed, to the fullest extent permitted by law, to have notice of and consented to the foregoing provision.

Choice-of-forum provisions of the type and scope included in Pieris’ amended and restated articles of incorporation are expressly permitted by Section 78.046 of the NRS, but application of these choice-of-forum provisions may be limited in some instances by law. Section 27 of the Exchange Act establishes exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and therefore the choice-of-forum provision would not apply to actions arising under, or brought to enforce a duty or liability created by, the Exchange Act or any other claim for which the U.S. federal courts have exclusive jurisdiction. However, Section 22 of the Securities Act provides that federal and state courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder, and the choice-of-forum provision would apply to actions arising under, or brought to enforce a duty or liability created by, the Securities Act. To the extent the text of the choice-of-forum provision in Pieris’ amended and restated articles of incorporation purports to restrict the courts in which claims arising under the Securities Act may be brought, there remains some uncertainty as to whether a court would enforce such a provision. We note that the choice-of-forum provision does not relieve Pieris of its duties to comply with the federal securities laws and the rules and regulations thereunder, and Pieris’ stockholders will not be deemed to have waived compliance with these laws, rules and regulations.

Pieris believes the choice-of-forum provision in its amended and restated articles of incorporation will help provide for the orderly, efficient and cost-effective resolution of the types of legal issues affecting Pieris, as identified in the choice-of-forum provision, by designating courts located in the State of Nevada (Pieris’ state of incorporation) as the exclusive forum for cases involving such issues. However, this provision may limit a stockholder’s ability to bring a claim in a judicial forum that it believes to be favorable for disputes with Pieris or its directors, officers, employees or agents, which may discourage such actions against Pieris and its directors, officers, employees and agents, and could also increase the costs of stockholders in connection with bringing a claim and resolving such matters. If a court were to find the choice-of-forum provision in Pieris’ amended and restated articles of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, Pieris may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect its business, financial condition or results of operations. 

The elimination of personal liability of Pieris’ directors and officers under Nevada law and the existence of indemnification rights held by its directors, officers and employees may result in substantial expenses.

Pieris’ amended and restated articles of incorporation eliminate, to the furthest extent permitted under Nevada law, the personal liability of its directors and officers to Pieris, its stockholders and creditors for damages as a result of any act or failure to act in his or her capacity as a director or officer. Further, Pieris’ amended and restated articles of incorporation, its amended and restated bylaws and individual indemnification agreements that Pieris has entered with each of its directors and officers provide that it is obligated to indemnify, subject to certain exceptions, each of its directors or officers to the fullest extent authorized by Nevada law and, subject to certain conditions, to advance the expenses incurred by any director or officer in defending any action, suit or proceeding prior to its final disposition. Those indemnification obligations could expose Pieris to substantial expenditures to cover the cost of settlement or damage awards against its directors or officers, which Pieris may be unable to afford. Further, those provisions and resulting costs may discourage Pieris or its stockholders from bringing a lawsuit against any of its current or former directors or officers for such damages, even if such actions might otherwise benefit its stockholders.

The Pieris board of directors may, at their sole discretion, elect to pay cash dividends on its capital stock.

Pieris has never declared or paid any cash dividends on its common stock. Pieris may pay out dividends to stockholders if it is determined that there is sufficient cash and investments to achieve its near and long-term objectives. Pieris may choose to retain all future earnings to fund strategic opportunities in the future. Any future payment of cash dividends will be at the discretion of the Pieris board of directors and will depend on, among other things, its earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the Pieris board of directors deems relevant.

Pieris can issue and has issued shares of preferred stock, which may adversely affect the rights of holders of its common stock.

Pieris’ amended and restated articles of incorporation authorizes it to issue up to 10,000,000 shares of preferred stock with designations, rights, and preferences determined from time-to-time by the Pieris board of directors. Accordingly, the Pieris board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting or other rights superior to those of holders of Pieris common stock. For example, an issuance of shares of preferred stock could:

Pieris has in the past issued, and Pieris may at any time in the future issue, shares of preferred stock. In connection with Pieris’ June 2016 private placement, Pieris issued 4,963 shares of its Series A convertible preferred stock to certain affiliates of BVF each share of which is convertible into 13.34 shares of Pieris common stock, subject to certain ownership restrictions. In January 2019, Pieris entered into an exchange agreement with BVF to exchange 62,500 shares, on a post-split basis, of its common stock previously held by BVF for 5,000 shares of its Series B convertible preferred stock, each share of which is convertible into 13.34 shares of its common stock, subject to certain ownership restrictions. In connection with Pieris’ November 2019 private placement, Pieris issued 3,522 shares of its Series C convertible preferred stock to certain affiliates of BVF each share of which is convertible into 13.34 shares of its common stock, subject to certain ownership restrictions. In March 2020, Pieris entered into another exchange agreement with BVF to exchange 37,500 shares, on a post-split basis, of its common stock previously held by BVF for 3,000 shares of its Series D convertible preferred stock, each share of which is convertible into 13.34 shares of its common stock, subject to certain ownership restrictions. In May 2021, Pieris entered into another exchange agreement with BVF to exchange 62,500 shares, on a post-split basis, of its common stock previously held by BVF for 5,000 shares of its Series E convertible preferred stock, each share of which is convertible into 13.34 shares of its common stock, subject to certain ownership restrictions. If the holders of Pieris’ shares of preferred stock convert their shares into common stock, existing holders of Pieris common stock will experience dilution. On August 7, 2024, Pieris entered into a Subscription and Investor Representation Agreement with Mr. James Geraghty, the chairman of the Pieris board of directors, to sell to one share of Pieris’ Series F Preferred Stock to Mr. Geraghty, which must be voted on the Authorized Stock Increase Proposal in the same proportion as shares of Pieris common stock are voted “for” and “against” such proposal, excluding any shares of common stock that are not voted “for” and “against” the proposal for any reason, including, without limitation, any abstentions or broker non-votes, and is subject to certain restrictions and redemption terms.

Requirements associated with being a public company have increased Pieris’ costs significantly and have diverted significant company resources and management attention.

As a public company, Pieris is subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. Pieris’ management and other personnel need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to negatively impact Pieris’ legal and financial compliance costs and will make some activities more time-consuming and costly.

Having availed itself of scaled disclosure available to smaller reporting companies, Pieris cannot be certain if such reduced disclosure will make its common stock less attractive to investors.

Under Rule 12b-2 of the Exchange Act, a “smaller reporting company” is a company that is not an investment company, an asset-backed issuer or a majority-owned subsidiary of a parent company that is not a smaller reporting company, and had a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter or, if such public float is less than $700 million, had annual revenues of less than $100 million during the most recently completed fiscal year. Smaller reporting companies are permitted to provide simplified executive compensation disclosure in their filings; and they have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in annual reports. Pieris qualifies as a smaller reporting company. For as long as Pieris continues to be a smaller reporting company, it expects that it will take advantage of the reduced disclosure obligations available to it as a result of those respective classifications. Decreased disclosure in Pieris’ SEC filings as a result of Pieris having availed itself of scaled disclosure may make it harder for investors to analyze its results of operations and financial prospects.

Risks Related to Palvella

Risks Related to Palvella’s Limited Operating History, Financial Position and Capital Requirements

Palvella has incurred significant operating losses since inception and anticipates that it will continue to incur significant operating losses for at least the next several years. Palvella may never achieve or maintain profitability.

Since inception in September 2015, Palvella has incurred significant operating losses and has never generated any revenue. Palvella’s operating loss for the years ended December 31, 2023 and 2022 was $11.9 million and $18.0 million, respectively, and for the six months ended June 30, 2024 was $4.7 million. As of June 30, 2024, Palvella had an accumulated deficit of $83.0 million. Palvella expects to continue to incur significant operating losses for at least the next several years, and it may never achieve or sustain profitability. Since inception, Palvella has devoted substantially all of its efforts to identifying, researching and conducting preclinical and clinical activities for its product candidates, developing its QTORIN platform, organizing and staffing its company, business planning, raising capital and establishing its intellectual property portfolio. Palvella has never obtained regulatory approval for, or commercialized, any products. Palvella anticipates that its expenses will increase substantially for the foreseeable future if, and as, it:

Palvella may never succeed in any or all of these activities and, even if it does, it may never generate revenue.

