10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-40693

 

https://cdn.kscope.io/05abd4dc834849c9d3266b1e5ba878c3-img114775401_0.jpg 

RALLYBIO CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

85-1083789

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

234 Church Street, Suite 1020

New Haven, CT

06510

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (203) 859-3820

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

 

RLYB

 

The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

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 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No

As of May 4, 2022, the registrant had 32,130,970 shares of common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

6

 

Unaudited Condensed Consolidated Balance Sheets

6

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

7

 

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity

8

 

Unaudited Condensed Consolidated Statements of Cash Flows

9

 

Notes to Unaudited Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

74

Item 6.

Exhibits

74

Signatures

 

75

 

 

 

 

 

 

 

 

 

 

 

 

 

2


 

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that are based on management’s beliefs and assumptions and on information currently available to management. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements include, but are not limited to, statements concerning:

the initiation, timing, progress, results, and cost of our research and development programs, and our current and future preclinical and clinical studies, including statements regarding the timing of initiation and completion of our clinical trials for RLYB211, RLYB212, and RLYB116, and the natural history study for our FNAIT prevention program, and related preparatory work, and the period during which the results of the trials will become available;
the success, cost and timing of our clinical development of our product candidates, including RLYB212, RLYB116 and RLYB114;
our ability to initiate, recruit and enroll patients in and conduct our clinical trials at the pace that we project;
our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations or warnings in the label of any of our product candidates, if approved;
our ability to compete with companies currently marketing or engaged in the development of treatments for diseases that our product candidates are designed to target, including PNH and gMG;
our reliance on third parties to conduct our clinical trials;
our reliance on third parties to manufacture drug substance for use in our clinical trials;
the size and growth potential of the markets for RLYB212, RLYB116, RLYB114 and any of our current product candidates or other product candidates we may identify and pursue, and our ability to serve those markets;
our ability to expand our pipeline through collaborations, partnerships and other transactions with third parties;
our ability to identify and advance through clinical development any additional product candidates;
the commercialization of our current product candidates and any other product candidates we may identify and pursue, if approved, including our ability to successfully build commercial infrastructure or enter into collaborations with third parties to market our current product candidates and any other product candidates we may identify and pursue;
our ability to retain and recruit key personnel;
our ability to obtain and maintain adequate intellectual property rights;
our expectations regarding government and third-party payor coverage and reimbursement;
our estimates of our expenses, ongoing losses, capital requirements and our needs for or ability to obtain additional financing;
our expected uses of the net proceeds from our initial public offering;
the potential benefits of strategic collaboration agreements, our ability to enter into strategic collaborations or arrangements, including potential business development opportunities and potential licensing partnerships, and our ability to attract collaborators with development, regulatory and commercialization expertise;
our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012;
our financial performance;
developments and projections relating to our competitors or our industry; and

3


 

other risks and uncertainties, including those listed under the section titled “Risk Factors.”

 

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions and are based largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of known and unknown risks, uncertainties and assumptions, including those described under the sections in this Quarterly Report on Form 10-Q entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as guarantees of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual future results, levels of activity, performance and events and circumstances could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risks and uncertainties may emerge from time to time, and it is not possible for management to predict all risks and uncertainties. Except as required by applicable law, we are not obligated to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

 

Trademarks

We use Rallybio as a trademark in the United States and/or in other countries. This Quarterly Report on Form 10-Q contains references to our trademark and to those belonging to other entities, including Affibody®. Solely for convenience, trademarks and trade names referred to in this Quarterly Report on Form 10-Q, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

 

Risk Factor Summary

Our business is subject to a number of risks that are discussed more fully in the “Risk Factors” section of this Quarterly Report on Form 10-Q. These risks include the following:

