RLYB US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors" in Part I, Item 1A of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See “Cautionary Note Regarding Forward-Looking Statements.”

Overview

We are 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 that meaningfully improve the lives of patients suffering from severe and rare diseases. Our mission at Rallybio is aligned with our expertise, and we believe we have assembled the best people, partners and science to forge new paths to life-changing therapies. Since our launch in January 2018, we have acquired a portfolio of promising product candidates that consists of five programs, and we are focused on further expanding our portfolio with the goal of making a profound impact on the lives of even more patients. We are drawing on our decades of knowledge and experience with a determination to tackle the undone, the too difficult, the inaccessible – and change the odds for rare disease patients.

Our most advanced program is for the prevention of FNAIT, a potentially life-threatening rare hematological disease that impacts fetuses and newborns. We are evaluating RLYB211, a polyclonal anti-HPA-1a antibody, in a Phase 1/2 clinical trial, which we believe has established proof of concept for RLYB211 and provides support for our proposed mechanism of action. Our FNAIT program will move forward with our lead product candidate, RLYB212, a monoclonal anti-HPA-1a antibody. We submitted a CTA for RLYB212 in July 2021 and initiated a Phase 1 first-in-human trial in Germany in the fourth quarter of 2021. We are also focused on developing therapies that address diseases of complement dysregulation, including PNH, gMG, and ophthalmic disorders. RLYB116 is a novel, potentially long-acting, subcutaneously administered inhibitor of C5 in development for the treatment of patients with PNH and gMG. We received approval in the fourth quarter of 2021 for a HREC submission to support the Phase 1 trial of RLYB116 in healthy participants and in the first quarter of 2022, we initiated the Phase 1 trial in Australia. RLYB114 is a pegylated C5 inhibitor in preclinical development for the treatment of complement-mediated ophthalmic diseases, and we expect to submit an IND for this product candidate in the first half of 2023. Additionally, in collaboration with Exscientia, we have two discovery-stage programs focused on the identification of small molecule therapeutics for patients with rare metabolic diseases.

Since inception, we have devoted substantially all of our resources to raising capital, organizing and staffing our company, business planning, conducting discovery and research activities, acquiring or discovering product candidates, establishing and protecting our intellectual property portfolio, developing and progressing our product candidates, preparing for clinical trials and establishing arrangements with third parties for the manufacture of our product candidates and component materials, including activities relating to our preclinical development and manufacturing activities for each of our five programs. We do not have any product candidates approved for sale and have not generated any revenue from product sales.

Since our inception, we have funded our operations primarily through equity financings. From our inception and prior to our IPO, we received proceeds of approximately $182.5 million from equity financing. In August 2021, we closed our IPO and issued and sold 7,130,000 shares of 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. We received net proceeds of approximately $83.0 million, after deducting underwriting discounts and commissions and other offering costs paid by us.

As of December 31, 2021, we had cash and cash equivalents of $175.3 million. We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital requirements for at least the next 18 months from the date of this report. This estimate and our expectation to advance the preclinical and clinical development of RLYB212, RLYB116, and any other product candidates are based on assumptions that

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may prove to be wrong, and we could exhaust our available capital resources sooner than we expect, or our clinical trials may be more expensive, time consuming or difficult to design or implement than we currently anticipate. See “—Liquidity and Capital Resources.”

To date, we have devoted most of our financial resources to research and development, including our preclinical development and manufacturing activities for each of our five programs. We have not commercialized any products and have never generated revenue from the commercialization of any product.

We have incurred significant operating losses since inception, including net losses of $47.0 million and $26.4 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $94.0 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to incur significant additional operating losses in the foreseeable future as we advance our programs through preclinical and clinical development, expand our research and development activities, acquire and develop new product candidates, complete preclinical studies and clinical trials, finance our business development strategy, seek regulatory approval for the commercialization of our product candidates and commercialize our products, if approved. Our expenses will increase substantially if and as we:

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advance our Phase 1 clinical trial for RLYB212, our lead product candidate for our FNAIT prevention program;

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advance our clinical trial for RLYB116, and file an IND or a CTA for other product candidates;

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advance our natural history alloimmunization study of FNAIT and other studies to support our development program and related regulatory submissions for RLYB212;

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continue to develop and conduct clinical trials with respect to RLYB211;

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seek regulatory approvals for RLYB212, RLYB116 and any other product candidates, as well as for any related companion diagnostic, if required;

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continue and expand upon our discovery and development joint ventures with Exscientia;

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continue to discover and develop additional product candidates;

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hire additional clinical, scientific, and commercial personnel;

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add operational, financial, and management personnel, including personnel to support our product development and planned future commercialization efforts and to support our operations as a public company;

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acquire or in-license other product candidates or technologies;

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maintain, expand, and protect our intellectual property portfolio;

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secure a commercial manufacturing source and supply chain capacity sufficient to produce commercial quantities of any product candidate for which we obtain regulatory approval; and

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establish a sales, marketing and distribution infrastructure to commercialize our programs, if approved, and for any other product candidates for which we may obtain marketing approval.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.

In July 2021, data generated from the first cohort of healthy participants in our Phase 1/2 clinical trial for RLYB211 was presented at the ISTH Congress demonstrated the ability of an anti-HPA-1a antibody to rapidly eliminate transfused HPA-1a positive platelets from the circulation of healthy HPA-1a negative participants. In the fourth quarter of 2021, we announced additional new data from our ongoing Phase 1/2 trial of RLYB211 that demonstrated RLYB211 was able to accelerate the elimination of HPA-1a-positive platelets through 7 days following administration compared with placebo, simulating a real-world treatment approach to preventing FNAIT. Based on these results, we believe that targeting HPA-1a with an anti-HPA-1a antibody has the potential to prevent maternal alloimmunization and thereby the occurrence of FNAIT.

In the third quarter of 2021, Rallybio initiated a FNAIT natural history alloimmunization study. This prospective, non-interventional, multinational study is designed to determine the frequency of women at higher FNAIT risk among expectant mothers of different racial and ethnic characteristics, as well as the frequency of HPA-1a alloimmunization and pregnancy outcomes among these women. We expect that data from this study will be used to support future registration of RLYB212, by providing historical controlled data to support a single-arm Phase

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2/3 registration trial design. Additionally, the FNAIT natural history study will operationalize de novo the laboratory test paradigm for FNAIT risk and generate FNAIT laboratory test performance data for future regulatory discussions.

In the fourth quarter of 2021, we announced additional data that demonstrated RLYB211 was able to accelerate the elimination of HPA-1a-positive platelets through 7 days following administration compared with placebo, simulating a real-world treatment approach to preventing FNAIT. Based on these results, we believe that targeting HPA-1a with an anti-HPA-1a antibody has the potential to prevent maternal alloimmunization and therefore the occurrence of FNAIT. For RLYB212, our lead product candidate we initiated a Phase 1 first-in-human trial in Germany in the fourth quarter of 2021, and anticipate reporting data from a Phase 1b proof of concept trial in the third quarter of 2022.

In the fourth quarter of 2021 we received approval for a HREC submission to support the Phase 1 trial of RLYB116 in healthy participants and in the first quarter of 2022, we initiated the Phase 1 trial in Australia.