Palvella has never generated revenue from product sales and may never achieve or maintain profitability.

To become and remain profitable, Palvella must succeed in developing and eventually commercializing products that generate significant revenue. This will require Palvella to be successful in a range of challenging activities, including completing preclinical studies and clinical trials, obtaining regulatory approval, procuring commercial-scale manufacturing, and marketing and selling any products for which it obtains regulatory approval. Palvella has never obtained regulatory approval, procured commercial-scale manufacturing or marketed any product, and it may never succeed in these activities. Even if Palvella does obtain regulatory approval for and begins commercializing QTORIN rapamycin for microcystic LM, cutaneous venous malformations, or any other indication or any future product candidates, its ability to become profitable will be dependent upon, in part and among other things, the size of the markets in the territories for which it gains regulatory approval, the number of competitors in such markets, the accepted price for any such product candidate and the degree of market acceptance it achieves.

Even if it does achieve profitability, Palvella may not be able to sustain or increase profitability on a quarterly or annual basis. Palvella’s failure to become and remain profitable would decrease the value of its company and could impair its ability to raise capital, maintain its research and development efforts, expand its business or continue its operations. A decline in the value of its company also could cause you to lose all or part of its investment.

Palvella’s limited operating history may make it difficult to evaluate its business to date and its future viability.

Palvella is a late clinical stage biopharmaceutical company with a limited operating history. Palvella has no products approved for commercial sale and has not generated any revenue from product sales. As an organization, Palvella has limited experience successfully completing pivotal clinical trials, and has not yet demonstrated an ability to obtain marketing approval, manufacture a commercial-scale product or arrange for a third party to do so on its behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, Palvella has little or no meaningful operations upon which to evaluate its business, and predictions about its future success or viability may not be as accurate as it could be if it had a longer operating history or a history of successfully developing and commercializing pharmaceutical products.

Palvella’s ability to generate product revenue and become profitable depends upon its ability to successfully complete the development of, and obtain the necessary regulatory approvals for, its product candidates. Even if Palvella receives regulatory approval for any product candidate, it does not know when or if such product candidate will generate product revenue. Palvella may encounter unforeseen expenses, difficulties, complications, delays and other known or unknown factors in achieving its business objectives, including with respect to its technology and product candidates. In the future, Palvella will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. Palvella may also need to secure strategic collaborations with partners in order to commercialize any approved product candidates outside of the U.S. market. Palvella may not be successful in making such a transition or in securing such strategic collaborations.

Palvella’s recurring losses from operations and financial condition raise substantial doubt about its ability to continue as a going concern.

Palvella’s recurring losses from operations and financial condition raise substantial doubt about its ability to continue as a going concern. In its financial statements for the year ended December 31, 2023, Palvella concluded that its recurring losses from operations and need for additional financing to fund future operations raise substantial doubt about its ability to continue as a going concern. Similarly, its independent registered public accounting firm included an explanatory paragraph in its report on its financial statements for the year ended December 31, 2023 with respect to this uncertainty. Palvella’s ability to continue as a going concern will require it to obtain additional funding. If Palvella is unable to obtain sufficient funding, its business, prospects, financial condition and results of operations will be materially and adversely affected, and it may be unable to continue as a going concern. If Palvella is unable to raise capital when needed or on acceptable terms, it would be forced to delay, limit, reduce or terminate its product development or future commercialization efforts of one or more of its product candidates, or may be forced to reduce or terminate its operations. If Palvella is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on its audited financial statements, and it is likely that investors will lose all or a part of their investment. In future required quarterly assessments, Palvella may again conclude that there is substantial doubt about its ability to continue as a going concern, and future reports from its independent registered public accounting firm may also contain statements expressing substantial doubt about its ability to continue as a going concern. If Palvella seeks additional financing to fund its business activities in the future and there remains substantial doubt about its ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding to it on commercially reasonable terms, if at all. Based on its current business plans, Palvella believes that the anticipated cash and cash equivalents after the merger will be sufficient for it to fund its operating expenses and capital expenditure requirements through at least the next 33 months. This estimate is based on certain significant assumptions, which are uncertain and may turn out to be incorrect.

Palvella will likely require substantial additional funding to finance its operations, which may cause dilution to its stockholders, and a failure to obtain this necessary funding when needed on acceptable terms, or at all, could force it to delay, limit, reduce or terminate its product development, commercialization efforts or other operations.

As of June 30, 2024, Palvella had cash and cash equivalents of $14.5 million. Based upon its current operating plan, Palvella believes that the anticipated cash and cash equivalents after the closing of the merger and the PIPE Financing will be sufficient to fund its planned operations through in to the second half of 2027. Palvella has based this estimate on assumptions that may prove to be wrong, and it could exhaust its available capital resources sooner than it expects. To finance its operations beyond that point it may need to raise additional capital, which cannot be assured. Its operating plans may change as a result of many factors currently unknown to Palvella, and it may need to seek additional funds sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations. To the extent that Palvella raises additional capital by issuing equity securities, its existing stockholders may experience substantial dilution, and the terms of these securities may include liquidation or other preferences that could harm the rights of a common stockholder. Any agreements for future debt or preferred equity financings, if available, may involve covenants limiting or restricting its ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If Palvella raises additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to it. Palvella may seek additional capital due to favorable market conditions or strategic considerations even if it believes Palvella has sufficient funds for its current or future operating plans. In addition, Palvella may seek additional capital due to favorable market conditions or strategic considerations even if it believes Palvella has sufficient funds for its current or future operating plans.

Palvella’s future capital requirements depend on many factors, including, but not limited to:

Adequate additional funds may not be available when Palvella needs them, on terms that are acceptable to it, or at all. If adequate funds are not available to Palvella on a timely basis or on attractive terms, it may be required to reduce its workforce, delay, limit, reduce or terminate its research and development activities, preclinical studies, clinical trials or other development activities and future commercialization efforts, or grant rights to develop and market product candidates that it would otherwise develop and market itself. In addition, attempting to secure additional financing may divert the time and attention of its management from daily activities and distract from its research and development efforts.

Palvella’s development funding agreement with Ligand obligates it to make certain milestone payments, some of which will be triggered prior to its commercialization of any of its product candidates.

Certain of the milestone payments payable by Palvella in connection with the Ligand Agreements are due upon events that will occur prior to its planned commercialization of its lead product candidate, QTORIN rapamycin. Accordingly, Palvella may be required to make payments in an aggregate amount of up to $5.0 million prior to the time at which it is able to generate revenue, if any, from sales of QTORIN rapamycin for any indication, if approved. There can be no assurance that Palvella will have the funds necessary to make such payments, or be able to raise such funds when needed, on terms acceptable to it, or at all. In order to make the required payments when due, Palvella may be required to divert its capital resources by delaying, limiting, reducing or terminating its product development or future commercialization efforts, or it may have to grant rights to develop and market product candidates that it would otherwise develop and market itself. If Palvella is required to raise funds but is unable to do so, or if it is unable to otherwise maintain sufficient liquidity to make its payment obligations if and when they become due, it may be in material breach of the Ligand Agreements, and Ligand may seek legal action or remedies against Palvella (including by seeking to terminate the Ligand Agreements), which would harm its business, financial condition, results of operations and prospects. If Palvella is able to raise funds, it may not be able to do so on terms that are favorable to it, and its existing stockholders may experience substantial dilution, it may agree to certain covenants limiting or restricting its ability to take specific actions, or it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates.

Palvella’s ability to utilize its NOL carryforwards and certain other tax attributes may be limited.

Palvella’s federal NOL carryforwards may be unavailable to offset future taxable income because of restrictions under U.S. tax law. Palvella’s federal NOL carryforwards generated in tax years beginning after December 31, 2017 may be carried forward indefinitely, but for taxable years beginning after December 31, 2020, the deductibility of such federal NOL carryforwards is limited to 80% of Palvella’s current year taxable income. It is uncertain if and to what extent limitations under state law may differ. As of December 31, 2023, Palvella had federal NOL carryforwards of approximately $36.7 million, which are available to reduce future federal taxable purposes and have an indefinite carryforward. Palvella has NOLs for state income tax purposes of $37.6 million, which are available to reduce future state taxable income through 2038.