We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the foreseeable future. We have not commercialized any products and have never generated revenue from the commercialization of any product. We are not currently profitable, and we may never achieve or sustain profitability;
We will require significant additional capital to fund our operations, and if we fail to obtain necessary financing, we may not be able to complete the development and commercialization of RLYB212, RLYB116 or any additional product candidates we may develop;
Raising additional capital may cause dilution to our stockholders, restrict our operations or require us to relinquish rights to our technologies or product candidates;
The ongoing COVID-19 pandemic in the United States and other countries has resulted in and may further result in disruptions to our preclinical studies, clinical trials, manufacturing and other business operations, which could adversely affect our business and the market price of our common stock;
We are heavily dependent on the success of RLYB212 and RLYB116, which are in early-stage clinical development or preclinical IND-enabling activities. If we are not able to develop, obtain regulatory approval for, or successfully commercialize our product candidates, or if we experience significant delays in doing so, our business will be materially harmed;
We may not be successful in our efforts to identify additional product candidates. Due to our limited resources and access to capital, we must prioritize development of certain product candidates, the choice of which may prove to be wrong and adversely affect our business;
Preclinical studies and clinical trials are expensive, time consuming, and difficult to design and implement, and involve uncertain outcomes. Any product candidates that we advance into clinical trials may not achieve favorable results in later clinical trials, if any, or receive marketing approval. We may

4


 

incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates;
Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control, including our focus on rare diseases;
Results of preclinical studies, clinical trials, or analyses that we may announce or publish from time to time, may not be indicative of results obtained in later trials, and any interim results we may publish could be different than final results;
Any product candidates that we develop or the administration thereof, may cause serious adverse events or undesirable side effects, which may halt their clinical development, delay or prevent marketing approval, or, if approved, require them to be taken off the market, include safety warnings, or otherwise limit their sales;
The regulatory approval processes of the U.S. Food and Drug Administration (the "FDA"), the European Medicines Agency (the "EMA"), and comparable foreign regulatory authorities are lengthy, time-consuming, and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for RLYB212, RLYB116 or any of our other product candidates, our business will be substantially harmed;
Our product candidates target rare diseases and conditions, and the market opportunities for RLYB212 and RLYB116, if approved, may be smaller than we anticipate. As a result, our commercial opportunity may be limited and because the target populations of our product candidates are for rare diseases, we must be able to successfully identify patients and capture a significant market share to achieve profitability and growth;
The FDA, EMA or other comparable foreign regulatory authorities could require the clearance or approval of an in vitro diagnostic or companion diagnostic device as a condition of approval for any product candidate that requires or would commercially benefit from such tests. Failure to successfully validate, develop and obtain regulatory clearance or approval for companion diagnostics on a timely basis or at all could harm our drug development strategy and we may not realize the commercial potential of any such product candidate;
We face significant competition from biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively;
We intend to continue to acquire or in-license rights to additional product candidates or collaborate with third parties for the development and commercialization of our product candidates. We may not succeed in identifying and acquiring businesses or assets, in-licensing intellectual property rights or establishing and maintaining collaborations, which may significantly limit our ability to successfully develop and commercialize our other product candidates, if at all, and these transactions could disrupt our business, cause dilution to our stockholders or reduce our financial resources; and
If we are unable to obtain, maintain and enforce patent protection for our technology and product candidates, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize technology and products similar or identical to ours, and our ability to successfully develop and commercialize our technology and product candidates may be adversely affected.

 

The foregoing is only a summary of some of our risks. For a more detailed discussion of these and other risks you should consider before making an investment in our common stock, see “Risk Factors.”

 

5


 

 


PART I—FIN
ANCIAL INFORMATION

Item 1. Financial Statements.

RALLYBIO CORPORATION

Condensed Consolidated Balance Sheets

(Unaudited)

 

(in thousands, except share and per share amounts)

 

MARCH 31,
2022

 

 

DECEMBER 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

81,425

 

 

$

175,334

 

Marketable securities

 

 

79,984

 

 

 

 

Prepaid expenses and other assets

 

 

6,373

 

 

 

5,535

 

Total current assets

 

 

167,782

 

 

 

180,869

 

Property and equipment, net

 

 

499

 

 

 

511

 

Operating lease right-of-use assets

 

 

657

 

 

 

 

Investment in joint venture

 

 

415

 

 

 

805

 

Total assets

 

$

169,353

 

 

$

182,185

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,057

 

 