Reorganization

Prior to the IPO and the Reorganization, the Company was a 100% owned subsidiary of Rallybio Holdings, LLC ("Rallybio Holdings"), a Delaware limited liability company which was incorporated in Delaware on March 22, 2018 and Rallybio Holdings held 100% of the outstanding membership units in five wholly-owned subsidiaries; Rallybio, LLC, Rallybio IPA, LLC, Rallybio IPB, LLC, Rallybio IPD, LLC, and IPC Research, LLC. On June 30, 2021, Rallybio Holdings completed a series of transactions pursuant to which (i) Rallybio IPD, LLC, a direct subsidiary of Rallybio Holdings that was formed in Delaware in May 2020, was converted from a Delaware limited liability company to a Delaware corporation and changed its name to Rallybio Corporation, and (ii) four direct subsidiaries of Rallybio Corporation, each a Delaware limited liability company (collectively the "Merger Subs"), each consummated a separate merger with one of Rallybio Holdings direct subsidiaries, other than Rallybio IPD, LLC (collectively the "Asset Subsidiaries"), with the Asset Subsidiaries surviving the mergers and Rallybio Holdings receiving common stock of the Company in exchange for its interest in each Asset Subsidiary, which resulted in the Asset Subsidiaries becoming subsidiaries of the Company and the Company becoming the only direct subsidiary of Rallybio Holdings. On July 28, 2021, immediately prior to the completion of the IPO, Rallybio Holdings liquidated and distributed 100% of the capital stock of the Company, consisting solely of common stock, to the unitholders of Rallybio Holdings. The liquidation of Rallybio Holdings and distribution of the capital stock of Rallybio Corporation to the unitholders of Rallybio Holdings is referred to as the “Liquidation” and these other transactions are collectively referred to as the “Reorganization.” As a result of the Reorganization and subsequent Liquidation, the unitholders of Rallybio Holdings became the holders of common stock of Rallybio Corporation, and the Company's consolidated financial statements are subsequently reported from Rallybio Corporation.

Impact of COVID-19

The COVID-19 pandemic has impacted and may continue to impact our preclinical studies and clinical trials, including at our clinical sites and the startup activities for our clinical trials, as well as our manufacturing and supply chain, and the pandemic may affect our ability to timely complete our clinical trials and delay the initiation and/or enrollment of any future clinical trials, disrupt regulatory activities or have other adverse effects on our business and operations.

We are monitoring the potential impact of the COVID-19 pandemic on our business and financial statements. To date, we have not incurred impairment losses in the carrying values of our assets as a result of the COVID-19 pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our financial statements. We plan to continue many of the protective measures we implemented in response to the pandemic and are assessing when and how to resume normal operations for office-based personnel. The effects of the public health directives and our work-from-home policies may disrupt our business and delay clinical programs and timelines and future clinical trials, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, results of operations and financial condition, including our ability to obtain financing.

We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business and prospects. The extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations, financial condition and liquidity, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may

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emerge concerning COVID-19, the actions taken to contain or treat it, including the availability, administration rates and duration of efficacy of vaccines and their effectiveness against the current or new variants of the virus, and the duration and intensity of the related effects.

Components of Results of Operations

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with our research and development activities, including our drug discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:

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external research and development expenses incurred under agreements with third parties, such as CROs as well as investigative sites and consultants that conduct our clinical trials and other scientific development services;

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costs related to manufacturing material for our clinical trials, including fees paid to CMOs;

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manufacturing scale-up expenses and the cost of acquiring and manufacturing clinical trial materials;

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employee-related expenses, including salaries, bonuses, benefits, share-based compensation and other related costs for those employees involved in research and development efforts;

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costs of outside consultants, including their fees, and related travel expenses;

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the costs of acquiring and developing clinical trial materials;

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expenses to acquire technologies, such as intellectual property, to be used in research and development including in-process research and development ("IPR&D") that has no alternative future use at the time of asset acquisitions;

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costs related to compliance with regulatory requirements; and

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facilities, depreciation and other indirect costs.

Costs for certain activities are recognized based on an evaluation of the progress to completion of each specific contract using information and data provided to us by our vendors and analyzing the progress of our research studies or other services performed. Significant judgments and estimates are made in determining the expenses incurred balances at the end of any reporting period.

Our direct, external research and development expenses consist primarily of fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and intellectual property purchase agreements. We track these external research and development costs on a program-by-program basis.

We do not allocate employee costs, costs associated with our facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources and third-party consultants primarily to conduct our research and development activities as well as for managing our process development, manufacturing and clinical development activities.

The successful development of our product candidates is highly uncertain. We plan to substantially increase our research and development expenses in the foreseeable future as we continue the development of our product candidates and manufacturing processes and conduct discovery and research activities for our clinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly with our ongoing clinical trials. We anticipate that our

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expenses will increase substantially, particularly due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

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the scope, rate of progress and expenses of our ongoing research activities and clinical trials and other research and development activities;

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successful enrollment in and completion of clinical trials;

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whether our product candidates show safety and efficacy in our clinical trials;

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receipt of marketing approvals from applicable regulatory authorities;

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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

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commercializing product candidates, if and when approved, whether alone or in collaboration with others; and

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continued acceptable safety profile of the products following any regulatory approval.

Any changes in the outcome of any of these variables with respect to the development of our product candidates in clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. For example, if the FDA, the EMA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and share-based compensation for our personnel in executive, legal, business development, finance and accounting, and other administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, tax and consulting services, insurance costs, travel expenses and direct and allocated facility costs not otherwise included in research and development expenses.

Total Other Income, Net

Total other income, net, includes interest income earned on cash and cash equivalents, interest expense and other income and expense items.

Loss on Investment in Joint Venture

The Company recognizes its pro-rata share of losses in the joint venture with Exscientia on its consolidated statements of operations and comprehensive loss within the loss on investment in joint venture line item, with a corresponding change to the joint venture investment asset on the consolidated balance sheets for equity method investments for which it does not have a controlling interest in.

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Results of Operations

Comparison of the years ended December 31, 2021 and 2020

The following table summarizes our results of operations:

FOR THE YEAR ENDEDDECEMBER 31,

(in thousands)

Operating expenses:

Income tax benefit — (15 ) 15

Loss on investment in joint venture 1,505 1,522 (17 )

Operating Expenses

Research and Development Expenses

The following table summarizes our research and development costs for each of the periods presented:

FOR THE YEAR ENDEDDECEMBER 31,

(in thousands)

Direct research and development by program

Other unallocated research and development costs

Personnel expenses (including share-based compensation) 6,604 3,883 2,721

Research and development expenses were $26.9 million for the year ended December 31, 2021, compared to $17.6 million for the year ended December 31, 2020. The increase of $9.3 million was primarily due to:

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a $7.3 million increase in costs related to the development of RLYB212 mainly attributable to increased external clinical manufacturing activities and other research and development costs as compared to the year ended December 31, 2020, in addition to a $2.1 million increase attributable to increased preclinical research and development costs and increased external clinical manufacturing activities related to the development of RLYB114 as compared to the year ended December 31, 2020, partially offset by a $2.5 million decrease in costs related to the development of RLYB211 and a $0.6 million decrease in costs related to the development of RLYB116 as compared to the year ended December 31, 2020; and

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a $2.7 million increase in personnel-related costs, including share-based compensation expense, primarily due to an increase in research and development related headcount as compared to the year ended December 31, 2020.

