Rafael Holdings, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended July 31, 2022. This is an annual report, not a standalone calendar fourth-quarter filing. Financial figures below are in U.S. dollars; tables in the filing generally report amounts in thousands.
Business context
Rafael is a holding company focused primarily on early-stage and clinical-stage healthcare businesses: its interests in Cornerstone Pharmaceuticals and LipoMedix, wholly owned Barer and Rafael Medical Devices, and related research activities. It also held real estate during the year. The Newark building and public garage were sold after year-end; the remaining real estate asset is a leased portion of a building in Jerusalem.
Financial results and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Continuing-operations revenue | $0.410 million | $0.802 million |
| Healthcare revenue | None | None |
| Loss from continuing operations | $140.547 million | $23.061 million |
| Consolidated net loss | $142.377 million | $24.766 million |
| Net loss attributable to Rafael Holdings | $124.658 million | $24.544 million |
| Basic and diluted loss per share | $6.31 | $1.49 |
| Cash used in continuing operating activities | $26.038 million | $15.314 million |
| Cash used in continuing investing activities | $63.683 million | $7.921 million |
| Cash provided by continuing financing activities | $103.864 million | $15.798 million |
- FY2022 continuing revenue consisted of $0.179 million third-party rent, $0.111 million related-party rent, and $0.120 million related-party service revenue. The separately reported discontinued Newark-property operations generated $3.499 million of revenue and a $1.830 million net loss.
- Healthcare segment expenses were $60.658 million, including $25.0 million reserved on a loan to Cornerstone and $10.095 million in reserves on related-party receivables. Research and development expense rose to $8.742 million from $4.907 million.
- The company recorded a $79.141 million full impairment of its Cornerstone cost-method investment. Together with the receivable reserves, this reflects the adverse Cornerstone trial developments described below.
- At July 31, 2022, cash and cash equivalents were $26.537 million; available-for-sale corporate bonds were $36.698 million, all maturing within one year; and hedge-fund investments were $4.764 million. The filing also identifies approximately $0.5 million of illiquid securities in another entity.
- Working capital was $87.321 million; total assets were $118.320 million and total liabilities were $21.114 million. The $15 million mortgage on the Newark property was classified as held for sale and was repaid from sale proceeds after year-end.
- FY2022 financing included approximately $110 million of gross common-stock proceeds, including a $6 million sale to a related party; transaction costs were $6.228 million. Shares outstanding increased substantially during the year.
Material changes and unusual items
- Cornerstone’s AVENGER 500 Phase 3 trial of devimistat in metastatic pancreatic cancer failed to meet its primary overall-survival endpoint. The ARMADA 2000 Phase 3 AML trial was recommended for discontinuation for lack of efficacy. Rafael consequently impaired its Cornerstone investment and fully reserved the $25 million direct loan and specified related-party receivables.
- The proposed merger with Cornerstone was terminated on February 2, 2022, and the related Form S-4 registration statement was withdrawn.
- On August 22, 2022, Rafael sold its Newark property for $49.4 million, repaid the $15 million mortgage, and received approximately $33.1 million net of debt repayment and transaction costs. The property was classified as held for sale and its results presented as discontinued operations.
- Net loss attributable to Rafael increased to $124.658 million from $24.544 million, driven primarily by the Cornerstone impairment and reserves. The comparison also reflects prior-year gains on hedge funds and a building sale, and changes in stock-based compensation.
- The company reported a $5 million severance payment to its former CEO and a reversal of approximately $19 million of previously recognized stock-based compensation following forfeiture of restricted shares.
Outlook, risks, and controls
Management stated that cash, available-for-sale securities, and hedge-fund investments were expected to meet obligations through October 31, 2023; the financial-statement note similarly says resources were expected to cover obligations for 12 months from issuance. The Newark sale subsequently added approximately $33.1 million of net proceeds. The company provided no revenue or earnings guidance and has no healthcare product revenue.
- Three devimistat studies were enrolling at the time of the report, in Burkitt/high-grade B-cell lymphoma, biliary tract cancer, and clear-cell sarcoma. Barer cited prospective IND targets in 2024 for two programs, subject to successful preclinical development. LipoMedix planned a trial of Promitil in advanced pancreatic cancer patients with specified germline mutations; these are development plans, not assured milestones.
- Key risks include uncertain drug and device development and regulatory outcomes, dependence on third-party manufacturers and clinical-service providers, limited resources and potential need for capital, competition, intellectual-property challenges, and potential reimbursement and pricing constraints. COVID-19 and the war in Ukraine were identified as sources of uncertainty.
- Hedge-fund investments are Level 3 valuations based on manager information and may be illiquid. The filing cautions that investment values can decline and redemption may not be available when desired.
- A cybersecurity incident in October 2021 led to payment of two invoices; one had been recovered as of the filing date. The company said it was pursuing measures to strengthen security.
- Management reported disclosure controls and internal control over financial reporting effective as of July 31, 2022. Two previously identified material weaknesses—related to noncontrolling-interest allocations and EPS—were reported as remediated by April 30, 2022. The company did not include an auditor attestation on internal controls under its emerging-growth-company exemption.
- Eight trusts for Howard S. Jonas’s children held approximately 59% of combined voting power as of July 31, 2022. The company said it did not anticipate paying dividends until it achieves sustainable profitability and maintains minimum cash reserves.
Important facts for investors to verify
- Review the full Cornerstone impairment and receivable-reserve accounting, including the status and collectability of the $25 million loan and other Cornerstone- and RP Finance-related balances.
- Confirm the final proceeds, mortgage repayment, transaction costs, and post-sale cash position for the August 2022 Newark-property sale.
- Assess the current status, enrollment, funding, and next decision points for devimistat, Promitil, Barer, and Rafael Medical Devices programs; the filing’s trial and IND plans are subject to change.
- Reconcile operating cash burn with the stated liquidity runway, including the liquidity and fair-value assumptions for hedge funds and corporate bonds.
- Review dilution from FY2022 equity issuance, outstanding equity awards, related-party stock sales, and the concentrated voting control held by the trusts.
- Read the complete audited financial statements and notes for contingencies and subsequent events. The filing describes an employee injury lawsuit as remote, with no accrual recorded; it also reports the prior internal-control restatement and subsequent remediation.