$

603

 

Accrued expenses

 

 

4,595

 

 

 

5,948

 

Operating lease liabilities

 

 

148

 

 

 

 

Total current liabilities

 

 

5,800

 

 

 

6,551

 

Accrued expenses, noncurrent

 

 

 

 

 

32

 

Operating lease liabilities, noncurrent

 

 

517

 

 

 

 

Total liabilities

 

 

6,317

 

 

 

6,583

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.0001 par value per share; 200,000,000 shares
   authorized as of March 31, 2022 and December 31, 2021,
   respectively; and
32,130,970 and 32,129,970 shares issued
   and outstanding as of March 31, 2022 and December 31,
   2021, respectively

 

 

3

 

 

 

3

 

Preferred stock, $0.0001 par value per share; 50,000,000 shares
   authorized as of March 31, 2022 and December 31, 2021,
   respectively;
no shares issued or outstanding as of March 31, 2022
   and December 31, 2021, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

271,680

 

 

 

269,626

 

Accumulated other comprehensive loss

 

 

(122

)

 

 

 

Accumulated deficit

 

 

(108,525

)

 

 

(94,027

)

Total stockholders' equity

 

 

163,036

 

 

 

175,602

 

Total liabilities and stockholders' equity

 

$

169,353

 

 

$

182,185

 

 

See accompanying notes of the condensed consolidated financial statements

6


 

RALLYBIO CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

 

 

FOR THE THREE MONTHS ENDED
MARCH 31,

 

(in thousands, except share and per share amounts)

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

7,648

 

 

$

9,037

 

General and administrative

 

 

6,670

 

 

 

3,787

 

Total operating expenses

 

 

14,318

 

 

 

12,824

 

Loss from operations

 

 

(14,318

)

 

 

(12,824

)

Other income (expenses):

 

 

 

 

 

 

Interest income

 

 

97

 

 

 

17

 

Interest expense

 

 

 

 

 

(10

)

Other income

 

 

113

 

 

 

24

 

Total other income, net

 

 

210

 

 

 

31

 

Loss from continuing operations

 

 

(14,108

)

 

 

(12,793

)

Loss on investment in joint venture

 

 

390

 

 

 

482

 

Net loss

 

$

(14,498

)

 

$

(13,275

)

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.48

)

 

$

(0.60

)

Weighted average common shares outstanding, basic and diluted

 

 

30,318,405

 

 

 

22,244,883

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

Net unrealized loss on marketable securities

 

 

122

 

 

 

 

Other comprehensive loss

 

 

(122

)

 

 

 

Comprehensive loss

 

$

(14,620

)

 

$

(13,275

)

 

 

 

 

 

 

 

 

See accompanying notes of the condensed consolidated financial statements

 

7


 

 

RALLYBIO CORPORATION

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

 

 

 

 

COMMON

 

 

ADDITIONAL
PAID-IN

 

 

ACCUMULATED

 

 

ACCUMULATED OTHER COMPREHENSIVE

 

 

STOCKHOLDERS'

 

(in thousands, except share amounts)

 

SHARES

 

 

AMOUNT

 

 

CAPITAL

 

 

DEFICIT

 

 

LOSS

 

 

EQUITY

 

December 31, 2020

 

 

23,410,348

 

 

$

2

 

 

$

183,015

 

 

$

(47,014

)

 

$

 

 

$

136,003

 

Issuance of restricted common stock

 

 

1,579,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

522

 

 

 

 

 

 

 

 

 

522

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(13,275

)

 

 

 

 

 

(13,275

)

Balance, March 31, 2021

 

 

24,990,263

 

 

$

2

 

 

$

183,537

 

 

$

(60,289

)

 

$

 

 

$

123,250

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

32,129,970

 

 

$

3

 

 

$

269,626

 

 

$

(94,027

)

 

$

 

 

$

175,602

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,054

 

 

 

 

 

 

 

 

 

2,054

 

Issuance of common stock under the stock award plan

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(14,498

)

 

 

 

 

 

(14,498

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(122

)

 

 

(122

)

Balance, March 31, 2022

 

