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Stockholders' Equity
 12 Months Ended
Dec. 31, 2022
Equity [Abstract]  
Stockholders' Equity

7. STOCKHOLDERS' EQUITY

 

Common Stock
In August 2021, the Company completed its IPO, pursuant to which it issued and sold 7,130,000 shares of the Company’s common stock, inclusive of 930,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a public offering price of $13.00 per share. The gross proceeds from the IPO, including the exercise

of the underwriter's option to purchase additional shares were $92.7 million and the net proceeds were approximately $83.0 million, after deducting underwriting discounts and commissions and other offering costs.

In November 2022, the Company completed a follow-on offering of approximately $54.8 million consisting of 5,803,655 shares of common stock, inclusive of 803,654 shares of common stock sold pursuant to the partial exercise of the underwriters' option to purchase additional shares at the price of $6.00 per share and to certain investors in lieu of common stock, pre-funded warrants to purchase up to an aggregate of 3,333,388 shares of common stock at a price of $5.9999, which represents the per share public offering price for the shares less the $0.0001 per share exercise price for each pre-funded warrant. The net proceeds from the November 2022 follow-on offering were approximately $50.8 million, after deducting underwriting discounts and commissions and other offering 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.

The Company had 200,000,000 shares of common stock authorized as of December 31, 2022 and 2021, respectively, of which 37,837,369 and 32,129,970 shares were issued and outstanding as of December 31, 2022 and 2021, respectively.

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

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

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

The Company has assessed the pre-funded warrant for appropriate equity or liability classification. During this assessment, the Company determined the pre-funded warrant is a freestanding instrument that does not meet the definition of a liability pursuant to ASC 480 and does not meet the definition of a derivative pursuant to ASC 815. The pre-funded warrant is indexed to the Company’s common stock and meets all other conditions for equity classification under ASC 480 and ASC 815. Accordingly, the pre-funded warrant classified as equity and accounted for as a component of additional paid-in capital at the time of issuance. All of the pre-funded warrants related to our November 2022 follow-on offering remain outstanding and unexercised as of December 31, 2022.

 

Share-based Compensation

Share-based compensation which comprised of stock options, restricted stock awards, restricted stock units and the employee stock purchase plan is classified in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021 and was as follows:
 

 

FOR THE YEAR ENDED
DECEMBER 31,

 

(in thousands)

2022

 

 

2021

 

Research and development

$

3,542

 

 

$

1,168

 

General and administrative

 

5,957

 

 

 

2,477

 

 

$

9,499

 

 

$

3,645

 

 

2021 Equity Incentive Plan

In 2021, the board of directors adopted the Rallybio Corporation 2021 Equity Incentive Plan (the "2021 Plan"). The 2021 Plan reserves 5,440,344 for shares of the Company's common stock that have been issued in respect of outstanding equity awards granted prior to the registrant’s IPO and for future issuances of shares to employees, directors and consultants in the form of stock options, SARs, restricted and unrestricted stock and stock units, performance awards and other awards that are convertible into or otherwise based on the Company's common stock. Dividend equivalents may also be provided in connection with awards under the 2021 Plan. The share pool will automatically increase on January 1st of each year from 2022 to 2031 by the lesser of (i) five percent of the number of shares of the Company's common stock outstanding as of such date and (ii) the number of shares of the Company's common stock determined by the board of directors on or prior to such date. On January 1, 2022, the 2021 Plan share pool was automatically increased by 1,606,549 shares. As of December 31, 2022, the total number of shares of the Company's common stock that were issuable under the 2021 Plan was 4,796,071 shares, of which 2,058,157 shares remained available for future issuance.