We anticipate that our research and development expenses will continue to increase as we continue our current research programs, initiate new research programs, continue our preclinical development of product candidates and conduct future clinical trials for any of our product candidates.

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General and Administrative Expenses

General and administrative expenses were $18.7 million for the year ended December 31, 2021, compared to $7.7 million for the year ended December 31, 2020.The increase of $11.1 million is primarily related to an increase in payroll and personnel-related costs due to an increase in general and administrative related headcount, including an increase of $2.0 million in share-based compensation, and an increase in other professional fees, costs associated with operating as a public company and an increase in business development supporting expenses.

We anticipate that our general and administrative expenses will continue to increase as we increase headcount that provide administrative support to our research and development activities. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs, as well as investor and public relations expenses associated with operating as a public company for a full year in 2022 as compared to 2021.

Total Other Income, Net

Total other income, net, for the year ended December 31, 2021 was $0.1 million compared to $0.4 million for the year ended December 31, 2020. The decrease in total other income of $0.2 million is primarily related to a change in estimate of our state tax credits and a decrease in interest income due to lower market interest rates during 2021 as compared to the year ended December 31, 2020.

Loss On Investment In Joint Venture

Loss on investment in joint venture for each of the years ended December 31, 2021 and 2020 was $1.5 million.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have funded our operations primarily through equity financings. From our inception and prior to our IPO, we received proceeds of approximately $182.5 million from equity financings. In August 2021, we closed our IPO and issued and sold 7,130,000 shares of 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. We received net proceeds of approximately $83.0 million, after deducting underwriting discounts and commissions and other offering costs paid by us.

As of December 31, 2021, we had $175.3 million of cash and cash equivalents.

Uses of Liquidity

We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than our manufacturing, licensing and lease obligations described further below.

Funding Requirements

We believe that our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into at least the next 18 months from the date of this report. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect, or our clinical trials may be more expensive, time consuming or difficult to design or implement than we currently anticipate.

We expect to incur significant expenses and operating losses in the foreseeable future as we advance our product candidates through clinical development, seek regulatory approval and pursue commercialization of any approved product candidates. Furthermore, we expect to incur additional costs associated with operating as a public company.

Because of the numerous risks and uncertainties, length of time and scope of activities associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the actual amount of funds we will require for development, approval and any approved marketing and commercialization activities. Our future capital requirements, both near and long-term, will depend on many factors, including, but not limited to:

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the initiation, progress, timing, costs and results of our clinical trials through all phases of development, including our ongoing Phase 1/2 clinical trial for RLYB211 and Phase 1 clinical trial for RLYB212, the clinical trial for RLYB116 and the development of any other product candidates;

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the identification, assessment, acquisition and/or development of additional research programs and additional product candidates;

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the outcome, timing and cost of meeting regulatory requirements established by the FDA, EMA and other comparable foreign regulatory authorities, including any additional clinical trials required by the FDA, EMA or other comparable foreign regulatory authorities;

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the willingness of the FDA, EMA and other comparable foreign regulatory authorities to accept our clinical trial designs, as well as data from our completed and planned preclinical studies and clinical trials, as the basis for review and approval of RLYB212, RLYB116 and any other product candidates;

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the progress, timing and costs of the development by us or third parties of companion diagnostics, if required, for RLYB212 or any other product candidates, including design, manufacturing and regulatory approval;

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the cost of filing, prosecuting and enforcing our patent claims and other intellectual property rights;

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the cost of defending potential intellectual property disputes, including patent infringement actions brought by third parties against us;

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the costs associated with potential clinical trial liability or product liability claims, including the costs associated with obtaining insurance against such claims and with defending against such claims;

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the effect of competing technological and market developments;

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our ability to develop and commercialize products that are considered medically and/or financially differentiated to competitive products by physicians, patients and payers;

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the cost and timing of completion of commercial-scale manufacturing activities;

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the cost of making royalty, milestone or other payments under any future in-license agreements;

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our ability to maintain our collaboration with Exscientia on favorable terms and establish new collaborations;

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the extent to which we in-license or acquire additional product candidates or technologies;

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the severity, duration and impact of the COVID-19 pandemic, which may adversely impact our business;

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the cost of establishing sales, marketing and distribution capabilities for our product candidates, if approved;

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the initiation, progress and timing of our commercialization of RLYB212 and RLYB116, if approved, or any other product candidates;

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the availability of third-party coverage and reimbursement for and pricing of any approved products; and

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the costs of operating as a public company.

A change in the outcome of any of these, or other variables with respect to the development of any of our product candidates, could significantly change the costs and timing associated with the development of that product candidate. We will need to continue to rely on additional financing to achieve our business objectives.

In addition to the variables described above, if and when any of our product candidates successfully complete development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights and regulatory protection, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.

Until such time, if ever, as we generate significant revenue from product sales, we expect to finance our operations through the sale of equity, debt financings, marketing and distribution arrangements and collaborations, strategic alliances and licensing arrangements or other sources. We currently have no credit facility or committed sources of capital. If we raise additional funds through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, and we may need to dedicate a substantial additional portion of any operating cash flows to the payment of principal and interest on such indebtedness. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, intellectual property, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate product candidate development or future commercialization efforts.

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Cash Flows

The following table summarizes our cash flows for each of the periods presented:

FOR THE YEAR ENDEDDECEMBER 31,

(in thousands)

Net cash used in operating activities $ (45,533 ) $ (22,039 )

Net cash used in investing activities (2,333 ) (2,072 )

Net cash provided by financing activities 82,967 144,886

Net increase in cash and cash equivalents $ 35,101 $ 120,775

Operating Activities

During the year ended December 31, 2021, net cash used in operating activities was $45.5 million as compared to $22.0 million for the year ended December 31, 2020. The increase in cash used in operating activities was primarily due to the increase of $9.3 million in research and development for the increased efforts advancing the development of our product candidates, primarily related to RLYB212 and RLYB114, and a $11.1 million increase in general and administrative expenses related to increase in administrative supporting headcount and other professional fees associated with operating activities and becoming a public company as compared to the year ended December 31, 2020.

Investing Activities

Net cash used in investing activities was $2.3 million for the year ended December 31, 2021 as compared to $2.1 million for the year ended December 31, 2020. The increase in net cash used in investing activities was primarily related to an increase in capital expenditures as compared to the year ended December 31, 2020.

Financing Activities

Net cash provided by financing activities was $83.0 million for the year ended December 31, 2021, representing the net proceeds from the IPO after deducting underwriting fees and commissions and payments of other offering costs. Net cash provided by financing activities was $144.9 million for the year ended December 31, 2020, representing the net proceeds from an equity financing in 2020 of $145.2 million and offering costs of $0.3 million.

Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2021:

PAYMENTS DUE BY PERIOD

(in thousands) TOTAL LESS THAN1 YEAR 1-3 YEARS 3-5 YEARS MORE THAN5 YEARS

The contractual obligation amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions and the approximate timing of the actions under the contracts.

Purchase and Other Obligations

We enter contracts in the normal course of business with CROs and other third-party vendors for clinical trials and testing and manufacturing services. Aside from those included in the table above, most contracts 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. These payments are not included in the table above as the amount and timing of such payments are not known.

