Rallybio Corp

1. BUSINESS AND LIQUIDITY

Rallybio Corporation and subsidiaries ("Rallybio", the "Company", "we", "our", or "us") is a clinical-stage biotechnology company comprised of experienced biopharma industry leaders with extensive research, development, and rare disease expertise with a mission to develop and commercialize life-transforming therapies for patients with severe and rare diseases. Since our launch in January 2018, we have built a broad pipeline of promising product candidates aimed at addressing diseases with unmet medical need in the areas of maternal fetal health, complement dysregulation, hematology, and metabolic disorders. Our two most advanced programs are in clinical development: RLYB212, an anti-HPA-1a antibody for the prevention of fetal and neonatal alloimmune thrombocytopenia (“FNAIT”) and RLYB116, an inhibitor of complement component 5 (“C5”), with the potential to treat several diseases of complement dysregulation. Both programs have completed Phase 1 clinical studies, and we currently plan to initiate a Phase 2 clinical trial of RLYB212 in the second half of 2024.

The Company had cash, cash equivalents and marketable securities of $94.2 million as of March 31, 2024. 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 these condensed consolidated financial statements are issued. However, we do not anticipate that the current cash, cash equivalents and marketable securities as of March 31, 2024 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, corporate collaborations or license agreements, working capital lines of credit, 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"). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) promulgated by the Financial Accounting Standards Board (“FASB”).

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, 2023 (our "Annual Report"). Our significant accounting policies are described in Note 2 of the Notes to the consolidated financial statements included in our Annual Report. There have been no new accounting policies, including the adoption of new accounting standards during the three months ended March 31, 2024, unless otherwise noted below, which could be expected to materially impact the Company's unaudited condensed consolidated financial statements.

Significant Accounting Policies —

Restructuring

The Company accounts for restructuring charges in accordance with ASC Subtopic 420-10, Exit or Disposal Cost Obligations. The charges related to the workforce reduction are cash-based expenditures related primarily to severance and benefit payments, with such amounts reflected in the Company's condensed consolidated statements of operations and other comprehensive loss. For further details on the Company’s restructuring activities, please refer to Note 9.

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, 2024 and December 31, 2023 was as follows:

The fair values of marketable securities by classification in the condensed consolidated balance sheets was as follows as of March 31, 2024 and December 31, 2023:

The fair values of available-for-sale debt securities as of March 31, 2024 and December 31, 2023, by contractual maturity, are summarized as follows:

The aggregate fair value of available-for-sale debt securities in an unrealized loss position as of March 31, 2024 and December 31, 2023 was $58.4 million and $40.0 million, respectively. As of March 31, 2024, we did not have any investments in a continuous unrealized loss position for more than twelve months. As of March 31, 2024, 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, 2024 and December 31, 2023.

4. BALANCE SHEET COMPONENTS

Prepaid expenses and other current assets—

Prepaid expenses and other current assets consisted of the following as of March 31, 2024 and December 31, 2023:

Accrued Expenses—

Accrued expenses consisted of the following as of March 31, 2024 and December 31, 2023:

5. STOCKHOLDERS' EQUITY

Common Stock

The Company had 200,000,000 shares of common stock authorized as of March 31, 2024 and December 31, 2023, of which 37,811,970 and 37,829,565 shares were issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

Preferred Stock

The Company had 50,000,000 shares of preferred stock authorized as of March 31, 2024 and December 31, 2023, of whichno shares were outstanding as of March 31, 2024 and December 31, 2023.

Pre-Funded Warrants

In connection with the November 2022 follow-on offering, the Company entered into an agreement with certain investors for pre-funded warrants in lieu of common stock to purchase up to an aggregate of 3,333,388 shares of common stock at a price of $5.9999, which represents the per share public offering price at the November 2022 follow-on offering for common stock less a $0.0001 per share exercise price for each pre-funded warrant.

The Company may not effect the exercise of any pre-funded warrant, and a holder will not be entitled to exercise any portion of any pre-funded warrant if, upon giving effect to such exercise, the aggregate number of shares of common stock beneficially owned by the holder (together with its affiliates) would exceed 9.99% of the number of shares of common stock outstanding immediately after giving effect to the exercise, which percentage may be increased or decreased at the holder’s election upon 61 days’ notice to the Company subject to the terms of such pre-funded warrants, provided that such percentage may in no event exceed 19.99%.

