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 June 30, 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/64c5faf2b7cb31ad8af32e68b5a1371b-img114778283_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 August 1, 2022, the registrant had 32,131,970 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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

Item 4.

Controls and Procedures

28

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

75

Item 6.

Exhibits

76

Signatures

 

77

 

 

 

 

 

 

 

 

 

 

 

 

 

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, RLYB116 and RLYB331, 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, RLYB114, and RLYB331;
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, RLYB331 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. 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, RLYB116 and any of our other product candidates, 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)

 

JUNE 30,
2022

 

 

DECEMBER 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

60,753

 

 

$

175,334

 

Marketable securities

 

 

86,615

 

 

 

 

Prepaid expenses and other assets

 

 

6,931

 

 

 

5,535

 

Total current assets

 

 

154,299

 

 

 

180,869

 

Property and equipment, net

 

 

468

 

 

 

511

 

Operating lease right-of-use assets

 

 

613

 

 

 

 

Investment in joint venture

 

 

227

 

 

 

805

 

Total assets

 

$

155,607

 

 

$

182,185

 

Liabilities and stockholders' equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

633

 

 

$

603

 

Accrued expenses

 

 

6,495

 

 

 

5,948

 

Operating lease liabilities

 

 

150

 

 

 

 

Total current liabilities

 

 

7,278

 

 

 

6,551

 

Accrued expenses, noncurrent

 

 

 

 

 

32

 

Operating lease liabilities, noncurrent

 

 

478

 

 

 

 

Total liabilities

 

 

7,756

 

 

 

6,583

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.0001 par value per share; 200,000,000 shares
   authorized as of June 30, 2022 and December 31, 2021,
   respectively; and
32,130,970 and 32,129,970 shares issued
   and outstanding as of June 30, 2022 and December 31,
   2021, respectively

 

 

3

 

 

 

3

 

Preferred stock, $0.0001 par value per share; 50,000,000 shares
   authorized as of June 30, 2022 and December 31, 2021,
   respectively;
no shares issued or outstanding as of June 30, 2022
   and December 31, 2021, respectively

 

 

 

 

 

 

Additional paid-in capital

 

 

274,327

 

 

 

269,626

 

Accumulated other comprehensive loss

 

 

(371

)

 

 

 

Accumulated deficit

 

 

(126,108

)

 

 

(94,027

)

Total stockholders' equity

 

 

147,851

 

 

 

175,602

 

Total liabilities and stockholders' equity

 

$

155,607

 

 

$

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
JUNE 30,

 

 

FOR THE SIX MONTHS ENDED
JUNE 30,

 

(in thousands, except share and per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

10,138

 

 

$

6,818

 

 

$

17,786

 

 

$

15,855

 

General and administrative

 

 

7,477

 

 

 

3,712

 

 

 

14,147

 

 

 

7,499

 

Total operating expenses

 

 

17,615

 

 

 

10,530

 

 

 

31,933

 

 

 

23,354

 

Loss from operations

 

 

(17,615

)

 

 

(10,530

)

 

 

(31,933

)

 

 

(23,354

)

Other income (expenses):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

270

 

 

 

13

 

 

 

367

 

 

 

30

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

(10

)

Other income (expense)

 

 

100

 

 

 

(142

)

 

 

213

 

 

 

(118

)

Total other income (expense), net

 

 

370

 

 

 

(129

)

 

 

580

 

 

 

(98

)

Loss from continuing operations

 

 

(17,245

)

 

 

(10,659

)

 

 

(31,353

)

 

 

(23,452

)

Loss on investment in joint venture

 

 

338

 

 

 

468

 

 

 

728

 

 

 

950

 

Net loss

 

$

(17,583

)

 

$

(11,127

)

 

$

(32,081

)

 

$

(24,402

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.57

)

 

$

(0.49

)

 

$

(1.05

)

 

$

(1.09

)

Weighted average common shares outstanding, basic and diluted

 

 

30,588,931

 

 

 

22,559,706

 

 

 

30,453,913

 

 

 