 

32,130,970

 

 

$

3

 

 

$

271,680

 

 

$

(108,525

)

 

$

(122

)

 

$

163,036

 

 

See accompanying notes of the condensed consolidated financial statements

8


 

 

RALLYBIO CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

FOR THE THREE MONTHS ENDED
MARCH 31,

 

(in thousands)

 

2022

 

 

2021

 

Cash Flows used in Operating Activities:

 

 

 

 

 

 

Net loss

 

$

(14,498

)

 

$

(13,275

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

42

 

 

 

23

 

Net accretion of discounts/premiums on debt securities

 

 

36

 

 

 

 

Stock-based compensation

 

 

2,054

 

 

 

522

 

Loss on investment in joint venture

 

 

390

 

 

 

482

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses, right-of-use assets and other assets

 

 

(794

)

 

 

61

 

Accounts payable

 

 

447

 

 

 

1,430

 

Accrued expenses and operating lease liability

 

 

(1,408

)

 

 

(1,172

)

Net cash used in operating activities

 

$

(13,731

)

 

$

(11,929

)

Cash Flows used in Investing Activities:

 

 

 

 

 

 

Purchases of marketable securities

 

 

(80,142

)

 

 

 

Purchase of property and equipment

 

 

(36

)

 

 

(62

)

Investment in joint venture

 

 

 

 

 

(500

)

Net cash used in investing activities

 

$

(80,178

)

 

$

(562

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Net cash provided by financing activities

 

$

 

 

$

 

Net decrease in cash and cash equivalents

 

 

(93,909

)

 

 

(12,491

)

Cash and cash equivalents—beginning of period

 

 

175,334

 

 

 

140,233

 

Cash and cash equivalents—end of period

 

$

81,425

 

 

$

127,742

 

 

 

 

 

 

 

 

Supplemental Disclosures of Noncash Investing and Financing Activities:

 

 

 

 

 

 

Property and equipment in accounts payable

 

$

8

 

 

$

 

 

See accompanying notes of the condensed consolidated financial statements

 

9


 

RALLYBIO CORPORATION

Notes to Unaudited Condensed Consolidated Financial Statements

1. BUSINESS AND LIQUIDITY

Rallybio Corporation and subsidiaries (the "Company", "we", "our", or "us") is a clinical-stage biotechnology company built around a team of seasoned industry experts with a shared purpose and a track record of success in discovering, developing, manufacturing, and delivering therapies to meaningfully improve the lives of patients suffering from severe and rare diseases.

In August 2021, the Company completed its initial public offering ("IPO"), pursuant to which it issued and sold 7,130,000 shares of the Company’s common stock, inclusive of 930,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $13.00 per share. The gross proceeds from the IPO, including the exercise of the underwriter's option to purchase additional shares were $92.7 million and the net proceeds were approximately $83.0 million, after deducting underwriting discounts and commissions and other offering costs.

The Company had cash, cash equivalents and marketable securities of $161.4 million at March 31, 2022. The Company currently expects that its cash, cash equivalents and marketable securities will be sufficient to fund its operating expenses and capital requirements for more than 12 months from the date the condensed consolidated financial statements are issued. However, we do not anticipate that the current cash, cash equivalents and marketable securities as of March 31, 2022 will be sufficient for us to fund any of our product candidates through regulatory approval, and we will need to raise substantial additional capital to complete the development and commercialization of our product candidates, if approved. We may satisfy our future cash needs through the sale of equity securities, debt financings, working capital lines of credit, corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION


Unaudited Financial Information — The unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), and pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). In the opinion of the Company, the information furnished reflects all adjustments, all of which are of a normal and recurring nature, necessary for a fair presentation of the financial position and results of operations for the reported interim periods. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. The results of operations for interim periods are not necessarily indicative of results to be expected for the full year or any other interim period.