We may incur contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable under agreements we have entered into with various third-party entities pursuant to which we have acquired or in-licensed intellectual property. Due to the uncertainty of the achievement and timing of the events that require payment under these agreements, the amounts to be paid by us are not fixed or determinable at this time and have not been included in the table above. See “Business—License Agreement” and “Business—Asset Purchase Agreements” included elsewhere in this Annual Report on Form 10-K for a description of these agreements.

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Critical Accounting Policies and Significant Judgments and Estimates

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 “Summary of Significant Accounting Policies and Basis of Presentation and Principles of Consolidation” to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our research and development expenses that are incurred as of each reporting period. This process involves reviewing open contracts and purchase orders, communicating with our personnel and with vendors to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid balance accordingly. Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

Although we do not expect our estimates to be materially different from amounts incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period.

Incentive Units

Certain common shares of Rallybio Corporation were issued during the Liquidation of Rallybio Holdings to previous unit holders of Rallybio Holdings in respect of profit interest incentive units. See Note 2 “Summary of Significant Accounting Policies and Basis of Presentation and Principles of Consolidation” of our consolidated financial statements for additional information on the Reorganization. Prior to our IPO, we periodically granted incentive units to employees which vest over a four-year period. These incentive units were issued in the form of profits interests providing the employee with compensation equal to the increase in the value of the unit over a participation threshold per unit, as determined at the time of grant. The holder, therefore, had the right to participate in distributions of profits only in excess of such participation threshold. The participation threshold was based on the valuation of a single common unit on or around the grant date.

Prior to our IPO, we measured equity-based compensation based on the grant date fair value of the unit-based awards and recognized equity-based compensation expense on a straight-line basis over the requisite service period of the awards, which is generally the vesting period of the respective award. Unit-based compensation expense is classified in our consolidated statements of operations and comprehensive loss based on the function to which the related services are provided or in the same manner in which the grantee’s payroll costs are classified. Forfeitures are accounted for as they occur.

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As there had been no public market for our common units, prior to the IPO, the estimated fair value of our common units had been determined by the Rallybio Holdings board of managers after considering valuation reports provided by an independent third-party valuation firm. In accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, a third-party valuation firm prepared valuations of our common units using an option pricing method ("OPM") which uses market approaches, and a Black-Scholes option pricing model to estimate our enterprise value or a hybrid method, combining the OPM with the probability weighted expected return method (“PWERM”). The OPM treats common units and preferred units as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes to value the common units of the company. The PWERM values each class of equity based on an analysis of the range of potential future enterprise values of the company and the manner in which those values would accrue to the owners of the different classes of equity. The PWERM involves estimating the overall value of the subject company under various liquidity event scenarios and allocating the value to the various share classes based on their respective claim on the proceeds as of the date of each event. A discount for lack of marketability of the common units is then applied to arrive at an indication of value for the common units as of the valuation date. The OPM methodology was utilized for incentive unit grants during the first quarter 2021 while a hybrid method that incorporated both the OPM and the PWERM methodology was used for grants of incentive units in the second quarter of 2021.

There are significant judgments related to volatility and time to liquidity as well as estimates inherent in these valuations. These judgments and estimates include assumptions regarding our future operating performance, the stage of development of our product candidates, the timing of a potential IPO or other liquidity events and the determination of the appropriate valuation methodology at each valuation date. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation expense could be materially different. Subsequent to the IPO, the fair value of our common stock was determined based on the quoted market price of our common stock.

In connection with the Liquidation, holders of common and incentive units of Rallybio Holdings received shares of common stock and restricted stock of Rallybio Corporation, based upon a conversion price determined by the board of managers of Rallybio Holdings immediately prior to the Liquidation. Holders of incentive units of Rallybio Holdings that were vested as of the consummation of the Reorganization received shares of common stock of the Corporation with respect to such units. Holders of incentive units of Rallybio Holdings that were unvested as of the consummation of the Reorganization received shares of restricted stock of the Corporation with respect to such units. The shares of restricted common stock are subject to the same vesting conditions as the incentive units for which such shares were exchanged.

Emerging Growth Company and Smaller Reporting Company

As an emerging growth company (an “EGC”) under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act, for EGCs include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. Additionally, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an EGC. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. Therefore, the reported results of operations contained in our consolidated financial statements may not be directly comparable to those of other public companies.

We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue was less than $100.0 million during the most recently completed

109

fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue was less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an EGC, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

Off-Balance Sheet Arrangements

As of December 31, 2021 and 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting Policies and Basis of Presentation and Principles of Consolidation” to our consolidated financial statements for the year ended December 31, 2021 appearing elsewhere in this Annual Report on Form 10-K.

110

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this item.

Item 8. Financial Statements and Supplementary Data.

The financial information required by Item 8 is located beginning on page F-1 of this Annual Report.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our chief executive officer and chief financial officer (our principal executive officer and principal financial and accounting officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company on the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including, our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgement in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management's Report on Internal Control over Financial Reporting.

This Annual Report on Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act, or an attestation report of our independent registered accounting firm due to a transition period established by rules of the Securities Exchange Commission for newly public companies.

Changes in Internal Control over Financial Reporting.

There has been no change in our internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not Applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item 10 will be included in our Definitive Proxy Statement to be filed with the Securities Exchange Commission with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference.

111

Item 11. Executive Compensation.

The information required by this Item 11 will be included in our Definitive Proxy Statement to be filed with the Securities Exchange Commission with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item 12 will be included in our Definitive Proxy Statement to be filed with the Securities Exchange Commission with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item 13 will be included in our Definitive Proxy Statement to be filed with the Securities Exchange Commission with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information required by this Item 14 will be included in our Definitive Proxy Statement to be filed with the Securities Exchange Commission with respect to our 2022 Annual Meeting of Stockholders and is incorporated herein by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(1)

For a list of the financial statements included herein, see Index to the Consolidated Financial Statements on page F-1 of this Annual Report on Form 10-K, incorporated into this Item by reference.

(2)

Financial statement schedules have been omitted because they are either not required or not applicable or the information is included in the consolidated financial statements or the notes thereto.

(3)

Exhibits:

ExhibitNumber Description

4.3* Description of Registrant’s Securities.

112

113

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Filed herewith.

# Indicates management contract or compensatory plan

+ Portions of this exhibit (indicated by asterisks) have been redacted because they are both not material and the registrant customarily and actually treats such information as private or confidential.

Item 16. Form 10-K Summary

None.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

RALLYBIO CORPORATION

Date: March 15, 2022 By: /s/ Martin W. Mackay

Martin W. Mackay, Ph.D.

Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

SIGNATURE TITLE DATE

Martin W. Mackay, Ph.D. Officer)

Jeffrey M. Fryer, CPA Accounting and Financial Officer)

/s/ Helen M. Boudreau Director March 15, 2022

Helen M. Boudreau

/s/ Rob Hopfner Director March 15, 2022

Rob Hopfner, R.Ph., Ph.D

/s/ Ronald M. Hunt Director March 15, 2022

Ronald M. Hunt

/s/ Lucian Iancovici Director March 15, 2022

Lucian Iancovici, MD

/s/ Kush M. Parmar Director March 15, 2022

Kush M. Parmar, MD, Ph.D.