In addition, as noted above, under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change” (generally defined as a cumulative change in the corporation’s ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period), the corporation’s ability to use its pre-change NOL carryforwards and certain other pre-change tax attributes to offset its post-change taxable income may be limited. Similar rules may apply under state tax laws. Palvella may have experienced such ownership changes in the past, and it may experience ownership changes in the future as a result of the Merger and the PIPE financing or subsequent shifts in its stock ownership. Palvella has not conducted any studies to determine annual limitations, if any, that could result from such changes in ownership. There is also a risk that due to regulatory changes, such as suspensions on the use of NOL carryforwards, or other unforeseen reasons, Palvella’s existing NOL carryforwards could expire or otherwise be unavailable to offset future income tax liabilities. Because Palvella’s ability to utilize its NOL carryforwards and certain other tax attributes could be limited as described above, Palvella may not be able to utilize a material portion of its NOL carryforwards and certain other tax attributes, which could have a material adverse effect on its cash flows and results of operations.

Risks Related to the Discovery, Development, Regulatory Approval and Commercialization of Palvella’s Product Candidates

Clinical drug development is a lengthy, complex and expensive process, with an uncertain outcome. Palvella may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development of its product candidates.

Palvella’s lead product candidate, QTORIN rapamycin, is in clinical development and the risk of failure is high. It is impossible to predict when or if any of Palvella’s product candidates will prove effective and safe in humans or will receive regulatory approval. Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, Palvella must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of its product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. Clinical trial failure may result from a multitude of factors including flaws in trial design, carryover effect, dose selection, placebo effect, patient enrollment criteria and failure to demonstrate favorable safety or efficacy, and failure in clinical trials can occur at any stage. For example, Palvella’s Phase 2b clinical trial of QTORIN rapamycin in patients with Gorlin Syndrome and Phase 3 clinical trials of QTORIN rapamycin in patients with pachyonychia congenita failed to meet their respective primary endpoints.

Palvella is currently conducting its Phase 3 clinical trial of QTORIN rapamycin for the treatment of microcystic LM, for which it expects to report top-line data in the first quarter of 2026. Palvella is also planning to conduct a Phase 2 clinical trial of QTORIN rapamycin for the treatment of cutaneous venous malformations, for which it expects to report top-line data in the fourth quarter of 2025. Palvella’s other programs under evaluation for the treatment of other serious, rare genetic skin diseases and other genetic diseases are in early-stage preclinical development.

Palvella may experience numerous unforeseen events that could delay or prevent its ability to receive marketing approval for its product candidates, including:

If Palvella is required to conduct additional clinical trials or other testing of its product candidates beyond those that currently contemplated, if it is unable to successfully complete clinical trials of its product candidates or other testing in a timely manner, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, Palvella may incur unplanned costs, be delayed in seeking and obtaining regulatory approval, if it receives such approval at all, receive more limited or restrictive regulatory approval, be subject to additional post-marketing testing requirements. If Palvella experiences any delays in the completion of, or termination of, any clinical trial of its product candidates, the commercial prospects of its product candidates will be harmed, and its ability to generate product revenues from any of these product candidates may not be successful. In addition, any delays in completing its clinical trials will increase its costs, slow down its product candidate development process and jeopardize its ability to receive regulatory approval and commence product sales and generate revenues. Any of these occurrences could materially adversely affect its business, financial condition, results of operations and prospects.

Palvella’s future success is substantially dependent on the successful clinical development, regulatory approval and commercialization of QTORIN rapamycin, which is in later stages of development than its other product candidates.

Palvella currently has no products that are approved for commercial sale. Palvella is developing its lead product candidate, QTORIN rapamycin, for the treatment of two rare genetic skin diseases. Palvella is currently evaluating QTORIN rapamycin in patients with microcystic LM in its Phase 3 clinical trial. Palvella is also developing QTORIN rapamycin for patients with cutaneous venous malformations. Additionally, Palvella is developing other research-stage product candidates, but these product candidates are in earlier stages of development. Palvella expects that a substantial portion of its efforts and expenditures over the next few years will be devoted to the continued clinical evaluation of QTORIN rapamycin and the commercialization of this product candidate for the treatment of microcystic LM, following regulatory approval, if received. Accordingly, the success of its business, including its ability to finance its company and generate any revenue in the future, will primarily depend on the successful development, regulatory approval and commercialization of QTORIN rapamycin.

The clinical and commercial success of QTORIN rapamycin and any future product candidates will depend on many factors, including the following:

Even if Palvella completes clinical testing and receives approval from the FDA or applicable foreign agencies for QTORIN rapamycin, the FDA or the equivalent foreign regulatory authorities may grant approval or other marketing authorization contingent on the performance of costly additional clinical trials, including post- market clinical trials, or impose restrictions on the product’s distribution in the form of a REMS. The FDA or the equivalent foreign regulatory authority may also approve QTORIN rapamycin for a more limited indication or a narrower patient population than Palvella originally requested. In addition, the FDA or the equivalent foreign regulatory authority may not approve QTORIN rapamycin with the labeling that Palvella believes is necessary or desirable, or may approve it with labeling that includes warnings or precautions or limitations of use that may not be desirable, for the successful commercialization of QTORIN rapamycin.

The factors outlined above, many of which are beyond its control, could cause Palvella to experience significant delays or affect its ability to obtain regulatory approvals or commercialize QTORIN rapamycin. If Palvella is unable to obtain regulatory approval and successfully commercialize its product candidates, its financial position will be materially adversely affected, and Palvella may not be able to generate sufficient revenue to continue its business.

Palvella may be unable to obtain regulatory approval for its product candidates under applicable regulatory requirements. The denial or delay of any such approval would adversely impact its potential to generate revenue, its business and its results of operations.

The research, testing, manufacturing, labeling, licensure, sale, marketing and distribution of biopharmaceutical products are subject to extensive regulation by the FDA and comparable regulatory authorities in the United States and other countries, and such regulations differ from country to country. Palvella is not permitted to market its product candidates in any jurisdiction until it receives the requisite marketing approval from the applicable regulatory authorities of such jurisdictions. To gain approval to market its product candidates, Palvella must provide the FDA and foreign regulatory authorities with preclinical, manufacturing and clinical data that adequately demonstrate the safety and efficacy of the product for the intended indication applied for in the applicable regulatory filing. The approval process is typically lengthy and expensive, and approval is never certain.

Palvella expects to report top-line data from its Phase 3 trial of QTORIN rapamycin for the treatment of microcystic LM in the first quarter of 2026. Data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in clinical trials have nonetheless failed to obtain marketing approval of their drugs.

The FDA or any foreign regulatory authorities can delay, limit or deny approval of QTORIN rapamycin for the treatment of microcystic LM or any future product candidates for many additional reasons, including:

Any of these factors, many of which are beyond Palvella’s control, may result in its failing to obtain regulatory approval to market any of its product candidates, which could materially adversely affect its business, financial condition, results of operations and prospects.

Success in preclinical studies or earlier clinical trials may not be indicative of results in future clinical trials.

Results from preclinical studies or early clinical trials are not necessarily predictive of future clinical trial results and are not necessarily indicative of final results. Palvella’s product candidates may fail to show the desired characteristics in clinical development sufficient to obtain regulatory approval, despite positive results in preclinical studies or having successfully advanced through earlier clinical trials. The results of nonclinical studies and early clinical trials of QTORIN rapamycin or any future product candidates may not be predictive of the results of later-stage clinical trials. Differences in trial design between early-stage clinical trials and later-stage clinical trials make it difficult to extrapolate the results of earlier clinical trials to later clinical trials. For example, Palvella announced topline results from its Phase 2 study of QTORIN rapamycin in patients with microcystic LM where, as is common in Phase 2 studies, efficacy was evaluated as secondary endpoints without multiplicity adjustment or statistical analyses, and the results from this study may not be predictive of results in its ongoing Phase 3 study in microcystic LM where a single hypothesis will be tested as the primary endpoint. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical trials. Moreover, even though Palvella is using and plans to use the same formulation of QTORIN rapamycin to support multiple investigational development programs in multiple product candidates, it cannot be certain that any success Palvella has with respect to the development of QTORIN rapamycin for the treatment of microcystic LM or for the treatment of cutaneous venous malformations will lead to the successful development of additional product candidates.