The accompanying unaudited condensed consolidated financial statements include the accounts of Rallybio Corporation and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

These accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (our "Annual Report") which includes a description of reorganization and liquidation of Rallybio Holdings, LLC ("Rallybio Holdings") prior to our IPO that resulted in a change in reporting entity as described in Accounting Standards Codification ("ASC") 250. In accordance with the guidance applicable to these circumstances, the equity structure has been adjusted in all comparative periods to reflect the number of shares of the Company’s common stock issued to Rallybio Holdings unitholders in connection with the liquidation. As such, historical Rallybio Holdings convertible redeemable preferred units, common units, and incentive units have been retroactively adjusted in these condensed consolidated financial statements to shares and earnings per share in accordance with the ratio of common shares received by each membership unit class during the liquidation.

Our significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in our Annual Report. Updates to our accounting policies, including impacts from the adoption of new accounting standards are discussed below.

Marketable Securities — We invest our excess cash balances in highly rated U.S. government-backed debt securities and treasuries. We classify our marketable securities as available-for-sale and accordingly, record such securities at fair value. Debt securities with original maturities of greater than 90 days are classified as available-for-sale marketable securities and debt securities with original maturities of less than 90 days from the date of purchase are classified as cash equivalents.

10


 

Unrealized gains and losses on our marketable debt securities that are deemed temporary are included in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity. If any adjustment to fair value reflects a significant decline in the value of the security, we evaluate the extent to which the decline is determined to be other-than-temporary and would mark the security to market through a charge to our condensed consolidated statements of operations and comprehensive loss. Credit losses are identified when we do not expect to receive cash flows sufficient to recover the amortized cost basis of a security. In the event of a credit loss, only the amount associated with the credit loss is recognized in operating results, with the amount of loss relating to other factors recorded in accumulated other comprehensive income (loss).

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ( the "FASB") issued Accounting Standards Update ("ASU") 2016-02 "Leases" that requires lessees to recognize leases on-balance sheet and to make certain disclosures associated with their leasing arrangements. The new standard establishes a right-of-use ("ROU") model that requires a lessee to recognize an ROU asset and lease liability on the condensed consolidated balance sheets for all leases with a term longer than twelve months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statements of operations and comprehensive loss. The Company adopted ASU 2016-02 Leases on January 1, 2022 using the modified retrospective approach and elected to apply the transition method that allows companies to continue applying guidance under the lease standard in effect at that time in the comparative periods condensed consolidated financial statements and recognize a cumulative-effect adjustment to the condensed consolidated balance sheets on the date of adoption. The Company elected the package of practical expedients to not reassess its prior conclusions about lease identification, lease classification and initial direct costs. At adoption we recognized approximately $0.7 million of ROU assets and corresponding lease liabilities. See Note 5.

In June 2016, the FASB issued ASC 2016-13 "Financial Instruments - Credit Losses", a new standard intended to improve reporting requirements specific to loans, receivables and other financial instruments. The new standard requires that credit losses on financial assets measured at amortized cost be determined using an expected loss model, instead of the current incurred loss model, and requires that credit losses related to available-for-sale debt securities be recorded through an allowance for credit losses and limited to the amount by which carrying value exceeds fair value. We adopted the new standard on January 1, 2022 and have completed our assessment of the standard based on the composition of our portfolio of financial instruments. Our significant financial assets that are wit
hin the scope of the new standard consist available for sale debt securities. There was no impact to our condensed consolidated statements of operations and comprehensive loss or condensed consolidated balance sheets upon adoption. See Note 3 for discussion of unrealized losses on our available for sale marketable securities.

 

3. MARKETABLE SECURITIES

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value of our marketable securities by type of security as of March 31, 2022 was as follows:
 

 

 

March 31, 2022

 

(in thousands)

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

U.S. treasury securities

 

$

89,610

 

 

$

1

 

 

$

(123

)

 

$

89,488

 

Money market funds

 

 

11,175

 

 

 

 

 

 

 

 

 

11,175

 

 

 

$

100,785

 

 

$

1

 

 

$

(123

)

 

$

100,663

 

The fair values of marketable securities by classification in the condensed consolidated balance sheets was as follows:
 

(in thousands)

 

March 31, 2022

 

Cash and cash equivalents

 

$

20,679

 

Marketable securities

 

 

79,984

 

 

 

$

100,663

 

 

11


 

The fair values of available-for-sale debt securities as of March 31, 2022 , by contractual maturity, are summarized as follows:
 

 

 

March 31, 2022

 

Due in one year or less

 

$

100,663

 

Due after one year through two years

 

 

 

 

 

$

100,663

 

 

The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of March 31, 2022 was $70.0 million. We did not have any investments in a continuous unrealized loss position for more than twelve months as of March 31, 2022. As of March 31, 2022, we believe that the cost basis of our available-for-sale debt securities is recoverable. No allowance for credit losses was recorded as of March 31, 2022.

4. FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurement (“ASC 820”), establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). ASC 820 identifies fair value as the price that would be received to sell an asset or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. The Company’s principal financial instruments comprise cash, marketable securities. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tiered value hierarchy that distinguishes between the following:

Level 1—Quoted market prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 inputs that are either directly or indirectly observable, such as quoted market prices, interest rates and yield curves.

Level 3—Unobservable inputs for the asset or liability (i.e. supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considers counterparty credit risk in its assessment of fair value.

Financial assets subject to fair value measurements on a recurring basis and the level of inputs used in such measurements by major security type as of March 31, 2022 was as follows:
 

 

 

March 31, 2022

 

(in thousands)

 

Level 1

 

 

Level 2

 

 

Level 3

 

Financial assets:

 

 

 

 

 

 

 

 

 

Money market fund

 

$

11,175

 

 

$

 

 

$

 

U.S. treasury securities

 

 

89,488

 

 

 

 

 

 

 

Total financial assets

 

$

100,663

 

 

$

 

 

$

 

There were no securities transferred between Level 1, 2 and 3 during the three months ended March 31, 2022.

For the year ended December 31, 2021 the Company held money market funds that are classified as cash and cash equivalents on the Company's condensed consolidated balance sheets of $4.0 million. These money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.

5. LEASES

At the inception of an arrangement, we determine if an arrangement is, or contains, a lease based on the facts and circumstances present in that arrangement. Lease classification, recognition, and measurement are then determined at the lease commencement date. For arrangements that contain a lease we i) identify lease and non-lease components, ii) determine the consideration in the contract, iii) determine whether the lease is an operating or financing lease; and iv) recognize lease ROU assets and liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of fixed, or in substance fixed, lease payments over the expected lease term. When the interest rate

12


 

implicit in lease contracts is not readily determinable we use our incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment. The weighted average discount rate utilized on our operating lease liabilities as of March 31, 2022 was 4.00%.

We have operating leases for approximately 9,000 square feet of corporate office space. We have elected to combine lease components with non-lease components on our office real estate asset class. Fixed, or in substance fixed, lease payments on operating leases are recognized over the expected term of the lease on a straight-line basis. Variable lease expenses that are not considered fixed, or in substance fixed, are recognized as incurred. Fixed and variable lease expense on operating leases is recognized within operating expenses within our condensed consolidated statements of operations and comprehensive loss. Some leases include options to extend or terminate the lease and the Company includes these options in the recognition of the Company’s ROU assets and lease liabilities when it is reasonably certain that the Company will exercise such options. We have elected the short-term lease exemption and, therefore, do not recognize a ROU asset or corresponding liability for lease arrangements with an original term of 12 months or less. The weighted average remaining lease term is 3.3 years.

 

Operating leases are included in ROU operating assets, other current liabilities, and noncurrent operating lease liabilities in our condensed consolidated balance sheets as of March 31, 2022.

The following table summarizes the presentation of the Company's operating lease as presented on the condensed consolidated balance sheets:

(in thousands)

 

March 31,
2022

 

Assets:

 

 

 

   Operating lease right-of-use assets

 

$

657

 

Liabilities:

 

 

 

   Operating lease liabilities

 

$

148

 

   Operating lease liabilities, noncurrent

 

 

517

 

     Total operating lease liabilities

 

$

665

 

 

Future minimum lease payments from March 31, 2022 until the expiration of the operating lease are as follows:

(in thousands)

 

 

 

2022

 

$

128

 

2023

 

 

200

 

2024

 

 

230

 

2025

 

 

156

 

Total lease payments

 

 

714

 

Less: imputed discount rate

 

 

(49

)

Carrying value of operating lease liabilities

 

$

665

 


The Company incurred $
51 thousand and $26 thousand in operating lease rent expense for the three months ended March 31, 2022 and 2021, respectively. Lease payments made were $43 thousand and $19 thousand for the three months ended March 31, 2022 and 2021, respectively, with such amounts reflected in the condensed consolidated statements of cash flows in operating activities.