/s/ Timothy M. Shannon Director March 15, 2022

Timothy M. Shannon, MD

/s/ Paula Soteropoulos Director March 15, 2022

Paula Soteropoulos

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) F-2

Consolidated Balance Sheets F-3

Consolidated Statements of Operations and Comprehensive Loss F-4

Consolidated Statements of Changes in Stockholders' Equity F-5

Consolidated Statements of Cash Flows F-6

Notes to Consolidated Financial Statements F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Rallybio Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Rallybio Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

Hartford, Connecticut

March 15, 2022

We have served as the Company's auditor since 2018.

F-2

RALLYBIO CORPORATION

Consolidated Balance Sheets

Assets

Current assets:

Prepaid expenses and other assets 5,535 1,028

Property and equipment, net 511 287

Investment in joint venture 805 310

Liabilities and stockholders' equity

Current liabilities:

Accrued expenses long-term 32 12

Commitments and contingencies (Note 8)

Stockholders' equity

Total liabilities and stockholders' equity $ 182,185 $ 141,858

See accompanying notes of the consolidated financial statements

F-3

RALLYBIO CORPORATION

Consolidated Statements of Operations and Comprehensive Loss

FOR THE YEAR ENDEDDECEMBER 31,

(in thousands, except share and per share amounts) 2021 2020

Operating expenses:

Other income (expenses):

Interest expense (10 ) (49 )

Total other income, net 140 363

Income tax benefit — (15 )

Loss on investment in joint venture 1,505 1,522

Net loss and comprehensive loss $ (47,013 ) $ (26,447 )

Net loss per common share, basic and diluted $ (1.84 ) $ (1.52 )

See accompanying notes of the consolidated financial statements

F-4

RALLYBIO CORPORATION

Consolidated Statements of Changes in Stockholders' Equity

COMMON ADDITIONAL PAID-IN ACCUMULATED STOCKHOLDERS'

(in thousands, except share amounts) SHARES AMOUNT CAPITAL DEFICIT EQUITY

Issuance of restricted common stock 644,658 — — — —

Share-based compensation expense — — 704 — 704

Issuance of restricted common stock 1,589,622 — — — —

Share-based compensation expense — — 3,645 — 3,645

See accompanying notes of the consolidated financial statements

F-5

RALLYBIO CORPORATION

Consolidated Statements of Cash Flows

FOR THE YEAR ENDEDDECEMBER 31,

Cash Flows used in Operating Activities:

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

Depreciation and amortization 109 62

Loss on investment in joint venture 1,505 1,522

Changes in operating assets and liabilities:

Prepaid expenses and other assets (4,507 ) 434

Net cash used in operating activities (45,533 ) (22,039 )

Cash Flows used in Investing Activities:

Purchase of property and equipment (333 ) (137 )

Investment in joint venture (2,000 ) (1,935 )

Net cash used in investing activities (2,333 ) (2,072 )

Cash Flows from Financing Activities:

Proceeds from the issuance of common stock — 145,205

Payments of offering costs (3,233 ) (319 )

Net cash provided by financing activities 82,967 144,886

Net increase in cash and cash equivalents 35,101 120,775

Cash and cash equivalents—beginning of year 140,233 19,458

Supplemental Disclosures of Noncash Investing and Financing Activities:

Property and equipment in accounts payable and accrued expenses $ 13 $ 14

See accompanying notes of the consolidated financial statements

F-6

RALLYBIO CORPORATION

Notes to Consolidated Financial Statements

1. BUSINESS

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.

Prior to the IPO and Reorganization, the Company was a 100% owned subsidiary of Rallybio Holdings, LLC ("Rallybio Holdings"), a Delaware limited liability company which was incorporated in Delaware on March 22, 2018 and Rallybio Holdings held 100% of the outstanding membership units in five wholly-owned subsidiaries; Rallybio, LLC, Rallybio IPA, LLC, Rallybio IPB, LLC, Rallybio IPD, LLC, and IPC Research, LLC. On June 30, 2021, Rallybio Holdings completed a series of transactions pursuant to which (i) Rallybio IPD, LLC, a direct subsidiary of Rallybio Holdings that was formed in Delaware in May 2020, was converted from a Delaware limited liability company to a Delaware corporation and changed its name to Rallybio Corporation, and (ii) four direct subsidiaries of Rallybio Corporation, each a Delaware limited liability company (collectively the "Merger Subs"), each consummated a separate merger with one of Rallybio Holdings direct subsidiaries, other than Rallybio IPD, LLC (collectively the "Asset Subsidiaries"), with the Asset Subsidiaries surviving the mergers and Rallybio Holdings receiving common stock of the Company in exchange for its interest in each Asset Subsidiary, which resulted in the Asset Subsidiaries becoming subsidiaries of the Company and the Company becoming the only direct subsidiary of Rallybio Holdings. On July 28, 2021, immediately prior to the completion of the IPO, Rallybio Holdings liquidated and distributed 100% of the capital stock of the Company, consisting solely of common stock, to the unitholders of Rallybio Holdings. The liquidation of Rallybio Holdings and distribution of the capital stock of Rallybio Corporation to the unitholders of Rallybio Holdings is referred to as the “Liquidation” and these other transactions are collectively referred to as the “Reorganization.” As a result of the Reorganization and subsequent Liquidation, the unitholders of Rallybio Holdings became the holders of common stock of Rallybio Corporation, and the Company's consolidated financial statements are subsequently reported from Rallybio Corporation. See Note 2 for the basis of presentation of these financial statements after the Reorganization and Liquidation discussed herein.

In March 2020, the World Health Organization characterized the novel coronavirus as a global pandemic. Although there is significant uncertainty as to the likely effects this disease may have in the future, to date there has not yet been a significant impact to the Company’s operations or financial statements.

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

IPO and Reorganization — As discussed in Note 1, in connection with the Reorganization, all of Rallybio Holdings' direct subsidiaries, other than Rallybio Corporation, became direct subsidiaries of the Company prior to the Liquidation of Rallybio Holdings. Prior to the completion of the Company's IPO, Rallybio Holdings liquidated and unitholders of Rallybio Holdings became the holders of common stock of Rallybio Corporation. Subsequent to the Reorganization and the Liquidation of Rallybio Holdings the consolidated financial statements are reported from Rallybio Corporation.

The capital structure of Rallybio Holdings prior to the Liquidation consisted of four classes of membership units: common units; Series A-1 preferred units; Series A-2 preferred units; Series B preferred units; and incentive common units ("incentive units"). The number of shares of common stock that the holders of each class of units received in the Liquidation was based on the value of Rallybio Holdings prior to the Liquidation, determined by reference to the initial public offering price per share of $13.00. The common stock of the Company was allocated to the holders of existing units in Rallybio Holdings as follows:

•

holders of 33,478,255Series A-1 preferred units and Series A-2 preferred units of Rallybio Holdings received an aggregate of 5,257,590 shares of common stock of the Company;

F-7

•

holders of 104,442,965Series B preferred units of Rallybio Holdings received an aggregate of 16,402,235 shares of common stock of the Company;

•

holders of 4,500,000 common units and 1,200,000 of performance based incentive common units of Rallybio Holdings received an aggregate of 706,701 and 188,454, respectively, in shares of common stock of the Company. Shares of common stock issued in respect of unvested common units and performance based incentive common units as of the Liquidation are shares of restricted common stock and subject to vesting in accordance with the vesting schedule applicable to such units; and

•

holders of 20,869,704 incentive units in Rallybio Holdings received an aggregate of 2,444,990 shares of common stock of the Company. Shares of common stock issued in respect of unvested incentive units as of the Liquidation are shares of restricted common stock and continue to be subject to vesting in accordance with the vesting schedule applicable to such incentive units.

