Rafael Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended October 31, 2022; comparative quarter ended October 31, 2021. Financial amounts below are in U.S. dollars; “million” and “thousand” are stated where applicable.
Business context and reporting period
Rafael Holdings is a holding company focused on healthcare investments and development, with a remaining real estate asset consisting of part of a commercial building in Jerusalem. Its healthcare portfolio includes LipoMedix, Barer, Farber, Rafael Medical Devices, and interests in Cornerstone Pharmaceuticals. The sale of the 520 Broad Street property was reported as discontinued operations.
Financial performance and position
| Metric | Quarter ended Oct. 31, 2022 | Quarter ended Oct. 31, 2021 |
|---|---|---|
| Continuing-operations revenue | $70,000 | $191,000 |
| Loss from continuing operations | $5.2 million | $128.9 million |
| Net income (loss) attributable to Rafael Holdings | $1.6 million | $(112.0) million |
| Basic and diluted EPS | $0.07 | $(5.91) |
| Cash used in operating activities | $2.5 million | $6.5 million |
- The 2022 net income included a $6.8 million gain on the sale of 520 Broad Street; continuing operations remained loss-making. The 2021 comparison included major Cornerstone-related impairment and receivable-reserve charges.
- At October 31, cash and cash equivalents were $22.2 million, restricted cash was $0.7 million, available-for-sale securities were $71.0 million, and hedge fund investments were $4.6 million. Cash, securities, and hedge funds together totaled approximately $97.8 million.
- Working capital was $91.7 million. Total liabilities were $3.3 million, and the $15.0 million property mortgage had been repaid in connection with the sale. The balance sheet reported no remaining note payable.
- Total assets were $103.2 million and total equity was $100.0 million. No meaningful operating margin comparison is available given minimal continuing revenue and the company’s investment and development activities.
- Continuing-operations investing cash outflow was $34.2 million, principally reflecting $57.1 million of purchases of available-for-sale securities, partly offset by $22.9 million of maturities. Including the property sale proceeds and related transactions, total investing cash flow was positive $13.9 million.
Material changes versus the prior comparable period
- Continuing-operations loss narrowed to $5.2 million from $128.9 million. The prior-year quarter included a $79.1 million Cornerstone investment impairment, a $25.0 million reserve on its line-of-credit receivable, and approximately $10.3 million in related-party receivable losses.
- General and administrative expense fell to $3.1 million from $12.3 million, primarily due to lower stock-based compensation, salaries, and professional and legal fees. Research and development expense was $2.1 million, modestly below the prior-year quarter.
- Total revenue from continuing operations declined to $70,000 from $191,000, including the absence of $120,000 of prior-year related-party service revenue.
- The company sold 520 Broad Street on August 22, 2022, for $49.4 million, received approximately $33 million net proceeds, and repaid the $15 million mortgage. The sale generated a reported gain of $6.8 million.
- Cash and cash equivalents declined by $4.4 million from July 31, while available-for-sale securities increased by $34.3 million. The company’s securities purchases and maturities contributed to this movement.
Outlook, management commentary, and risks
- Management said cash, available-for-sale securities, and hedge fund investments were expected to be sufficient to meet obligations for at least 12 months from issuance of the financial statements. No quantified earnings or revenue guidance was provided.
- In November 2022, the company decided to curtail early-stage development, including Barer preclinical research, to reduce spending while exploring strategic opportunities. Management said it was evaluating acquisitions, licensing, or investments in later-stage assets.
- Cornerstone’s devimistat trials had adverse outcomes: AVENGER 500 did not meet its primary endpoint, and the ARMADA 2000 monitoring committee recommended stopping the trial. The company had fully impaired its Cornerstone investment and related loan/receivable exposures in earlier periods; it reported no Cornerstone investment carrying value at quarter-end.
- The company disclosed uncertainty around the effects of COVID-19 and the Russia-Ukraine war, including potential effects on markets, portfolio companies, and access to capital. It also reported customer and related-party concentration, including one customer representing 67% of accounts receivable at October 31.
- Management reported effective disclosure controls as of October 31, 2022, no material changes in internal control during the quarter, and no material changes to previously disclosed risk factors. It did not expect ordinary-course legal proceedings to have a material adverse effect.
Important facts for investors to verify
- Confirm the cash runway and liquidity calculation, including the liquidity, valuation, and maturity profile of the $71.0 million securities portfolio and $4.6 million hedge fund investment.
- Review spending plans and expected savings following the November 2022 decision to curtail early-stage research, and determine how management will select and fund strategic opportunities.
- Assess the status, recoverability, and legal rights associated with Cornerstone-related investments, receivables, and the warrant, including the company’s stated position on a possible warrant extension.
- Separate recurring operating performance from the one-time 520 Broad Street disposal gain; confirm the post-sale rental income base and continuing property obligations.
- Monitor related-party transactions and customer concentration, as well as the effect of portfolio-company developments on future expenses and potential funding needs.