As the result of adopting ASU 2016-02 Leases using the modified retrospective transition method, we did not restate periods prior to the adoption date of January 1, 2022. These periods continue to be presented in accordance with ASC 840. As of December 31, 2021 the future undiscounted minimum lease payments on our operating leases was as follows:
 

 

13


 

YEAR ENDING DECEMBER 31,

 

 

 

(in thousands)

 

 

 

2022

 

$

170

 

2023

 

 

195

 

2024

 

 

230

 

2025

 

 

176

 

Thereafter

 

 

 

 

 

$

771

 

 

 

6. ACCRUED EXPENSES

Accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021:

 

(in thousands)

 

MARCH 31,
2022

 

 

DECEMBER 31,
2021

 

Research and development

 

$

2,435

 

 

$

1,937

 

Employee expenses

 

 

1,043

 

 

 

2,955

 

Professional fees

 

 

457

 

 

 

539

 

Other

 

 

660

 

 

 

517

 

 

 

$

4,595

 

 

$

5,948

 

 

7. STOCKHOLDERS' EQUITY

In August 2021, the Company completed its IPO, pursuant to which it issued and sold 7,130,000 shares of the Company’s common stock, inclusive of 930,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $13.00 per share. The gross proceeds from the IPO, including the exercise of the underwriter's option to purchase additional shares were $92.7 million and the net proceeds were approximately $83.0 million, after deducting underwriting discounts and commissions and other offering costs.

A reorganization and liquidation of Rallybio Holdings, LLC was completed prior to the Company's IPO, which resulted in a change in reporting entity to Rallybio Corporation. In accordance with the applicable accounting guidance related to changes in reporting entities, the financial statements for all periods presented have been retrospectively adjusted giving effect to the reorganization and liquidation as applicable to all periods presented.

Preferred Stock—The Company had 50,000,000 shares of preferred stock authorized as of March 31, 2022 and December 31, 2021, respectively, of which no shares were outstanding as of March 31, 2022 and December 31, 2021.

Common Stock—The Company had 200,000,000 shares of common stock authorized as of March 31, 2022 and December 31, 2021, respectively, of which 32,130,970 and 32,129,970 shares were issued and outstanding as of March 31, 2022 and December 31, 2021.

 

Share-based Compensation

 

2021 Equity Incentive Plan

In 2021 the board of directors adopted the Rallybio Corporation 2021 Equity Incentive Plan (the "2021 Plan"). The 2021 Plan reserves 5,440,344 for shares of the Company's common stock that have been issued in respect of outstanding equity awards granted prior to the registrant’s IPO and for future issuances of shares to employees, directors and consultants in the form of stock options, SARs, restricted and unrestricted stock and stock units, performance awards and other awards that are convertible into or otherwise based on the Company's common stock. Dividend equivalents may also be provided in connection with awards under the 2021 Plan. The share pool will automatically increase on January 1st of each year from 2022 to 2031 by the lesser of (i) five percent of the number of shares of the Company's common stock outstanding as of such date and (ii) the number of shares of the Company's common stock determined by the board of directors on or prior to such date. On January 1, 2022, the 2021 Plan share pool was automatically increased by 1,606,549 shares. As of March 31, 2022, the total number of shares of common stock that were issuable under the 2021 Plan was 4,659,970 shares, of which 2,131,231 shares remained available for future issuance.

 

14


 

2021 Employee Stock Purchase Plan

In connection with the Company's IPO, the board of directors adopted the Rallybio Corporation 2021 Employee Stock Purchase Plan, (the "2021 ESPP"), which reserves 291,324 shares of the Company's common stock for future issuances under this plan. During the three months ended March 31, 2022, there was no activity under the 2021 ESPP.

 

Share-based compensation for stock options, restricted stock awards and restricted stock units is classified in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2022 and 2021 was as follows:
 

 

 

FOR THE THREE MONTHS ENDED
MARCH 31,

 

(in thousands)

 

2022

 

 

2021

 

Research and development

 

$

725

 

 

$

161

 

General and administrative

 

 

1,329

 

 

 

361

 

 

 

$

2,054

 

 

$

522

 


The following table summarizes stock option activity for the three months ended March 31, 2022:
 

Stock Options

 

Number of Option Shares

 

 

Weighted-Average Exercise Price

 

 

Weighted-Average Contractual Term
   (in years)

 

 

Aggregate Intrinsic Value
   (in thousands)

 

Outstanding at December 31, 2021

 

 

1,357,784

 

 

$

12.72

 

 

9.7

 

 

$

 

Granted

 

 

1,091,655

 

 

$

14.80

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

 

 

 

 

 

Forfeited

 

 

 

 

$

 

 

 

 

 

 

 

Outstanding at March 31, 2022

 

 

2,449,439

 

 

$

13.65

 

 

 

9.6

 

 

$

 

Options exercisable at March 31, 2022

 

 

78,053

 

 

$

13.14

 

 

 

9.6

 

 

$

 


The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company's common stock. Options outstanding and exercisable with an exercise price above the closing price as of March 31, 2022 are considered to have no intrinsic value. Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted during the three months ended March 31, 2022
was $10.96 per share. There were no stock options granted during the three months ended March 31, 2021. Options vested during the three months ended March 31, 2022 with an exercise price above the closing price as of March 31, 2022 are considered to have no intrinsic value. As of March 31, 2022, there was unrecognized share-based compensation expense related to unvested stock options of $21.7 million, which the Company expects to recognize over a weighted-average period of approximately 3.5 years.
 

The fair value of the stock options granted during the three months ended March 31, 2022 was determined using the Black-Scholes option pricing model with the following assumptions:
 

 

 

FOR THE THREE MONTHS ENDED
MARCH 31,

 

 

 

2022

 

Expected volatility

 

89.3% - 89.6%

 

Expected term (years)

 

5.50 - 6.08

 

Risk free interest rate

 

1.42% - 1.79%

 

Expected dividend yield

 

 

 

Exercise price

 

$9.91 - $15.04

 


A summary of the status of the Company's nonvested restricted common stock awards at March 31, 2022 and changes during the three months ended March 31, 2022 was as follows:

Restricted Stock Awards

 

Shares

 

 

Weighted Average Grant Date Fair Value Per Share

 

Nonvested restricted stock awards at December 31, 2021

 

 

2,272,707

 

 

$

3.22

 

Shares granted

 

 

 

 

$

 

Shares vested

 

 

(525,222

)

 

$

2.68

 

Outstanding nonvested restricted stock awards at March 31, 2022

 

 

1,747,485

 

 

$

3.38

 

 

15


 


As of March 31, 2022
, there was unrecognized share-based compensation expense related to unvested restricted stock awards of $5.5 million, which the Company expects to recognize over a weighted-average period of approximately 2.8 years.

 

A summary of the status of the Company's nonvested restricted common stock units at March 31, 2022 and changes during the three months ended March 31, 2022 was as follows:

 

Restricted Stock Units

 

Shares

 

 

Weighted Average Grant Date Fair Value Per Share

 

Nonvested restricted stock units at December 31, 2021

 

 

2,000

 

 

$

10.76

 

Shares granted

 

 

78,300

 

 

$

15.04

 

Shares vested

 

 

(1,000

)

 

$

10.76

 

Outstanding nonvested restricted stock units at March 31, 2022

 

 

79,300

 

 

$

14.99

 


As of March 31, 2022
, there was unrecognized share-based compensation expense related to unvested restricted stock units of $1.1 million, which the Company expects to recognize over a weighted-average period of approximately 2.8