Overview
Rafael Holdings, Inc. (NYSE:RFL), ("Rafael Holdings," "we" or the "Company"), a
Delaware corporation, is a holding company with interests in clinical and
early-stage pharmaceutical companies (the "Pharmaceutical Companies"), including
an investment in Cornerstone Pharmaceuticals, Inc., formerly known as Rafael
Pharmaceuticals Inc., a cancer metabolism-based therapeutics company, a majority
equity interest in LipoMedix Pharmaceuticals Ltd. ("LipoMedix"), a clinical
stage pharmaceutical company, the activities of the Barer Institute Inc.
("Barer"), a wholly-owned preclinical cancer metabolism research operation, and
Rafael Medical Devices, Inc., a wholly-owned orthopedic-focused medical device
company developing instruments to advance minimally invasive surgeries ("Rafael
Medical Devices" and together with the Pharmaceutical Companies, the "Healthcare
Companies"). In November 2022, we resolved to curtail our early-stage
development efforts, including pre-clinical research at the Barer. The decision
was taken to reduce spending as we focus on exploring strategic opportunities.
The Company's primary focus is to invest in, fund, and develop novel cancer
therapies. We further seek to expand our portfolio through opportunistic
investments in therapeutics which address high unmet medical needs including
through acquisitions and strategic investments. We are currently evaluating
external opportunities to acquire or strategically invest in later stage assets
which have the potential to achieve meaningful clinical milestones, improve the
lives of patients and increase our shareholder value.
Historically, the Company owned real estate assets. In 2020, the Company sold an
office building located in Piscataway, New Jersey and on August 22, 2022, the
Company sold the building at 520 Broad Street in Newark, New Jersey and an
associated public garage. Currently, the Company holds a portion of a commercial
building in Jerusalem, Israel as its remaining real estate asset.
The Company holds debt and equity investments in Cornerstone Pharmaceuticals,
Inc., or Cornerstone Pharmaceuticals, that include preferred and common equity
interests and a warrant to purchase additional equity. On June 17, 2021, the
Company entered into a merger agreement to acquire full ownership of Cornerstone
Pharmaceuticals in exchange for issuing Company Class B common stock to the
other stockholders of Cornerstone Pharmaceuticals. On October 28, 2021, the
Company announced that the AVENGER 500 Phase 3 clinical trial for CPI-613®
(devimistat), Cornerstone Pharmaceuticals' lead product candidate, did not meet
its primary endpoint of significant improvement in overall survival in patients
with metastatic adenocarcinoma of the pancreas. In addition, following a
pre-specified interim analysis, the independent data monitoring committee for
the ARMADA 2000 Phase 3 study for devimistat recommended the trial to be stopped
due to a determination that it was unlikely to achieve the primary endpoint (the
"Data Events"). In light of the Data Events, the Company concluded that the
prospects for CPI-613 were uncertain and fully impaired in its financial
statements for the year ended July 31, 2022, the value of its loans,
receivables, and investment in Cornerstone Pharmaceuticals based upon its
valuation of Cornerstone Pharmaceuticals.
On September 24, 2021, the Company entered into a Line of Credit Loan Agreement
(the "Line of Credit Agreement") with Cornerstone Pharmaceuticals under which
Cornerstone Pharmaceuticals borrowed $25 million from the Company. Due to the
Data Events, the Company recorded a full reserve on the $25 million due the
Company from Cornerstone Pharmaceuticals.
On February 2, 2022, the Company terminated the Merger Agreement with
Cornerstone Pharmaceuticals, effective immediately, in accordance with its
terms. Subsequently, on February 2, 2022, the Company withdrew its Registration
Statement on Form S-4 related to the proposed Merger.
In 2019, the Company established the Barer Institute Inc., an early-stage small
molecule research operation focused on developing a pipeline of novel
therapeutic compounds, including compounds to regulate cancer metabolism with
potentially broader application in other indications beyond cancer. Barer was
led by a team of scientists and academic advisors considered to be among the
leading experts in cancer metabolism, chemistry, and drug development. In
addition to its own internal discovery efforts, Barer pursued collaborative
research agreements and in-licensing opportunities with leading scientists from
top academic institutions. Farber Partners, LLC ("Farber") was formed to support
agreements with Princeton University's Office of Technology Licensing for
technology from the laboratory of Professor Joshua Rabinowitz, in the Department
of Chemistry, Princeton University, including an exclusive worldwide license to
its SHMT (serine hydroxymethyltransferase) inhibitor program. The Company also
holds a majority equity interest in LipoMedix Pharmaceuticals Ltd., a clinical
stage oncological pharmaceutical company based in Israel. In addition, the
Company has invested in other early-stage pharmaceutical ventures.
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As of January 31, 2023, the Company's commercial real estate holdings consisted
of a portion of a commercial building in Israel. On August 22, 2022, the Company
completed the sale of the building at 520 Broad Street in Newark, New Jersey
that serves as headquarters for the Company for a purchase price of
approximately $49.4 million and realized net proceeds of approximately $33
million.