In addition, the design of a pivotal clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. Palvella has limited experience in designing and conducting clinical trials and it may be unable to successfully design and execute a clinical trial to support regulatory approval.

Palvella is currently conducting a Phase 3 clinical trial of QTORIN rapamycin for the treatment of microcystic LM, for which it expects to report top-line data in the first quarter of 2026. Even if the trial design in Palvella’s Phase 3 clinical trial of QTORIN rapamycin for the treatment of microcystic LM proves successful, Palvella may be unable to duplicate these results in other clinical trials it may conduct. Additionally, even if the FDA or other regulatory authorities accept the novel clinical endpoints Palvella establishes in connection with its Phase 3 trial in microcystic LM, there are no assurances that the FDA or other regulatory authorities will find the efficacy endpoints Palvella proposes in its future pivotal clinical trials to be sufficiently developed and tested and clinically meaningful, or that its product candidates will achieve the pre-specified endpoints in future pivotal clinical trials to a degree of statistical significance. For example, the FDA has commented that a placebo-controlled trial or additional trials assessing different clinical endpoints may be required to assess the efficacy of QTORIN rapamycin for the treatment of microcystic LM.

The rare genetic skin diseases Palvella is currently targeting have no FDA-approved therapies, which subjects the design and execution of its clinical development program to complexities and known and unknown risks, including those related to novel and/or subjective clinical endpoints and varying patient population characteristics.

There are currently no FDA-approved therapies indicated for the treatment of microcystic LM or cutaneous venous malformations. Palvella has concentrated its current research and development efforts on developing effective therapies for these indications, in addition to other rare genetic skin diseases and rare genetic conditions in other disease areas, and its future success depends on the success of this approach. The clinical trial requirements of the FDA and other comparable regulatory agencies and the criteria these regulators use to determine the safety and efficacy of any product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential product. Given the nature of the genetic skin diseases Palvella is targeting, the design and execution of its clinical development program is subject to both known and unknown risks.

As with QTORIN rapamycin for the treatment microcystic LM or cutaneous venous malformations and any future product candidates that may require Palvella to use new or novel endpoints or methodologies, the FDA or other regulatory authorities may not consider the endpoints of its clinical trials to provide clinically meaningful results. Even if applicable regulatory authorities do not object to its proposed endpoints in an earlier-stage clinical trial, such regulatory authorities may require evaluation of additional or different clinical endpoints in later-stage clinical trials or may not accept the clinical endpoints evaluated in later-stage clinical trials. For example, while the primary endpoint in the Phase 3 clinical trial of QTORIN rapamycin for the treatment of microcystic LM employs a dynamic assessment that uses a comparative rating scale, which was also assessed as one of several efficacy endpoints in the Phase 2 study in microcystic LM, the FDA has recommended that primary efficacy in the treatment of microcystic LM be evaluated on a static multicomponent assessment scale but recommended that Palvella provide a rationale for selecting the comparative rating scale should Palvella proceed with a comparative rating scale. If the FDA does not agree with Palvella’s primary endpoint, the FDA may instead consider the Phase 3 clinical trial’s key secondary endpoint, which is a static multicomponent assessment scale, as pivotal to assessing efficacy, if alpha-protected. Alternatively, the FDA may consider the study to not be adequate and well-controlled and could request additional clinical trials to assess a static multicomponent assessment scale as the primary endpoint. As a result, the design and conduct of its ongoing clinical trials and any future product candidates may take longer, be more costly or be less effective.

Further, different results may be achieved depending upon the characteristics of the population enrolled in its studies and which analysis population is used to analyze results. As a result, there is no guarantee that its clinical trials will produce statistically significant results with respect to subject-reported outcomes, and there can be no guarantee that the characteristics of the population enrolled in its clinical trials does not adversely impact the results reported for such trials.

Any delays in, or the denial of, approval of any of its product candidates resulting from its inability to establish effective trial designs for rare genetic skin diseases could materially adversely affect its business, financial condition, results of operations and prospects.

Palvella’s lead product candidates are based on its QTORIN platform and it is highly dependent on the successful development of this novel and unproven technology.

Palvella’s proprietary QTORIN platform was developed over several years of research to overcome inherent challenges, including chemical stability, skin penetration and skin distribution, with topical delivery of mTOR inhibitors, such as rapamycin and other therapeutic agents. QTORIN is an anhydrous gel comprising excipients intentionally selected in a ratio designed to achieve drug stability at room temperature and enable cutaneous distribution of therapeutics levels of cargoes into the target cells in the basal layer of the epidermis and to the dermis. Palvella’s product candidate for the treatment of microcystic LM and the treatment of cutaneous venous malformations leverages QTORIN as a mechanism of delivery of a 3.9% concentration of rapamycin to treat the applicable disease.

QTORIN is the platform for Palvella’s current clinical-stage product candidates and for other research-stage product candidates in its pipeline, and accordingly, its future success depends in significant part on the successful development of this novel technology. Negative results in the development of QTORIN rapamycin for either the treatment of microcystic LM or cutaneous venous malformations may also impact its ability to obtain regulatory approval for other product candidates which Palvella expects to develop based on its QTORIN platform, either at all or within anticipated timeframes because, although Palvella may be targeting different indications, the underlying technology platform is the same for each product candidate and there may be commonalities in the manufacturing and development processes. Accordingly, a failure in any one QTORIN-based program may decrease trust in its technology and affect its ability to conduct clinical programs for other QTORIN-based product candidates.

Palvella has not yet succeeded and may not succeed in completing clinical development of or obtaining regulatory approval for any of its product candidates using QTORIN. As a result, it is more difficult for it to predict whether the application of its QTORIN platform, or any similar or competitive platforms, will result in the development and marketing approval of any products. Any developmental problems Palvella experiences in the future related to its QTORIN platform or any of its research programs may cause significant delays or unanticipated costs or may prevent the development of a commercially viable product. Any of these factors may prevent Palvella from completing its preclinical studies or clinical trials or commercializing any product candidates it may develop on a timely or profitable basis, if at all, which could materially adversely affect its business, financial condition, results of operations and prospects.

Palvella may find it difficult to enroll subjects in its clinical trials, which could delay or prevent it from proceeding with clinical trials of its product candidates.

Identifying and qualifying subjects to participate in clinical trials of its product candidates is critical to Palvella’s success. The timing of its clinical trials depends on its ability to recruit subjects to participate, as well as the completion of required follow-up periods. Patients may be unwilling to participate in its clinical trials because of negative publicity from adverse events related to the biotechnology or pharmaceutical fields, competitive clinical trials for similar patient populations, the existence of current treatments or for other reasons outside of Palvella’s control. The timeline for recruiting subjects, conducting studies and obtaining regulatory approval of its product candidates may be delayed, which could result in increased costs, delays in advancing its product candidates, delays in testing the effectiveness of its product candidates or termination of the clinical trials altogether.

Importantly, the indications that Palvella is currently targeting and may in the future target are rare diseases, which may limit the pool of subjects that may be enrolled in its ongoing or planned clinical trials. To the extent Palvella’s clinical trials are limited to specific genotypes, the population of eligible trial participants is even further limited. Microcystic LM affects an estimated greater than 30,000 diagnosed patients in the United States. cutaneous venous malformations affects an estimated greater than 75,000 people in the United States. Some of the other diseases Palvella intends to target have similarly limited patient populations. Palvella expects to rely in part on its relationships with patient advocacy groups to assist in identifying eligible patients, and any deterioration of those relationships could impede its ability to successfully enroll patients in its clinical trials. Palvella may not be able to initiate or continue clinical trials for its product candidates if it is unable to locate and enroll a sufficient number of eligible subjects to participate in these trials as required by the FDA or similar regulatory authorities outside of the United States.

Subject enrollment and trial completion are affected by numerous factors, including the:

If Palvella has difficulty enrolling a sufficient number of subjects to conduct its clinical trials as planned, it may need to delay, limit or terminate ongoing or planned clinical trials, any of which would have an adverse effect on its business, financial condition, results of operations and prospects.