As a result of the Liquidation, the holders of units in Rallybio Holdings collectively were issued an aggregate of 24,999,970 shares of common stock of the Company prior to the completion of the IPO.

The Reorganization and subsequent Liquidation resulted in a change in reporting entity as described in ASC 250. In accordance with the guidance applicable to these circumstances, the equity structure has been adjusted in all comparative periods up to the Liquidation 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 financial statements to shares and earnings per share in accordance with the ratio of common shares received by each membership unit class. Rallybio Holdings' convertible redeemable preferred units previously classified as mezzanine equity, including the Series B Preferred Unit Agreement executed during the year 2020 with a total aggregate purchase price of $145.2 million, have been retroactively adjusted in these financial statements, converted into common stock, and reclassified to permanent as a result of the retrospective application of the Liquidation and change in reporting entity.

Basis of Presentation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States. 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”).

Principles of Consolidation—The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates—The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. While management believes that estimates and assumptions used in the preparation of the consolidated financial statements are appropriate, actual results could differ from those estimates. The most significant estimates are those used in the determination of the fair value of its common units and incentive units awarded to employees prior to the Company's IPO, for purposes of recording stock-based incentive compensation, the fair value of stock options, as well as contracted research and development accruals.

Liquidity and Ability to Continue as a Going Concern—The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Management has evaluated whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Since its inception, the Company has incurred net losses and negative cash flows from operations.

During the years ended December 31, 2021 and 2020, the Company incurred a net loss of $47.0 million and $26.4 million, respectively. In addition, as of December 31, 2021, the Company had an accumulated deficit of $94.0 million. The Company expects to continue to generate operating losses and negative cash flows in the foreseeable future.

The Company currently expects that cash and cash equivalents of $175.3 million at December 31, 2021 will be sufficient to fund its operating expenses and capital requirements for more than 12 months from the date the consolidated financial statements are issued. However, we do not anticipate that the current cash and cash equivalents as of December 31, 2021 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,

F-8

corporate collaborations or license agreements, grant funding, interest income earned on invested cash balances or a combination of one or more of these sources.

Variable Interest Entity—The Company evaluates its ownership, contractual, and other interests in entities to determine if it has any variable interest in a variable interest entity (“VIE”). These evaluations are complex, involve judgment, and the use of estimates and assumptions based on available historical information, among other factors. If the Company determines that an entity in which it holds a contractual, or ownership, interest is a VIE and that the Company is the primary beneficiary, the Company consolidates such entity in its consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Management performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively. The Company evaluated its investment in REV-I (defined in Note 7) and concluded that it represented a VIE and was not deemed the primary beneficiary. If the Company is not deemed to be the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with the applicable GAAP (See Note 7).

Equity Method Investments—The Company accounts for investments for which it does not have a controlling interest in accordance with ASC 323, Investments – Equity Method and Joint Ventures. The Company recognizes its pro-rata share of income and losses in “loss on investment in joint venture” on the consolidated statements of operations and comprehensive loss, with a corresponding change to the investment in joint venture asset on the consolidated balance sheets.

Financial Instruments—The Company’s principal financial instruments are comprised of cash and cash equivalents, accounts payable, and accrued liabilities. The carrying value of all financial instruments approximates fair value.

Concentrations of Credit Risk—Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality, and the Company has not experienced any losses on these deposits.

Cash and Cash Equivalents—The Company classifies amounts on deposit in banks and cash invested temporarily in various instruments, primarily money market funds, with original maturities of three months or less at the time of purchase as cash and cash equivalents. The carrying amounts reported in the consolidated balance sheets represent the fair values of cash and cash equivalents.

Property and Equipment—Property and equipment are recorded at cost and consists of computer and other equipment, capitalized software, furniture and fixtures and leasehold improvements. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, or for leasehold improvements, over the remaining term of the lease, if shorter. The estimated useful life for each major asset classification are as follows:

Asset Classification Estimated Useful Life

Computer and other equipment 3 years

Capitalized software 3 years

Furniture and fixtures 5 years

Leasehold improvements lesser of lease life or useful life

Maintenance and repairs which do not extend the lives of the assets are charged directly to expense as incurred. Upon retirement or disposal, cost and related accumulated depreciation are removed from the related accounts, and any resulting gain or loss is recognized as a component of income or loss in the consolidated statements of operations and comprehensive loss.

Impairment of Long-Lived Assets—When indications of potential impairments are present, the Company evaluates the carrying value of long-lived assets. The Company adjusts the carrying value of the long-lived assets if the sum of undiscounted expected future cash flows is less than the carrying value. No such impairments were recorded during the years ended December 31, 2021 or 2020.

F-9

Income Taxes—The Company uses the asset and liability method of accounting for income taxes, as set forth in Accounting Standards Codification (ASC) 740, Accounting for Income Taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequence of temporary differences between the carrying amounts and the tax basis of assets and liabilities and net operating loss carry forwards, all calculated using presently enacted tax rates. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company evaluates whether deferred tax assets are more likely than not of being realized in determining whether a valuation allowance is necessary. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. As of December 31, 2021 or 2020, the Company determined that it is more likely than not that deferred taxes will not be realized and as a result recorded a valuation allowance against its deferred tax assets. Following the Reorganization the Company files a consolidated U.S. federal income tax return and has elected to include all subsidiaries owned more than 80%. Prior to the Reorganization, the LLCs owned 100% by the Company have each elected to be treated as and taxed as a corporation and each filed a separate U.S. federal income tax return.

Research and Development Expenses—Research and development expenses are comprised of costs incurred in performing research and development activities including personnel salaries, benefits, and equity-based compensation; external research and development expenses incurred under arrangements with third parties, such as contract research organization agreements, investigational sites, and consultants; the cost of developing and manufacturing clinical study materials, program regulatory costs, expenses associated with obligations under asset acquisitions, license agreements and other direct and indirect costs. Costs incurred in connection with research and development activities are expensed as incurred. Costs are considered incurred based on an evaluation of the progress to completion of each contract using information and data provided by the respective vendors, including the Company’s clinical sites. Depending upon the timing of invoicing by the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These prepaid expenses or accrued expenses are based on management’s estimates of the work performed under service agreements, milestones achieved, and experience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly.

Deferred Offering Costs— The Company capitalizes incremental legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such equity financings are consummated. After consummation of the equity financing, these costs are recorded in stockholders' equity as a reduction of additional paid-in-capital generated as a result of the offering. Should the planned equity financing no longer be considered probable of being consummated, the offering costs are expensed immediately as a charge to operating expense. Upon completion of the Company's IPO in August 2021, $3.2 million of deferred offering costs were charged against additional paid-in-capital. As a result, the Company did not have any deferred offering costs as of December 31, 2021.