The Company's pre-funded warrant is a freestanding instrument that does not meet the definition of a liability pursuant to ASC 480, Distinguishing Liabilities from Equity, and does not meet the definition of a derivative pursuant to ASC 815, Derivatives and Hedging. The pre-funded warrant is indexed to the Company’s common stock and meets all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, the pre-funded warrant was classified as equity and accounted for as a component of additional paid-in capital at the time of issuance. All of the pre-funded warrants related to our November 2022 follow-on offering remain outstanding and unexercised as of March 31, 2024.

Share-based Compensation

Share-based compensation expense is comprised of the Company's stock options, restricted stock awards, restricted stock units and shares issued pursuant to the employee stock purchase plan, and is classified in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023 as follows:

2021 Equity Incentive Plan

In 2021, the board of directors adopted the Rallybio Corporation 2021 Equity Incentive Plan (the "2021 Plan"). The 2021 Plan initially reserved 5,440,344 shares of the Company's common stock that have been issued in respect of outstanding equity awards granted prior to the Company’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 until 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, 2024 and January 1, 2023, the 2021 Plan share pool was automatically increased by 1,891,478 and 1,891,868 shares, respectively. As of March 31, 2024, the total number of shares of common stock that were issuable under the 2021 Plan was 8,684,099 shares, of which 3,467,863 shares remained available for future issuance.

The following table summarizes stock option activity for the three months ended March 31, 2024:

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, 2024 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, 2024 and 2023 was $1.47 per share and $4.99 per share, respectively. As of March 31, 2024, there was unrecognized share-based compensation expense related to unvested stock options of $13.4 million which the Company expects to recognize over a weighted-average period of approximately 2.5 years.

The fair value of the stock options granted during the three months ended March 31, 2024 and 2023 was determined using the Black-Scholes option pricing model with the following assumptions:

A summary of the status of the Company's unvested restricted common stock awards at March 31, 2024 and changes during the three months ended March 31, 2024 was as follows:

As of March 31, 2024, there was unrecognized share-based compensation expense related to unvested restricted stock awards of $0.8 million, which the Company expects to recognize over a weighted-average period of approximately 1.0 year.

A summary of the status of the Company's unvested restricted common stock units at March 31, 2024 and changes during the three months ended March 31, 2024 was as follows:

As of March 31, 2024, there was unrecognized share-based compensation expense related to unvested restricted stock units of $1.0 million, which the Company expects to recognize over a weighted-average period of approximately 3.1 years.

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 initially reserved 291,324 shares of the Company's common stock for future issuances. The share pool will automatically increase on January 1st of each year until 2031, by the lesser of (i)one percent of the number of shares of the Company's common stock outstanding as of such date, (ii)582,648 shares of the Company’s common stock and (iii) the number of shares of the Company's common stock determined by the board of directors on or prior to such date. The 2021 ESPP share pool didnot increase on January 1, 2024. On January 1, 2023, the 2021 ESPP share pool was automatically increased by

378,373 shares. As of March 31, 2024, the total number of shares of the Company's common stock that were available for future issuance under the 2021 ESPP was 872,878 shares. During the three months ended March 31, 2024 and 2023, the Company didnot issue any shares under the 2021 ESPP.

The 2021 ESPP allows eligible participants to purchase shares of our common stock through authorized payroll deductions. Pursuant to the 2021 ESPP, the purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the date on which the relevant option was (i) granted and (ii) deemed exercised.

For the three months ended March 31, 2024 and 2023, the total share-based compensation for the 2021 ESPP was $42 thousand and $60 thousand, respectively.

6. INVESTMENT IN JOINT VENTURE

The Company, through one of its wholly-owned subsidiaries, has a 50% interest of the joint venture entity, RE Ventures I, LLC, a limited liability company (“REV-I”). For the three months ended March 31, 2024 and 2023, the Company funded $0.8 million associated with the Company's commitment and its share of REV-I development. The Company didnot provide any additional financial support outside of capital contributions to REV-I during the three months ended March 31, 2024 and 2023. While the Company held a 50% interest in the joint venture as of March 31, 2024, based on management’s analysis, the Company is not the primary beneficiary of REV-I and accordingly, the entity is not consolidated in the Company's condensed consolidated financial statements.