Palvella may be unable to obtain Orphan Drug Designation for certain of its product candidates and, even if it obtains such designation, it may not be able to realize the benefits of such designation, including potential marketing exclusivity of its product candidates, if approved.

Regulatory authorities in some jurisdictions, including the United States and other major markets, may designate drugs intended to treat conditions or diseases affecting relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000 individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European Union, the EMA Committee for Orphan Medicinal Products grants Orphan Drug Designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating disease affecting not more than five in 10,000 persons. Additionally, Orphan Drug Designation is granted by the EMA for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic disease and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biologic product.

Palvella has received Orphan Drug Designation for QTORIN rapamycin for the treatment of microcystic LM from the FDA and EMA. If Palvella requests Orphan Drug Designation or the foreign equivalent for any of its other or future product candidates, there can be no assurances that the FDA or foreign regulatory authorities will grant any of its product candidates such designation. Additionally, the designation of any of its product candidates as an orphan product does not mean that any regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency to grant Orphan Drug Designation to product candidates of other companies that treat the same indications as its product candidates prior to its product candidates receiving exclusive marketing approval.

Generally, if a product candidate with an Orphan Drug Designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or foreign regulatory authorities from approving another marketing application for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before Palvella does (regardless of its Orphan Drug Designation), Palvella will be precluded from receiving marketing approval for its product for the applicable exclusivity period unless FDA concludes that its drug is not the same drug or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care. The applicable exclusivity period is seven years in the United States and 10 years in the European Union. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for Orphan Drug Designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.

Even if Palvella obtains orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition in the United States. Even after an orphan drug is approved, the FDA may subsequently approve another drug for the same disease if the FDA concludes that the latter drug is not the same drug or is clinically superior. In the European Union, marketing authorization may be granted to a similar medicinal product for the same orphan indication if the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior; if the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or if the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinal product.

Palvella’s inability to obtain Orphan Drug Designation or the foreign equivalent for its product candidates, or to realize the benefits of such designation, could have an adverse effect on its business, financial condition, results of operations and prospects.

Palvella is targeting rare genetic skin diseases, and the small patient populations associated with such diseases present additional risks with respect to clinical development, regulatory approvals and commercialization of product candidates.

Palvella’s approach of targeting genetic skin diseases present risks related to the clinical development, regulatory approval and commercialization of its product candidates, including the following:

Adverse developments with respect to any of the foregoing could result in significant changes in Palvella’s business plan and have a material adverse effect on its business, financial condition, results of operations, and prospects.

Palvella’s development and commercialization strategy for its product candidates depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of rapamycin. If Palvella is not able to pursue this strategy, it may be delayed in receiving regulatory authority approval.

The Hatch-Waxman Amendments added Section 505(b)(2) to the U.S. Federal Food, Drug, and Cosmetic Act, or “FDCA”. Section 505(b)(2) permits the submission of an NDA, where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) of the FDCA, for purposes of approving an NDA, to permit the applicant to rely, in part, upon published literature and/or the FDA’s previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials or measurements to support any deviation from the previously approved product and to justify that it is scientifically appropriate to rely on the applicable published literature or referenced product, referred to as bridging. The FDA may then approve the new product candidate for all or some of the indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant, if such approval is supported by study data. The labeling, however, may be required to include all or some of the limitations, contraindications, warnings or precautions or restrictions on use included in the reference product’s labeling, including a boxed warning, or may require additional limitations, contraindications, warnings or precautions or restrictions on use.

Palvella currently plans to pursue marketing approval for QTORIN rapamycin for several indications in the United States through Section 505(b)(2) NDAs and will be completing bridging analyses comparing QTORIN rapamycin to the approved oral rapamycin product, a previously approved organ rejection prophylactic, prior to NDA submission. If the FDA disagrees with Palvella’s conclusions regarding the appropriateness of its reliance on the FDA’s prior findings of safety and efficacy for the approved oral rapamycin productor on published literature, or if Palvella is not otherwise able to bridge to the listed drug or published literature to demonstrate that its reliance is scientifically appropriate, Palvella could be required to conduct additional nonclinical toxicology, clinical safety or efficacy trials, or other studies to support its NDA, which could lead to unanticipated costs and delays or to the termination of its development programs. For example, while Palvella plans to bridge QTORIN rapamycin and the approved oral rapamycin product based on cross-study comparison between pharmacokinetic data from the prescribing information for the approved product, the FDA recommends that bridging to support an NDA for the treatment of microcystic LM be done in a relative bioavailability study comparing the pharmacokinetics of a topical product applied under maximal use conditions and the approved oral drug. The planned cross study analysis allows for comparison of systemic pharmacokinetic parameters, key criteria for assessing the applicability of safety findings from the listed drug, which are a result of systemic exposure from the oral formulation. If the FDA does not agree with Palvella’s pharmacokinetic approach, Palvella may need to conduct a relative bioavailability study, which compares direct assessment of pharmacokinetics of both products administered under similar conditions. For example, FDA may request different specific criteria for comparisons that cannot be evaluated based on limitations in the pharmacokinetic data available in the prescribing information of the approved drug. If Palvella is unable to obtain approval for its product candidates through the Section 505(b)(2) NDA process, it may be required to pursue the more expensive and time consuming 505(b)(1) approval process, which consists of full reports of investigations of safety and effectiveness conducted by or for the applicant. Even if Palvella is allowed to pursue the Section 505(b)(2) regulatory pathway to FDA approval, Palvella cannot assure you that its product candidates will receive the requisite approvals for commercialization.

The validity, scope and enforceability of any patents that Palvella may list in the Orange Book that cover QTORIN rapamycin, if approved by the FDA for any indication, can be challenged by competitors.

If QTORIN rapamycin is approved by the FDA for any indication, one or more third parties may challenge the patents covering QTORIN rapamycin with respect to such indication, which could result in the invalidation of, or render unenforceable, some or all of the relevant patent claims or a finding of non-infringement. For example, if a third party files an Abbreviated New Drug Application, or “ANDA”, for a generic drug bioequivalent to its QTORIN rapamycin, and relies in whole or in part on studies conducted by or for Palvella, the third party will be required to certify to the FDA that either: (1) there is no patent information listed in the FDA’s Orange Book with respect to its NDA for the applicable approved drug candidate; (2) the patents listed in the Orange Book have expired; (3) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration; or (4) the listed patents are invalid or will not be infringed by the manufacture, use or sale of the third party’s generic drug. Alternatively, a third party that files an ANDA for a generic drug bioequivalent to QTORIN rapamycin may elect to submit a “section viii” statement certifying that its proposed label does not contain (or carves out) any language regarding the patented method of use rather than certify to a listed method of use patent. This section viii statement does not require notice to the patent holder or NDA owner. A certification that the new drug will not infringe the Orange Book-listed patents for the applicable approved drug candidate, or that such patents are invalid, is called a paragraph IV certification. If the third party submits a paragraph IV certification to the FDA, a notice of the paragraph IV certification must also be sent to Palvella once the third party’s ANDA is accepted for filing by the FDA. Palvella may then initiate a lawsuit to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of receipt of the notice automatically prevents the FDA from approving the third party’s ANDA until the earliest of 30 months or the date on which the patent expires, the lawsuit is settled, or the court reaches a decision in the infringement lawsuit in favor of the third party. If Palvella does not file a patent infringement lawsuit within the required 45-day period, the third party’s ANDA will not be subject to the 30-month stay of FDA approval. Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert its management’s attention from its core business, and may result in unfavorable results that could limit its ability to prevent third parties from competing with its product candidates.

Other companies could receive FDA approval for a topical rapamycin product before Palvella receives FDA approval for QTORIN rapamycin for microcystic LM or cutaneous venous malformations, and thus could be granted regulatory exclusivity that could significantly delay Palvella’s ability to receive approval for and commercialize its QTORIN rapamycin and therefore dramatically reduce its market potential.

Other companies may submit a Section 505(b)(2) NDA and receive approval for a topical rapamycin product candidate prior to the approval of Palvella’s NDA for QTORIN rapamycin for the treatment of microcystic LM or for other indications Palvella is pursuing or may pursue in the future. The first approved Section 505(b)(2) product for a particular condition of use or change to a marketed product, such as a new formulation for a previously approved product, may be granted three-year exclusivity if one or more clinical studies, other than bioavailability or bioequivalence studies, was essential to the approval of the application and was conducted/sponsored by the applicant. The grant of three-year exclusivity can delay the FDA’s approval of other Section 505(b)(2) applicants for the same condition of use or change to the drug product, such as the first approval of a topical formulation of rapamycin, that was granted exclusivity, regardless of the date of submission of each NDA.