Share-Based Compensation—The Company accounts for share-based compensation in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”). Generally, share-based compensation is measured at the grant date for all equity-based awards made to employees based on the fair value of the awards and is recognized over the requisite service period, which is generally the vesting period. Share-based compensation for awards with performance conditions are recognized over the service period when achievement of the performance condition is probable. The Company has elected to recognize the actual forfeitures by reducing the share-based compensation in the same period as the forfeitures occur. The Company classifies share-based compensation in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipients’ payroll costs are classified.

The Company estimates the fair value of options granted using the Black-Scholes option pricing model ("Black-Scholes") for stock option grants. The fair value of the Company’s common stock is used to determine the fair value of restricted stock awards.Black-Scholes requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the award, the risk-free interest rate and expected dividends. Due to the lack of a public market for the Company’s common stock and lack of company-specific historical and implied volatility data, the Company has based its computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to the Company. The historical volatility is calculated based on a period of time corresponding with expected term assumption. The Company uses the simplified method to calculate the expected term for options granted where the expected term equals the arithmetic average of the vesting term and the original contractual term of the options due to its lack of sufficient historical data. The risk-free interest rate is based on U.S. Treasury securities with a maturity date corresponding with the expected term of the associated award. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

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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). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the assets or liabilities and are developed based on the best information available in the circumstances. 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. 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).

To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgement. Accordingly, the degree of judgement exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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.

For the year ended December 31, 2021 and 2020 the Company held money market funds that are classified as cash and cash equivalents on the Company's consolidated balance sheets of $4.0 million and $2.5 million, respectively. 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.

There were no securities transferred between Level 1, 2 and 3 during the year ended December 31, 2021.

Segment information—Operating segments are defined as components of an enterprise for which discrete financial information is regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing operating performance. The Company manages its operations as a single segment for the purposes of allocating resources, assessing performance, and making operating decisions. All tangible assets of the Company are held in the United States.

Basic and Diluted Net Loss Per Share—The Company calculates basic net loss per share by dividing the net loss by the weighted average number of common shares outstanding during the period, without consideration of potential dilutive securities. Unvested restricted common shares as of December 31, 2021 and 2020 are not considered participating securities and as such are excluded from the weighted average number of shares used for calculating basic and diluted net loss per share. Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of common shares outstanding during the period plus the dilutive effects of potentially dilutive securities outstanding during the period. Potentially dilutive securities include restricted common shares and stock options. The Company has generated a net loss for all periods presented, therefore diluted net loss per share is the same as basic net loss per share since the inclusion of potentially dilutive securities would be anti-dilutive.

Recent Accounting Pronouncements—

The Company qualifies as an emerging growth company ("EGC") as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and non-public companies, the Company can adopt the new or revised standard at the time non-public companies adopt the new or revised standard and can do so until such time that the Company either irrevocably elects to “opt out” of such extended transition period or no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for non-public companies.

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Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial statements and disclosures.

In February 2016, the FASB issued 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 a ROU asset and lease liability on the balance sheet 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 income statement. The FASB issued an update that provided an additional transition option that allows companies to continue applying the guidance under the lease standard in effect at that time in the comparative periods presented in the consolidated financial statements. Companies that elect this option would record a cumulative-effect adjustment to the opening balance of retained earnings, if applicable, on the date of adoption, which the Company expects to elect. The Company also expects to elect the “package of practical expedients”, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. For the Company, as an EGC, ASU 2016-02, as amended, will be effective for annual reporting periods beginning after December 15, 2021 and interim periods within those fiscal years, with early adoption permitted.

The Company is in the process of finalizing the assessment of the standard which includes lease calculations, including the Company's discount rate assumptions. The Company is also continuing to establish new processes and internal controls that may be required to comply with the new lease accounting and disclosure requirements set by the new standard. The Company expects the impact of this standard will increase assets and liabilities within the Company's consolidated balance sheets by approximately $0.7 million in right of use assets and related lease liabilities when adopting the standard in the first quarter of 2022.

There were no changes to significant accounting policies of the Company during the year ended December 31, 2021.

3. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following as of December 31, 2021 and 2020:

Computer and other equipment $ 154 $ 62

Capitalized software 89 86

Furniture and fixtures 151 52

Construction in progress 8 —

Less accumulated depreciation (206 ) (97 )

Property and equipment—net $ 511 $ 287

Depreciation expense totaled $109and $62 thousand for the years ended December 31, 2021 and 2020, respectively.

4. ACCRUED EXPENSES

Accrued expenses consisted of the following as of December 31, 2021 and 2020:

Asset purchase obligation — 990

5. 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

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costs.

See Note 2 for a summary of the Reorganization and Liquidation of Rallybio Holdings that was completed prior to the Company's IPO, which resulted in a change in reporting entity. 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.

The Company evaluated the liquidation of Rallybio Holdings units and subsequent issuance of common stock awards of the Company, discussed in Note 2, as a modification under ASC 718, Share Based Payments. Under ASC 718, a modification is a change in the terms or conditions of a stock-based compensation award. In assessing the modification, the Company considered the fair value, vesting conditions and classification as an equity or liability award before Liquidation and replacement, compared to the Company’s common stock received as of the Liquidation to determine whether modification accounting must be applied. As the number of shares of common stock of the Company that the unitholders of Rallybio Holdings received in the Liquidation was based on the fair value of those units in Rallybio Holdings immediately prior to the Liquidation, unvested units were replaced with restricted common shares with the same vesting terms as the initial awards, and the classification of the awards as equity awards did not change from this action, no incremental stock-based compensation expense resulted from the modification.

Preferred Stock—The Company had 50,000,000 shares of preferred stock authorized as of December 31, 2021 and 2020, respectively, of which no shares were outstanding as of December 31, 2021 and 2020, respectively.

Common Stock—The Company had 200,000,000 shares of common stock authorized as of December 31, 2021 and 2020, respectively, of which 32,129,970 and 23,410,348 shares were issued and outstanding as of December 31, 2021 and 2020, respectively.

Share-based Compensation—

2021 Equity Incentive Plan

In connection with the Company's IPO, the board of directors adopted the Rallybio Corporation 2021 Equity Incentive Plan (the "2021 Plan"). The 2021 Plan reserves5,440,344 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. As of December 31, 2021, the total number of shares of common stock that were issuable under the 2021 Plan was 3,054,421 shares, of which 1,694,637 shares remained available for future issuance.

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 year ended December 31, 2021, 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 year ended December 31, 2021 and 2020 was as follows:

FOR THE YEAR ENDEDDECEMBER 31,

Research and development $ 1,168 $ 219

General and administrative 2,477 485

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The following table summarizes stock option activity for the year ended December 31, 2021:

Outstanding at December 31, 2020 — $ —

Exercised — $ —

Forfeited — $ —

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 December 31, 2021 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 year ended December 31, 2021 was $9.25 per share. There were no stock options granted during the year ended December 31, 2020. The aggregate fair value of stock options that vested during the year ended December 31, 2021 was $0.2 million. As of December 31, 2021, there was unrecognized share-based compensation expense related to unvested stock options of $11.1 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 year ended December 31, 2021 was determined using the Black-Scholes option pricing model with the following assumptions:

FOR THE YEAR ENDEDDECEMBER 31,

Expected volatility 86.9% - 87.9%

Expected term (years) 5.50 - 6.08

Risk free interest rate 0.79% - 1.33%

Expected dividend yield —

A summary of the status of the Company's nonvested restricted common stock awards at December 31, 2021 and changes during the year ended December 31, 2021 was as follows:

Restricted Stock Awards Shares Weighted Average Grant Date Fair Value Per Share

As of December 31, 2021, there was unrecognized share-based compensation expense related to unvested restricted stock awards of $6.0 million, which the Company expects to recognize over a weighted-average period of approximately 3.1 years.

The restricted common stock awards that were granted during the year ended December 31, 2021 resulted from the Liquidation pursuant to which holders of unvested profit interest incentive units of Rallybio Holdings that were granted during the year ended December 31, 2021 received restricted common stock, see Note 2. The assumptions that went into the option pricing models for determining the fair value of Rallybio Holdings incentive units granted during the years ended December 31, 2021 and 2020, prior to the Liquidation, were as follows and do not include the retrospective adjustments described in Note 2:

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FOR THE YEAR ENDEDDECEMBER 31,

Expected dividend yield — —

A summary of the status of the Company's nonvested restricted common stock units at December 31, 2021 and changes during the year ended December 31, 2021 was as follows:

Restricted Stock Units Shares Weighted Average Grant Date Fair Value Per Share

Nonvested restricted stock units at December 31, 2020 — $ —

Shares vested — $ —

Outstanding nonvested restricted stock units at December 31, 2021 2,000 $ 10.76

As of December 31, 2021, there was unrecognized share-based compensation expense related to unvested restricted stock units of $11 thousand, which the Company expects to recognize over a weighted-average period of approximately 0.5 years.

6. INCOME TAXES

The provision for income taxes of the Company is comprised of the following for the years ended December 31, 2021 and 2020:

Current:

Federal $ — $ (15 )

Income tax benefit $ — $ (15 )

The Company carried back $74 thousand in federal net operating losses from the year ended December 31, 2019 to the year ended December 31, 2018. This produced a $15 thousand income tax benefit in the year ended December 31, 2020 when the carryback claims were filed. There were no tax benefits in the year ended December 31, 2021.

The Company’s effective income tax rates are different from the federal statutory tax rates in 2021 and 2020 predominantly due to the valuation allowance, tax credits, state taxes, and the federal net operating loss carryback tax benefit described below:

U.S. federal statutory tax rate 21.0 % 21.0 %

State income taxes, net of federal income tax benefit 6.7 % 4.9 %

Tax credits 6.8 % 8.0 %

Other (1.0 )% (0.2 )%

Valuation allowance (33.5 )% (33.6 )%

Effective Tax Rate 0.0 % 0.1 %

Deferred income taxes represent the tax effect of transactions that are reported in different periods for financial and tax reporting purposes. The combined temporary differences and carryforwards of each tax paying component of the Company that give rise to a significant portion of the deferred income tax benefits and liabilities are as follows at December 31, 2021 and 2020:

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Research and development credits 6,213 2,687

Net deferred tax assets $ — $ —

At December 31, 2021, the Company has approximately $83.1 million of federal net operating loss carryforwards, which do not expire, and approximately $81.8 million of state net operating loss carryforwards, which begin expiring in 2038.

The Company has provided a valuation allowance against the Company’s deferred tax assets, since, in the opinion of management, based upon the history of losses by the Company and insufficient future federal and state taxable income; it is more likely than not that the benefits will not be realized. All or a portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits.

Utilization of the U.S. federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to an annual limitation under Section 382 and Section 383 of the Internal Revenue Code of 1986 ("Code"), and corresponding provisions of state law, due to ownership changes that may have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income and tax liabilities. In general, an ownership change, as defined by Section 382 of the Code, results from transactions increasing the ownership of certain stockholders or public groups in the stock of a corporation by more than 5% over a three-year period. The Company is currently performing a study to assess whether a change of control has occurred. If the Company has experienced a change of control, as defined by Section 382 of the Code, at any time since inception, utilization of the net operating loss carryforwards or research and development tax credit carryforwards may be subject to an annual limitation, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments. Any limitation may result in expiration of a portion of the net operating loss carryforwards or research and development tax credit carryforwards before their utilization.

ASC 740 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely that not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company has no material uncertain tax positions that qualify for either recognition or disclosure in consolidated financial statements.

It is the Company’s policy to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2021 and 2020, the Company has accrued no interest and penalties related to uncertain tax positions. The Company does not have any outstanding U.S. federal income tax or material state and local tax matters for periods through December 31, 2021. There are no federal or state and local income tax returns currently under examination. The Company’s tax returns from inception to date are subject to examination by the taxing authorities.

7. 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 year ended December 31, 2021, the Company funded $2.0 million, associated with development costs to REV-I. For the year ended December 31, 2020, the Company funded $1.9 million, associated with development costs, including $0.6 million related to the initial investment in REV-I, that was included in accrued expenses on the consolidated balance sheets as of December 31, 2019. The Company did not provide any additional financial support outside of capital contributions to REV-I during the years ended December 31, 2021 and 2020. The Company held a 50% interest in the joint venture as of December 31, 2021. As of December 31, 2021, based on management’s analysis, the Company is not the primary beneficiary of REV-1 and accordingly, the entity is not consolidated in the Company's financial statements.

For each of the years ended December 31, 2021 and 2020, the Company recorded its allocable share of REV-I’s losses, which totaled $1.5 million, respectively, as a loss on investment in joint venture within the 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 December 31, 2021 and 2020 was $0.8 million and $0.3 million, respectively, which was recorded in investment in joint venture in the accompanying consolidated balance sheets.

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8. 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 December 31, 2021 and 2020 there were no amounts accrued related to termination charges.

Lease Commitments— In June 2019, the Company entered into a six-year lease to occupy office space located in New Haven, Connecticut, with the option to extend the initial term of the lease for one additional five year term. Pursuant to the lease the Company was obligated to pay for its share of costs related to the build-out of new space. All costs associated with the build-out of the new space have been capitalized as leasehold improvements and are being amortized over the life of the lease. In 2021, the Company leased an additional 4,500 square feet of office space in our New Haven, Connecticut location with terms that coincide with the original lease term expiration date.

Rent expense was $133 and $88 thousand for the years ended December 31, 2021 and 2020, respectively.

Future minimum annual lease payments are as follows:

YEAR ENDING DECEMBER 31,

(in thousands)

Thereafter —

9. NET LOSS PER COMMON SHARE

Basic and diluted loss per common share were calculated as follows:

FOR THE YEAR ENDEDDECEMBER 31,

(in thousands except share and per share amounts) 2021 2020

Net loss per common share, basic and diluted $ (1.84 ) $ (1.52 )

The weighted average number of common shares outstanding diluted for the year ended December 31, 2021 excludes approximately 3.6 million stock options and unvested restricted common shares, which were not dilutive and not included in the computation of net loss per common share. The weighted average number of common shares outstanding diluted for the year ended December 31, 2020 excludes approximately 1.2 million unvested restricted common shares, which were not dilutive and not included in the computation of net loss per common share.

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