On July 1, 2022, the Company determined that the 520 Property met the
held-for-sale criteria and the Company has therefore classified the 520 Property
as held-for-sale in the consolidated balance sheets at July 31, 2022. The sale
of the 520 Property also represents a significant strategic shift that will have
a major effect on the Company's operations and financial results. Therefore, the
Company has classified the results of operations related to the 520 Property as
discontinued operations in the consolidated statements of operations and
comprehensive loss. Depreciation on the 520 Property has ceased on July 1, 2022,
as a result of the 520 Property being classified as held-for-sale. See Note 3 to
our accompanying consolidated financial statements for further information
regarding discontinued operations.
On February 9, 2023, the Company entered into a Share Purchase Agreement with
LipoMedix Pharmaceuticals Ltd. in which LipoMedix sold 70,000,000 ordinary
shares to the Company at a price per share of $0.03 and an aggregate sale price
of approximately $2.1 million.
In connection with Patrick Fabbio's January 27, 2023 departure as the Company's
Chief Financial Officer, the Company and Mr. Fabbio entered into a Separation
and General Release Agreement (the "Separation Agreement"), which provides,
among other things, that we shall pay Mr. Fabbio severance in the amount of
$307,913, which is included in selling, general and administrative expense on
the consolidated statement of operations and comprehensive loss for the three
and six months ended January 31, 2023.
In connection with the termination of Mr. Fabbio's position as Chief Financial
Officer, there was a material forfeiture of his Class B restricted shares and
stock options resulting in a reversal of approximately $915 thousand in
stock-based compensation expense that was previously recorded to selling,
general and administrative expense.
On November 21, 2021, Ameet Mallik resigned as Chief Executive Officer,
effective January 31, 2022. In connection with his resignation, there was a
material forfeiture of the former CEO's Class B restricted shares, resulting in
a reversal of approximately $19.0 million in stock-based compensation expense
that was previously recorded to selling, general and administrative expense.
Additionally, pursuant to the terms of his employment agreement, we paid $5.0
million relating to his severance payout, which is included in selling, general
and administrative expense on the consolidated statement of operations and
comprehensive loss for the three and six months ended January 31, 2022.
Business Update - COVID-19, War in Ukraine
In late 2019, a novel strain of coronavirus, SARS-CoV, which causes COVID-19,
was identified and has proved to be highly contagious. It has since spread
extensively throughout the world, including the United States, and was declared
a global pandemic by the World Health Organization in March 2020. The Company
actively monitors the outbreak, including the spread of new variants of
interest, and its potential impact on the Company's operations and those of the
Company's holdings.
Even with growing availability of testing and vaccines and the relaxation of
public health measures that were implemented to limit the spread of the
pandemic, there continues to be uncertainty around the COVID-19 pandemic and its
impact.
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The Company had implemented a number of measures to protect the health and
safety of the Company's workforce including a voluntary work-from-home policy
for the Company's workforce who can perform their jobs from home as well as
restrictions on discretionary business travel. Most of our employees have
returned to working from the office on a part-time basis.
The full impact of the COVID-19 pandemic on the Company will depend on factors
such as the length of time of the pandemic; the responses of federal, state and
local governments; the impact of future variants that may emerge; vaccination
rates among the population; the efficacy of the COVID-19 vaccines; the
longer-term impact of the pandemic on the economy and consumer behavior; and the
effect on our employees, vendors, and other partners.
The short and long-term implications of Russia's invasion of Ukraine are
difficult to predict at this time. The imposition of sanctions and
counter-sanctions may have an adverse effect on the economic markets generally
and could impact our business and the companies in which we have investments,
financial condition, and results of operations. Because of the highly uncertain
and dynamic nature of these events, it is not currently possible to estimate the
impact of the Russian - Ukraine War on our business and the companies in which
we have invested.
Results of Operations
Our business consists of two reportable segments - Healthcare and Real Estate.
We evaluate the performance of our Healthcare segment based primarily on
research and development efforts and results of clinical trials, and our Real
Estate segment based primarily on results of operations. Accordingly, the income
and expense line items below loss from operations are only included in the
discussion of consolidated results of operations.
Healthcare Segment
Our consolidated expenses for our Healthcare segment were as follows:
Three Months Ended
January 31, Change
2023 2022 $ %
(in thousands)
General and administrative $ (2,053 ) $ 1,715 (3,768 ) 220 %
Research and development (2,225 ) (3,335 ) 1,110 33 %
Depreciation (3 ) - (3 ) - %
Loss from continuing operations $ (4,281 ) $ (1,620 ) (2,661 ) (164 )%
Six Months Ended
January 31, Change
2023 2022 $ %
(in thousands)
General and administrative $ (5,130 ) $ (10,507 ) 5,377 51 %
Research and development (4,306 ) (5,488 ) 1,182 22 %
Depreciation (9 ) (1 ) (8 ) - %
Provision for loss on receivable from
Cornerstone Pharmaceuticals pursuant to
line of credit - (25,000 ) 25,000 (100 )%
Provision for losses on related party
receivables - (10,095 ) 10,095 (100 )%
Loss from continuing operations $ (9,445 ) $ (51,091 ) 41,646 82 %
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To date, the Healthcare segment has not generated any revenues. The entirety of
the expenses in the Healthcare segment relate to the activities of LipoMedix,
Barer, Farber, and Rafael Medical Devices. As of January 31, 2023, we held a
100% interest in Barer, an 84% interest in LipoMedix, a 93% interest in Farber,
and a 100% interest in Rafael Medical Devices.
General and administrative expenses. General and administrative expenses consist
mainly of payroll, stock-based compensation expense, benefits, facilities,
consulting and professional fees. The increase in general and administrative
expenses during the three months ended January 31, 2023 compared to the three
months ended January 31, 2022 is primarily due to a net increase in stock-based
compensation of approximately $11.2 million due to a material forfeiture in the
three months ended January 31, 2022, partially offset by a decrease in severance
pay of approximately $5.1 million, a decrease in payroll expense of
approximately $1.7 million, a decrease of approximately $0.4 million in legal
expense, a decrease of approximately $0.1 million in other general and
administrative expenses, and a decrease in professional fees of approximately
$0.1 million.
The decrease in general and administrative expenses during the six months ended
January 31, 2023 compared to the six months ended January 31, 2022 is primarily
due to a decrease in severance expense of approximately $5.1 million, a decrease
in payroll expense of approximately $2.5 million, a decrease in legal expense of
approximately $1.0 million, a decrease in professional fees of approximately
$0.8 million, and a decrease in other general and administrative expenses of
approximately $0.5 million, offset by a net increase in stock based compensation
expense of approximately $4.5 million due to a material forfeiture in the six
months ended January 31, 2022.
Research and development expenses. Research and development expenses decreased
for the three and six months ended January 31, 2023 as compared to the
corresponding period in fiscal 2022. Research and development expenses are
derived from activity at Barer, LipoMedix, Farber, and Rafael Medical Devices.
In November 2022, the Company resolved to curtail its early-stage development
efforts, including pre-clinical research at the Barer Institute. The decision
was taken to reduce spending as the Company focuses on exploring strategic
opportunities.
Loss on line of credit. Due to the Data Events, in the six months ended January
31, 2022, the Company recorded a full reserve on the $25 million due to the
Company from Cornerstone Pharmaceuticals related to the Line of Credit
Agreement.
Loss on related party receivables. Due to the Data Events, in the six months
ended January 31, 2022, the Company recorded a loss of approximately $10.1
million related to the full reserve recorded on the RP Finance receivable of
$9.375 million, and a full reserve recorded on the Cornerstone Pharmaceuticals
receivable of $720 thousand.
Real Estate Segment
The revenue and expenses of the 520 Property have been excluded from the real
estate segment in the figures below due to its classification of held-for-sale
and discontinued operations, and the sale of the 520 Property on August 22,
2022. The Real Estate segment consists of a portion of a commercial building in
Israel. Our consolidated income and expenses for our Real Estate segment were as
follows:
Three Months Ended
January 31, Change
2023 2022 $ %
(in thousands)
Rental - Third Party $ 43 $ 45 (2 ) (4 )%
Rental - Related Party 27 29 (2 ) (7 )%
General and administrative (32 ) (35 ) 3 9 %
Depreciation and amortization (16 ) (18 ) 2 11 %
Income from continuing operations $ 22 $ 21 1 (5 )%
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Six Months Ended
January 31, Change
2023 2022 $ %
(in thousands)
Rental - Third Party $ 86 $ 89 (3 ) (3 )%
Rental - Related Party 54 56 (2 ) (4 )%
Other - Related Party - 120 (120 ) (100 )%
General and administrative (64 ) (87 ) 23 26 %
Depreciation and amortization (32 ) (36 ) 4 11 %
Income from continuing operations $ 44 $ 142 (98 ) 69 %
Other - Related Party. Other - related party revenues decreased by approximately
$120 thousand during the six months ended January 31, 2023, compared to the six
months ended January 31, 2022. During the year ended July 31, 2022, the Company
only billed Cornerstone Pharmaceuticals $120 thousand for the first quarter of
2022 for administrative, finance, accounting, tax, and legal services. As of
July 31, 2022, Cornerstone Pharmaceuticals owed the Company $720 thousand, for
which a full allowance for uncollectibility has been recorded.
General and administrative expenses. General and administrative expenses consist
mainly of payroll, benefits, facilities, consulting and professional fees. The
decrease in general and administrative expenses of approximately $3 thousand and
$23 thousand during the three and six months ended January 31, 2023 compared to
the three and six months ended January 31, 2022 is primarily due to a decrease
in professional fees.
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