Palvella believes that other companies are developing topical rapamycin products. In order to obtain regulatory approval with a Section 505(b)(2) NDA, other companies would have to sponsor or conduct new clinical investigations (other than bioavailability studies) that are essential to approval of the application, as well as conduct the required bridging studies. If the FDA approves another company’s Section 505(b)(2) NDA for its topical rapamycin product, even for another indication, and grants the other company three-year exclusivity before Palvella receives approval for QTORIN rapamycin for the treatment of microcystic LM, the FDA may be precluded from approving any NDA Palvella may submit with respect to QTORIN rapamycin until after that three-year exclusivity period has expired unless Palvella pursues the more expensive and time consuming 505(b)(1) approval process, which would likely require that Palvella sponsors or conducts additional nonclinical and/or clinical studies. For example, upon approval of a Section 505(b)(2) NDA for the treatment of facial angiofibroma associated with tuberous sclerosis, Hyftor, a topical gel product containing sirolimus (also known as rapamycin), received three years of new product exclusivity. If another rapamycin topical product were to receive three-year exclusivity for a condition of use that overlaps with QTORIN rapamycin, approval of QTORIN rapamycin would be delayed until the expiration of such exclusivity.

It is also not uncommon for a sponsor of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition.

Any such delay could dramatically reduce its expected market potential for its QTORIN rapamycin for any disease indication and could materially adversely affect its business, financial condition, results of operations and prospects.

Serious adverse or unacceptable side effects may be identified during the development of its product candidates, which could prevent or delay regulatory approval and commercialization, increase its costs or necessitate the abandonment or limitation of the development of some of its product candidates.

As Palvella continues its development of its product candidates and initiate additional preclinical studies or clinical trials of these or future product candidates, if any, serious adverse events, unacceptable levels of toxicity, undesirable side effects or unexpected characteristics may emerge. Although Palvella has designed QTORIN rapamycin for topical application and in a manner that it believes will not result in systematic absorption, systematic exposure to rapamycin, the active ingredient in its lead product candidate, at levels consistent with the approved oral dosage form, is known to result in significant adverse reactions, including peripheral edema, hypertriglyceridemia, hypertension, hypercholesterolemia, creatinine increases, abdominal pain, diarrhea, headache, fever, urinary tract infection, anemia, nausea, arthralgia, pain and thrombocytopenia. Investigators may attribute infectious diseases occurring during clinical trials of QTORIN rapamycin to suspected or possible immunosuppression, based on the systematic mechanism of action of rapamycin. Further, Palvella has conducted and continues to conduct open-label studies of QTORIN rapamycin and, without a concurrent control arm, adverse events may be attributed to QTORIN rapamycin that may be a result of background disease or other external factors. Other active pharmaceutical ingredients Palvella selects for its product candidates may have similar adverse event profiles. The emergence of any such serious adverse events, unacceptable levels of toxicity, undesirable side effects or unexpected characteristics could cause difficulty recruiting and retaining participants for its trials or it may abandon these product candidates, institute burdensome monitoring programs or limit their development to more narrow uses, less frequent dosing, lower potency levels or subpopulations in which the serious adverse events, unacceptable levels of toxicity, undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk/benefit perspective. The FDA or an IRB, or equivalent foreign regulatory authorities, may also require that Palvella suspend, discontinue, or limit its clinical trials based on safety information or that there is inadequate prospect of treatment benefit. Such findings could further result in regulatory authorities failing to provide marketing authorization for its product candidates. Many product candidates that initially showed promise in early-stage testing have later been found to cause side effects that prevented further development of the product candidate.

Additionally, if one or more of its product candidates receives marketing approval, and Palvella or others identify undesirable side effects caused by such products, a number of potentially significant negative consequences could result, including:

Any of these events could prevent Palvella from achieving or maintaining market acceptance of the particular product candidate, if approved, which could materially adversely affect its business, financial condition, results of operations and prospects.

Fast Track Designation granted for QTORIN rapamycin for the treatment of microcystic LM and, if granted, for any of Palvella’s other product candidates by the FDA may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that its product candidates will receive marketing approval.

Palvella was granted Fast Track Designation by the FDA for QTORIN rapamycin for the treatment of microcystic LM and may seek such designation for QTORIN rapamycin for other indications, and for any other product candidates. If a drug is intended for the treatment of a serious or life-threatening disease and the drug demonstrates the potential to address unmet medical needs for this disease the drug sponsor may apply for Fast Track Designation. The FDA has broad discretion whether or not to grant this designation. Even if Palvella believes a particular product candidate is eligible for this designation, it cannot assure you that the FDA would decide to grant it. Even if Palvella does receive Fast Track Designation, as Palvella has for QTORIN rapamycin for the treatment of microcystic LM, it may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported by data from its clinical development programs. Many drugs that have received Fast Track Designation have failed to obtain approval.

Breakthrough Therapy Designation granted for QTORIN rapamycin for the treatment of microystic LM and, if granted, for any of Palvella’s other product candidates by the FDA may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that its product candidates will receive marketing approval.  

Palvella was granted Breakthrough Therapy Designation by the FDA for QTORIN rapamycin for the treatment of microcystic LM and may seek such designation for QTORIN rapamycin for other indications, and for any other product candidates. A breakthrough therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA are also eligible for priority review if supported by clinical data at the time of the submission of the NDA.  

Designation as a breakthrough therapy is at the discretion of the FDA. Accordingly, even if Palvella believes that one of its product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a Breakthrough Therapy Designation for a drug may not result in a faster development process, review, or approval compared to drugs considered for approval under conventional FDA procedures and it would not assure ultimate approval by the FDA. In addition, even if one or more of Palvella’s product candidates qualify as breakthrough therapies, the FDA may later decide that the product candidate no longer meets the conditions for designation.  

Interim, top-line or preliminary data from its clinical trials that Palvella announces or publishes from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, Palvella may publish interim, top-line or preliminary data from its clinical trials. Interim data from clinical trials that Palvella may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Preliminary or top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary or top-line data Palvella previously published. For example, Palvella expects to report top-line data from its Phase 3 clinical trial for the treatment of microcystic LM in the first quarter of 2026, but any such data may change following further auditing. As a result, preliminary and top-line data should be viewed with caution until the final data are available. If the interim, top-line, or preliminary data that Palvella reports differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, its ability to obtain approval for and commercialize its product candidates, its business, operating results, prospects or financial condition may be harmed. In addition, the information Palvella chooses to publicly disclose regarding a particular clinical trial is based on what is typically extensive information, and you or others may not agree with what Palvella determines is material or otherwise appropriate information to include in its disclosure.

Palvella may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because Palvella has limited financial and managerial resources, it focuses on research programs and product candidates that it identifies for specific indications. As a result, Palvella may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Palvella’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities. Palvella’s spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If Palvella does not accurately evaluate the commercial potential or target market for a particular product candidate, it may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for it to retain sole development and commercialization rights to such product candidate. Failure to allocate resources or capitalize on strategies in a successful manner will have an adverse impact on its business.

Palvella may choose not to continue developing or commercializing any of its product candidates at any time during development or after approval, which would reduce or eliminate its potential return on investment for those product candidates.

At any time, Palvella may decide to discontinue the development or commercialization of any of its product candidates during or after approval for a variety of reasons, including the appearance of new technologies that render its product obsolete, competition from a competing product or changes in or inability to comply with applicable regulatory requirements. If Palvella terminates a program in which Palvella has invested significant resources, it will not receive any return on its investment and it will have missed the opportunity to allocate those resources to potentially more productive uses.

If Palvella seeks to market any product candidates in its pipeline in countries other than the United States, it will need to comply with the regulations of each country in which it seeks to market its products. Additionally, although its trials are currently being conducted in the U.S., Palvella may conduct clinical trials for its product candidates at clinical trial sites outside the U.S. and the FDA and equivalent foreign regulatory authorities may not accept data from such sites.