The following table summarizes stock option activity for the year ended December 31, 2022:

 

Stock Options

 

Number of Option Shares

 

 

Weighted-Average Exercise Price

 

 

Weighted-Average Contractual Term
   (in years)

 

 

Aggregate Intrinsic Value
   (in thousands)

 

Outstanding at December 31, 2021

 

 

1,357,784

 

 

$

12.72

 

 

9.7

 

 

$

—

 

Granted

 

 

1,458,800

 

 

$

13.45

 

 

 

 

 

 

 

Forfeited

 

 

(183,151

)

 

$

14.31

 

 

 

 

 

 

 

Expired

 

 

(22,105

)

 

$

13.38

 

 

 

 

 

 

 

Exercised

 

 

(2,014

)

 

$

10.38

 

 

 

 

 

 

 

Outstanding at December 31, 2022

 

 

2,609,314

 

 

$

13.01

 

 

 

8.8

 

 

$

—

 

Options exercisable at December 31, 2022

 

 

685,155

 

 

$

13.31

 

 

 

8.4

 

 

$

—

 


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, 2022 are considered to have no intrinsic value. Using the Black-Scholes option pricing model, the weighted-average grant date fair value of stock options granted during the year ended December 31, 2022 and 2021 was $9.99 per share and $9.25 per share, respectively. Options vested during the years ended December 31, 2022 and 2021 with an exercise price above the closing price are considered to have no intrinsic value. As of December 31, 2022, there was unrecognized share-based compensation expense related to unvested stock options of $17.1 million, which the Company expects to recognize over a weighted-average period of approximately 2.8 years.
 

The fair value of the stock options granted during the years ended December 31, 2022 and 2021 was determined using the Black-Scholes option pricing model with the following assumptions:
 

 

 

FOR THE YEAR ENDED DECEMBER 31,

 

 

 

2022

 

 

2021

 

Expected volatility

 

89.31% - 91.62%

 

 

86.90% - 87.90%

 

Expected term (years)

 

5.50 - 6.08

 

 

5.50 - 6.08

 

Risk free interest rate

 

1.42% - 2.94%

 

 

0.79% - 1.33%

 

Expected dividend yield

 

 

—

 

 

 

—

 

Exercise price

 

$7.54 - $15.04

 

 

$10.76 - $13.00

 


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

 

Restricted Stock Awards

 

Shares

 

 

Weighted-Average Grant Date Fair Value Per Share

 

Nonvested restricted stock awards at December 31, 2021

 

 

2,272,707

 

 

$

3.22

 

Granted

 

 

—

 

 

$

—

 

Vested

 

 

(1,127,224

)

 

$

3.04

 

Forfeited

 

 

(139,115

)

 

$

2.87

 

Outstanding nonvested restricted stock awards at December 31, 2022

 

 

1,006,368

 

 

$

3.48

 


As of December 31, 2022, there was unrecognized share-based compensation expense related to unvested restricted stock awards of $3.4 million, which the Company expects to recognize over a weighted-average period of approximately 2.1 years.

 

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

 

Restricted Stock Units

 

Shares

 

 

Weighted-Average Grant Date Fair Value Per Share

 

Nonvested restricted stock units at December 31, 2021

 

 

2,000

 

 

$

10.76

 

Granted

 

 

151,300

 

 

$

11.68

 

Forfeited

 

 

(22,700

)

 

$

14.80

 

Vested

 

 

(2,000

)

 

$

10.76

 

Outstanding nonvested restricted stock units at December 31, 2022

 

 

128,600

 

 

$

11.12

 


As of December 31, 2022, there was unrecognized share-based compensation expense related to unvested restricted stock units of $1.1 million, which the Company expects to recognize over a weighted-average period of approximately 2.2 years.

 

2021 Employee Stock Purchase Plan

In connection with the Company's IPO, the board of directors adopted the Rallybio Corporation 2021 Employee Stock Purchase Plan (the "2021 ESPP"), which reserves 291,324 shares of the Company's common stock for future issuances under this plan. The share pool will automatically increase on January 1st of each year from 2022 to 2031 by the lesser of (i) one percent of the number of shares of the Company's common stock outstanding as of such date (ii) 582,648 shares of the Company's common stock, and (iii) the number of shares of the Company's common stock determined by the board of directors on or prior to such date. On January 1, 2022, the 2021 ESPP share pool was automatically increased by 321,309 shares. As of December 31, 2022, the total number of shares of the Company's common stock that were available for future issuance under the 2021 ESPP was 573,788 shares. During the year ended December 31, 2022, the Company issued 38,845 shares of the Company's common stock under the 2021 ESPP. No shares were issued under the ESPP as of December 31, 2021.

 

For the year ended December 31, 2022, the total share-based compensation for the 2021 ESPP was $0.1 million, respectively.