22,309,203

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized loss on marketable securities

 

 

249

 

 

 

 

 

 

371

 

 

 

 

Other comprehensive loss

 

 

(249

)

 

 

 

 

 

(371

)

 

 

 

Comprehensive loss

 

$

(17,832

)

 

$

(11,127

)

 

$

(32,452

)

 

$

(24,402

)

 

See accompanying notes of the condensed consolidated financial statements

7


 

 

RALLYBIO CORPORATION

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

 

For the Three Months Ended June 30, 2022 and 2021

 

COMMON

 

 

ADDITIONAL
PAID-IN

 

 

ACCUMULATED

 

 

ACCUMULATED OTHER COMPREHENSIVE

 

 

STOCKHOLDERS'

 

(in thousands, except share amounts)

 

SHARES

 

 

AMOUNT

 

 

CAPITAL

 

 

DEFICIT

 

 

LOSS

 

 

EQUITY

 

March 31, 2021

 

 

24,990,263

 

 

$

2

 

 

$

183,537

 

 

$

(60,289

)

 

$

 

 

$

123,250

 

Issuance of restricted common stock

 

 

9,707

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

539

 

 

 

 

 

 

 

 

 

539

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(11,127

)

 

 

 

 

 

(11,127

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

24,999,970

 

 

$

2

 

 

$

184,076

 

 

$

(71,416

)

 

$

 

 

$

112,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2022

 

 

32,130,970

 

 

$

3

 

 

$

271,680

 

 

$

(108,525

)

 

$

(122

)

 

$

163,036

 

Share-based compensation expense

 

 

 

 

 

 

 

 

2,647

 

 

 

 

 

 

 

 

 

2,647

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,583

)

 

 

 

 

 

(17,583

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(249

)

 

 

(249

)

Balance, June 30, 2022

 

 

32,130,970

 

 

$

3

 

 

$

274,327

 

 

$

(126,108

)

 

$

(371

)

 

$

147,851

 

 

For the Six Months Ended June 30, 2022 and 2021

 

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

 

 

1,589,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,061

 

 

 

 

 

 

 

 

 

1,061

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(24,402

)

 

 

 

 

 

(24,402

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2021

 

 

24,999,970

 

 

$

2

 

 

$

184,076

 

 

$

(71,416

)

 

$

 

 

$

112,662

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

32,129,970

 

 

$

3

 

 

$

269,626

 

 

$

(94,027

)

 

$

 

 

$

175,602

 

Share-based compensation expense

 

 

 

 

 

 

 

 

4,701

 

 

 

 

 

 

 

 

 

4,701

 

Issuance of common stock under the stock award plan

 

 

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(32,081

)

 

 

 

 

 

(32,081

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(371

)

 

 

(371

)

Balance, June 30, 2022

 

 

32,130,970

 

 

$

3

 

 

$

274,327

 

 

$

(126,108

)

 

$

(371

)

 

$

147,851

 

 

See accompanying notes of the condensed consolidated financial statements

8


 

 

RALLYBIO CORPORATION

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

SIX MONTHS ENDED
JUNE 30,

 

(in thousands)

 

2022

 

 

2021

 

Cash Flows used in Operating Activities:

 

 

 

 

 

 

Net loss

 

$

(32,081

)

 

$

(24,402

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

86

 

 

 

48

 

Net accretion of discounts/premiums on debt securities

 

 

109

 

 

 

 

Stock-based compensation

 

 

4,701

 

 

 

1,061

 

Loss on investment in joint venture

 

 

728

 

 

 

950

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

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

 

 

(1,308

)

 

 

(2,249

)

Accounts payable

 

 

23

 

 

 

787

 

Accrued expenses and operating lease liability

 

 

457

 

 

 

(970

)

Net cash used in operating activities

 

$

(27,285

)

 

$

(24,775

)

Cash Flows used in Investing Activities:

 

 

 

 

 

 

Purchases of marketable securities

 

 

(109,096

)

 

 

 

Proceeds from maturities of marketable securities

 

 

22,000

 

 

 

 

Purchase of property and equipment

 

 

(50

)

 

 

(66

)

Investment in joint venture

 

 

(150

)

 

 

(2,000

)

Net cash used in investing activities

 

$

(87,296

)

 

$

(2,066

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

Payments of offering costs

 

 

 

 

 

(663

)

Net cash used by financing activities

 

$

 

 

$

(663

)

Net decrease in cash and cash equivalents

 

 

(114,581

)

 

 

(27,504

)

Cash and cash equivalents—beginning of period

 

 

175,334

 

 

 

140,233

 

Cash and cash equivalents—end of period

 

$

60,753

 

 

$

112,729

 

 

 

 

 

 

 

 

Supplemental Disclosures of Noncash Investing and Financing Activities:

 

 

 

 

 

 

Offering costs in accounts payable and accrued expenses

 

$

 

 

$

1,762

 

Property and equipment in accounts payable and accrued expenses

 

$

6

 

 

$

15

 

 

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 $147.4 million at June 30, 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 June 30, 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 condensed consolidated 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 6.

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 of 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 4 for discussion of unrealized losses on our available for sale marketable securities.

 

3. ASSET ACQUISITIONS

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this screen criteria is met, the transaction is accounted for as an asset acquisition. If not, further determination is required as to whether or not the Company has acquired inputs and processes that have the ability to create outputs, which would meet the definition of a business. The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. In an asset acquisition, the cost allocated to acquire in-process research and development (IPR&D) with no alternative future use is charged to research and development expense at the acquisition date.

11


 

In May 2022, we obtained worldwide exclusive rights to Sanofi’s KY1066, now referred to as RLYB331, a preclinical potentially first-in-class antibody that has the potential to address a significant unmet need for patients with severe anemias with ineffective erythropoiesis and iron overload, including beta thalassemia and a subset of myelodysplastic syndromes. Under the terms of the license agreement, we made an upfront payment to Sanofi of $3.0 million in the second quarter of 2022 for the exclusive license to KY1066. We could also be required to pay up to an aggregate of $43.0 million in development and regulatory milestone payments and up to an aggregate of $150.0 million in commercial milestone payments for a product in its first indication, plus tiered low-to-mid double digit percentages of such milestone amounts for up to three additional indications, and mid to high single digit royalties on net sales. The license was accounted for as an asset acquisition as substantially all of the fair value of the asset acquired was concentrated in a single asset and thus the acquisition was deemed not to be a business combination. The acquired license rights represent an IPR&D asset that was determined to have no alternative future use. Accordingly, the Company recorded an IPR&D charge of $3.1 million to research and development expense, including transaction costs associated with this asset acquisition of $0.1 million, in the accompanying condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2022.

4. 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 June 30, 2022 was as follows:
 

 

 

JUNE 30, 2022

 

(in thousands)

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

U.S. treasury securities

 

$

86,986

 

 

$

 

 

$

(371

)

 

$

86,615

 

Money market funds

 

 

13,773

 

 

 

 

 

 

 

 

 

13,773

 

 

 

$

100,759

 

 

$

 

 

$

(371

)

 

$

100,388

 

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

 

 

 

 

(in thousands)

 

JUNE 30, 2022

 

Cash and cash equivalents

 

$

13,773

 

Marketable securities

 

 

86,615

 

 

 

$

100,388

 

The fair values of available-for-sale debt securities as of June 30, 2022 , by contractual maturity, are summarized as follows:
 

(in thousands)

 

JUNE 30, 2022

 

Due in one year or less

 

$

100,388

 

Due after one year through two years

 

 

 

 

 

$

100,388

 

 

The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of June 30, 2022 was $86.6 million. We did not have any investments in a continuous unrealized loss position for more than twelve months as of June 30, 2022. As of June 30, 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 June 30, 2022.

5. 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 of cash, cash equivalents and 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.

12


 

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 June 30, 2022 was as follows:
 

 

 

JUNE 30, 2022

 

(in thousands)

 

Level 1

 

 

Level 2