None of its product candidates are currently approved for sale by any government authority. If Palvella fails to comply with regulatory requirements in any market it decides to enter, or to obtain and maintain required approvals, or if regulatory approvals in the relevant markets are delayed, its target market will be reduced and its ability to realize the full market potential of its product candidates, if approved, will be harmed. Marketing approval in one jurisdiction, including the United States, does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one jurisdiction may have a negative effect on the regulatory process in others. Failure to obtain a marketing approval in countries in which Palvella seeks to market its products or any delay or setback in obtaining such approval would impair its ability to develop foreign markets for any of its products. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from those in the United States, including additional nonclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. Obtaining foreign regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for Palvella and could delay or prevent the introduction of its products in certain countries.

Additionally, although its trials are currently being conducted in the U.S., Palvella may in the future choose to conduct one or more of its clinical trials at clinical trial sites outside the United States, including in Canada and Europe. Although the FDA or equivalent foreign regulatory authority may accept data from clinical trial sites conducted outside the United States or the applicable jurisdiction, acceptance of such study data by the FDA or equivalent foreign regulatory authority may be subject to certain conditions. Where data from foreign clinical trial sites are intended to serve as the basis for marketing approval in the United States, the FDA will not approve the application on the basis of foreign data alone unless those data are applicable to the U.S. population and U.S. medical practice; the site study conduct was performed by clinical investigators of recognized competence; and the data are considered valid without the need for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the data through an on-site inspection or other appropriate means. Many foreign regulatory authorities have similar requirements. In addition, such foreign studies would be subject to the applicable local laws of the foreign jurisdictions where the studies are conducted. There can be no assurance the FDA or equivalent foreign regulatory authority will accept data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or equivalent foreign regulatory authority does not accept such data, it would likely result in the need for additional trials, which would be costly and time- consuming and delay aspects of its business plan.

Governments outside of the United States tend to impose strict price controls, which may adversely affect Palvella’s revenue, if any.

In some countries, particularly the countries of the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a drug. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations. To obtain coverage and reimbursement or pricing approval in some countries, Palvella may be required to conduct a clinical trial that compares the cost-effectiveness of its product candidate to other available procedures. If reimbursement of its product candidates is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, it could have a material adverse effect on its business, financial condition, results of operations, and prospects.

Risks Related to Commercialization of Palvella’s Product Candidates, if Approved

Even if QTORIN rapamycin or any future product candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

Even if QTORIN rapamycin for the treatment of microcystic LM or for the treatment of cutaneous venous malformations or any future product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, patient advocacy groups, third-party payors and others in the medical community. If Palvella’s product candidates do not achieve an adequate level of acceptance, it may never be able to generate adequate product revenue or become profitable. The degree of market acceptance of a product candidate, if approved for commercial sale, will depend on a number of factors, including but not limited to:

Palvella cannot assure you that its current or future product candidates, if approved, will achieve market acceptance among physicians, patients, patient advocacy groups, third-party payors or others in the dermatological community necessary for commercial success. Any failure by Palvella’s product candidates that obtain regulatory approval to achieve market acceptance or commercial success could materially adversely affect its business, financial condition, results of operations and prospects.

Palvella currently has no marketing and sales organization and has no experience as a company in commercializing products, and it may have to invest significant resources to develop these capabilities. If Palvella is unable to establish marketing and sales capabilities or enter into agreements with third parties to market and sell its product candidates if approved, it may not be able to generate product revenue.

Palvella has never commercialized a product. To achieve commercial success for any product for which Palvella obtains marketing approval, Palvella will need a sales and marketing organization. Palvella does not currently have any infrastructure for the sales, marketing, or distribution of any product, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market QTORIN rapamycin or any other product candidate, if approved, Palvella must build its sales, distribution, marketing, managerial and other nontechnical capabilities or make arrangements with third parties to perform these services.

Palvella believes that it will be able to commercialize QTORIN rapamycin for the treatment of microcystic LM, if approved, with a specialized sales force that targets a focused subset of medical dermatologists, and is supported by sales management, medical liaisons, market access, an internal marketing group, and distribution support. There are significant expenses and risks involved with establishing Palvella’s own sales, marketing and distribution capabilities, including its ability to hire, retain and appropriately incentivize qualified individuals, provide adequate training to sales and marketing personnel, and effectively manage geographically dispersed sales and marketing teams to generate sufficient demand. Other factors that may inhibit Palvella’s efforts to commercialize its product candidates, once approved, include:

If Palvella is unable to establish adequate sales, marketing, and distribution capabilities, either on its own or in collaboration with third parties, it will not be successful in commercializing any of its product candidates, if approved, and will not become profitable. Palvella may be competing with companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, Palvella may be unable to compete successfully against these more established companies.

If Palvella enters into arrangements with third parties to perform sales, marketing and distribution services in the United States or in any markets outside of the United States, its revenues from product sales and its profitability, if any, may be lower than if it were to market, sell and distribute any products that it develops itself in all such territories. In addition, Palvella may not be successful in entering into arrangements with third parties to sell, market and distribute its product candidates, if approved, or may be unable to do so on terms that are acceptable to it. Palvella may have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market its products effectively. If Palvella does not establish sales, marketing and distribution capabilities successfully, either on its own or in collaboration with third parties, it will not be successful in commercializing its product candidates, if approved.

Palvella’s estimated market opportunities for its product candidates are subject to numerous uncertainties and may prove to be inaccurate. If Palvella has overestimated the size of its market opportunities, its future growth may be limited.

Palvella’s estimated addressable markets and market opportunities for its product candidates are based on a variety of inputs, including data published by third parties, including patient advocacy groups, its own market insights and internal market intelligence, and internally generated data and assumptions. Palvella has not independently verified any third-party information and cannot assure you of its accuracy or completeness. Market opportunity estimates, whether obtained or derived from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. While Palvella believes its market opportunity estimates are reasonable, such information is inherently imprecise. In addition, Palvella’s assumptions and estimates of market opportunities are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including but not limited to those described in this “Risk Factors” section. If these third-party or internally generated data prove to be inaccurate or Palvella makes errors in its assumptions based on that data, its actual market may be more limited than its estimates. In addition, these inaccuracies or errors may cause Palvella to misallocate capital and other critical business resources, which could harm its business. The estimates of its addressable patient populations included in this proxy statement/prospectus should not be taken as indicative of its ability to grow its business. For more information regarding the estimates of patient populations included in this proxy statement/prospectus, see the sections titled “Market and Industry Data” and “Business—Its Pipeline.”

The size of the markets for Palvella’s product candidates have not been established and may be smaller than it estimates.

Palvella’s estimates of the annual total addressable markets for its product candidates are based on internal and third-party estimates, including, without limitation, estimated incidence and prevalence of these diseases, and estimated annual price per patient for its product candidates. While Palvella believes its assumptions and the data underlying its estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting its assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors. As a result, Palvella’s estimates of the annual total addressable market for its product candidates may prove to be incorrect. If the annual total addressable markets for its product candidates are smaller than Palvella has estimated, this may have an adverse effect on its business, financial condition, results of operations, and prospects.

If Palvella is unable to achieve and maintain coverage and adequate levels of reimbursement for any of its product candidates for which it receives regulatory approval, or any future products it may seek to commercialize, their commercial success may be severely hindered.

As to any of Palvella’s product candidates that become available by prescription only, its success will depend on the availability of coverage and adequate reimbursement for its product from third-party payors. Because there are currently no products approved for the treatment of microcystic LM, the pricing and reimbursement of its product candidates, if approved, is uncertain. Novel medical products, if covered at all, may be subject to enhanced utilization management controls designed to ensure that the products are used only when medically necessary. Such utilization management controls may discourage the prescription or use of a medical product by increasing the administrative burden associated with its prescription or creating coverage uncertainties for prescribers and patients. Moreover, Palvella’s target patient populations are small, as a result of which the pricing and third-party payor reimbursement of its product candidates, if approved, must be adequate to support commercial infrastructure. Eligibility for reimbursement does not imply that a medical product will be paid for in all cases or at a rate that covers its costs, including research, development, manufacture, sale and distribution. If Palvella is unable to obtain adequate levels of reimbursement, its ability to successfully market and sell its product candidates will be adversely affected.