For the three months ended March 31, 2024 and 2023, the Company recorded its allocable share of REV-I’s losses, which totaled $0.7 million and $0.6 million, respectively, as a loss on investment in joint venture within the condensed consolidated statements of operations and comprehensive loss. After recognition of its share of losses for the period, the carrying value and maximum exposure to risk of the REV-I investment as of March 31, 2024 and December 31, 2023 was $0.3 million and $0.2 million, respectively, which was recorded in investment in joint venture in the accompanying condensed consolidated balance sheets.

7. COMMITMENTS AND CONTINGENCIES

Purchase Commitments—The Company enters contracts in the normal course of business with contract research organizations and other third-party vendors for clinical trials and testing and manufacturing services. These contracts generally do not contain minimum purchase commitments and are cancellable by us upon written notice. Payments that may be due upon cancellation consist of payments for services provided or expenses incurred prior to cancellation. As of March 31, 2024 and December 31, 2023 there wereno amounts accrued related to termination charges.

8. NET LOSS PER COMMON SHARE

Basic and diluted net loss per common share for the three months ended March 31, 2024 and 2023 was calculated as follows:

Basic net loss per share of common stock is based on the weighted-average number of shares of common stock outstanding during the period. Pre-funded warrants to purchase 3,333,388 shares of common stock that were issued in connection with the November 2022 follow-on offering were included in the weighted-average number of common shares outstanding for the three months ended March 31, 2024 and 2023. The weighted average number of common shares outstanding diluted for the three months ended March 31, 2024 and 2023 excludes approximately 5.5 million and 5.1 million stock options and unvested restricted stock awards and units, respectively, which were not dilutive.

9. RESTRUCTURING

On February 6, 2024, the Company announced a prioritization of its portfolio and a workforce reduction to focus resources primarily on the continued development of RLYB212.

As part of this effort, the Company eliminated approximately 45% of its positions. As a result of these actions, the Company incurred charges of approximately $3.3 million. The charges related to the workforce reduction are cash-based expenditures related primarily to severance and benefit payments. The Company recognized all such charges during the three months ended March 31, 2024. During the three months ended March 31, 2024, $2.0 million was recorded in research and development expenses and $1.3 million was recorded in general and administrative expenses, with such amounts reflected in the condensed consolidated statements of operations and comprehensive loss. The accrued restructuring liability is included in accrued expenses on the condensed consolidated balance sheets as of March 31, 2024. Substantially all restructuring payments are expected to be completed by December 31, 2024.

The following table summarizes the restructuring accrual activity for the three months ended March 31, 2024:

10. SUBSEQUENT EVENTS

On April 9, 2024, the Company entered into a collaboration agreement (the “Collaboration Agreement”) with Johnson & Johnson, through its wholly-owned subsidiary, Momenta Pharmaceuticals, Inc. (“J&J”), pursuant to which the Company and J&J will support the development of complementary therapeutic approaches aimed at reducing the risk of FNAIT. Under the Collaboration Agreement, the Company will share certain aggregated, anonymized data with J&J, collected from the Company's FNAIT natural history study and its planned RLYB212 Phase 2 clinical trial that will be restricted to collection of certain natural history data in support of the natural history study. The Company also agreed to disseminate information to its FNAIT study sites related to J&J’s and its affiliates’ research and development of complementary therapeutic approaches aimed at reducing the risk of FNAIT. As part of the Collaboration Agreement, J&J provided the Company with an upfront payment $0.5 million and the Company is eligible to receive additional payments of up to an aggregate of $3.7 million, based upon certain triggers related to the FNAIT studies and its activities under the Collaboration Agreement.

On April 10, 2024, the Company entered into a Securities Purchase Agreement with Johnson & Johnson Innovation – JJDC, Inc. ("JJDC"), pursuant to which the Company sold to JJDC, in an unregistered offering,3,636,363 shares of its common stock, at a price of $1.82 per share, which represents a 10% premium on the Company’s closing stock price on April 9, 2024, for aggregate gross proceeds of approximately $6.6 million, before deducting estimated offering expenses. The Company agreed, among other things, to file with the SEC a registration statement covering the resale of the shares within 120 days following the closing of the offering.