Patients who are prescribed medicine for the treatment of their diseases generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. The availability of coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and private third-party payors is critical to new product acceptance. If any of Palvella’s product candidates fail to demonstrate attractive efficacy and safety profiles, they may not qualify for coverage and reimbursement. Even if Palvella obtains coverage for a given product, the resulting reimbursement payment rates might not be adequate, particularly given the small patient populations for its targeted indications, or may require co-payments that patients find unacceptably high. Patients are unlikely to use Palvella’s products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of its products.

In addition, third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, in the United States, although private third-party payors tend to follow Medicare, no uniform policy of coverage and reimbursement for drug products exists among third-party payors. Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is often a time- consuming and costly process that will require Palvella to provide scientific and clinical support for the use of its product candidates to each payor separately, with no assurance that coverage and adequate reimbursement will be obtained.

Palvella believes that future coverage and reimbursement will likely be subject to increased restrictions in both the United States and in international markets. Third-party coverage and reimbursement for any of its product candidates for which Palvella may receive regulatory approval may not be available or adequate in either the United States or international markets, which could materially adversely affect its business, financial condition, results of operations and prospects.

Palvella faces substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than it does, thus rendering its products non-competitive, obsolete or reducing the size of its market.

The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Palvella faces and will continue to face competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, government agencies and public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

In addition, some of the market demand for topical rapamycin may be satisfied by state-licensed compounding pharmacies operating under Section 503A of the FDCA. Although such pharmacies will be unable to compound any drug that is essentially a copy of QTORIN rapamycin, if approved, a compounded product would not be considered a copy of QTORIN rapamycin if there were a difference between the FDA-approved product and the compounded product that was made for an individual patient and which the prescribing practitioner determines produces a significant difference for that patient. Physicians may determine that such differences exist for some or all of their patients and may choose to prescribe compounded rapamycin because it would be a component of an FDA-approved drug product (specifically QTORIN). If the FDA-approved drug product is not commercially available and thus added to the FDA’s published drug shortage list, compounders also would be able to copy it without the necessity of noting a significant difference between the compounded formulation and the FDA-approved drug In the event compounders engage in the compounding of rapamycin products following FDA approval of QTORIN rapamycin, Palvella could be subject to significant competition from those compounded formulations.

The companies against which Palvella may compete may have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than it does. These competitors also compete with Palvella in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, its programs. Palvella’s commercial opportunity could be reduced or eliminated if its competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that it may develop. Palvella’s competitors also may obtain FDA or other regulatory approval for their products more rapidly than it may obtain approval for itself, which could result in its competitors establishing a strong market position before it is able to enter the market. In addition, Palvella’s ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products. Because of Palvella’s primary focus on rare diseases, if its product candidates achieve marketing approval, it expects to seek premium pricing.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of its competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with Palvella in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, its programs.

If Palvella obtains approval to commercialize its product candidates outside of the United States, a variety of risks associated with international operations could materially adversely affect its business.

If any of Palvella’s product candidates are approved for commercialization, it may enter into agreements with third parties to market them on a worldwide basis or in more limited geographical regions. Palvella expects that it will be subject to additional risks related to conducting marketing and sales activities in international jurisdictions and entering into international business relationships, including:

These and other risks associated with international operations may materially adversely affect Palvella’s ability to attain or maintain profitable operations.

Risks Related to Palvella’s Business and Operations

Palvella will need to increase the size of its organization, and it may experience difficulties in executing its growth strategy and managing any growth, including with respect to any acquired businesses, therapeutic candidates or technologies.

As of October 28, 2024, Palvella had nine full-time employees. Palvella’s management and personnel, systems and facilities currently in place are not adequate to support its future growth. Palvella will need to expand its managerial, operational, finance and other resources in order to manage its operations and clinical trials, continue its development activities, commercialize its lead product candidates or any future product candidates and operate as a public company. In order to effectively execute its growth strategy, Palvella will need to identify, recruit, retain, incentivize and integrate additional employees in order to expand its ability to:

Should Palvella in the future acquire any complementary business, therapeutic candidates or technologies, its ability to integrate and manage acquired businesses, therapeutic candidates or technologies effectively will depend upon a number of factors including the size of the acquired business, the complexity of any therapeutic candidate or technology and the resulting difficulty of integrating the acquired business’s operations, if any. Palvella’s relationship with current employees or employees of any acquired business may become impaired. Palvella may also be subject to unexpected claims and liabilities arising from such acquisitions. These claims and liabilities could be costly to defend, could be material to Palvella’s financial position and might exceed either the limitations of any applicable indemnification provisions or the financial resources of the indemnifying parties. There can also be no assurance that Palvella will be able to assess ongoing profitability and identify all actual or potential liabilities of a business, therapeutic candidate or technology prior to its acquisition. If Palvella acquires businesses, therapeutic candidates or technologies that result in assuming unforeseen liabilities in respect of which it has not obtained contractual protections or for which protection is not available, this could materially adversely affect its business, financial condition, results of operations and prospects.

Palvella’s future financial performance and its ability to commercialize its product candidates, if approved, will depend, in part, on its ability to effectively manage any future growth, and its management may also have to divert a disproportionate amount of its attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

If Palvella is unable to successfully identify, recruit, retain, incentivize and integrate additional employees and otherwise expand its managerial, operational, finance and other resources, its business and operational performance will be materially and adversely affected.

If Palvella fails to attract and retain management and other key personnel, it may be unable to continue to successfully develop its current and any future product candidates, commercialize its product candidates or otherwise implement its business plan.

Palvella’s ability to compete in the highly competitive pharmaceuticals industry depends upon its ability to attract and retain highly qualified managerial, scientific, medical, sales and marketing and other personnel. Palvella is highly dependent on its management and scientific personnel, including Wesley H. Kaupinen, its Chief Executive Officer, Kathleen Goin, its Chief Operating Officer, and Jeffrey Martini Ph.D., its Chief Scientific Officer. The loss of the services of any of these individuals could impede, delay or prevent the successful development of its product candidates and otherwise negatively impact its ability to successfully implement its business plan. If Palvella loses the services of any of these individuals, it might not be able to find suitable replacements on a timely basis or at all, and its business could be harmed as a result. Palvella maintains “key person” insurance only for its Chief Executive Officer.

Palvella’s employment agreement with Mr. Kaupinen may be terminated immediately by Palvella for cause or by Mr. Kaupinen with good reason, or upon thirty days’ notice if terminated for any other reason. In order to retain valuable employees at its company, in addition to salary and cash incentives, Palvella provides stock options that vest over time. The value to employees and key consultants of stock options that vest over time will be significantly affected by movements in its stock price that are beyond its control, and may at any time be insufficient to counteract offers from other companies.

Palvella might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the eastern Pennsylvania area where it is headquartered. Palvella could have difficulty attracting experienced personnel to its company and may be required to expend significant financial resources in its employee recruitment and retention efforts. Many of the other pharmaceutical companies with whom Palvella competes for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than Palvella does. They also may provide more diverse opportunities and better chances for career advancement. If Palvella is not able to attract and retain the necessary personnel to accomplish its business objectives, it may experience constraints that will harm its ability to implement its business strategy and achieve its business objectives.

In addition, Palvella has scientific and clinical advisors who assist it in formulating its development and clinical strategies. These advisors are not its employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to Palvella. In addition, its advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with Palvella.

Palvella faces potential product liability exposure, and if successful claims are brought against it, Palvella may incur substantial liability for its product candidates and may have to limit its commercialization if it obtains regulatory approval.

The use of Palvella’s product candidates in clinical trials, and the sale of any of its product candidates for which it obtains regulatory approval, exposes Palvella to the risk of product liability claims. Product liability claims might be brought against it by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with its products. For example, Palvella may be sued if any product candidate it develops allegedly causes injury or is found to be otherwise unsuitable during clinical testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties. Claims could also be asserted under state consumer protection acts. If Palvella cannot successfully defend itself against these claims, it will incur substantial liabilities or be required to limit development or commercialization of its product candidates for which it obtains regulatory approval. Even successful defense would require significant financial and management resources. Regardless of merit or eventual outcome, product liability claims may result in: