Rafael Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended July 31, 2021. This is an annual filing, not a standalone calendar-quarter report. Rafael Holdings (NYSE: RFL) combines investments in pharmaceutical development with commercial real estate; pharmaceutical operations had no revenue in the period.
Financial performance and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $4.0 million | $4.9 million |
| Operating loss | $29.8 million | $8.5 million |
| Net loss attributable to Rafael Holdings | $24.5 million | $10.4 million |
| Loss per share, basic and diluted | $1.49 | $0.66 |
| Cash used in operating activities | $15.6 million | $4.7 million |
| Cash used in investing activities | $8.2 million | $1.0 million |
| Cash provided by (used in) financing activities | $30.3 million | $(0.1) million |
- All revenue came from real estate, including rent, parking and related-party services. Real Estate segment revenue was $4.0 million and operating loss was $9.8 million; Pharmaceuticals had no revenue and an operating loss of $20.1 million.
- Operating margin was deeply negative: the $29.8 million operating loss exceeded revenue. The filing does not present a consolidated gross-margin measure.
- At July 31, 2021, cash and cash equivalents were $7.9 million and restricted cash was $5.0 million. The company also held $5.3 million in hedge-fund investments, valued using Level 3 inputs, and $7.5 million due from RP Finance.
- Total assets were $154.1 million; total liabilities were $17.4 million, including a $15.0 million secured note payable, net of issuance costs. The note bears interest at no less than 7.25% and is due August 1, 2022, with an option to extend to August 1, 2023 for a fee.
Material changes and notable items
- Revenue declined 19%, primarily reflecting the sale of the Piscataway property in August 2020 and lower parking revenue amid work-from-home patterns.
- Operating loss widened from $8.5 million to $29.8 million. Pharmaceuticals segment costs rose, including higher R&D and approximately $5.5 million of non-cash compensation for newly hired senior executives. Real estate SG&A also increased, including legal and professional fees, property taxes and insurance.
- A $7.0 million impairment was recorded on the additional Altira investment. Other notable items included a $4.8 million unrealized hedge-fund gain, a $0.7 million impairment of other pharmaceutical investments, and a $0.7 million gain on the Piscataway building sale.
- Related parties represented approximately 65% of FY2021 revenue, up from 52% in FY2020. IDT and Genie together accounted for approximately 65% of revenue, creating significant customer concentration.
Outlook, developments and risks
- In August 2021, the company raised approximately $97.8 million net through a Class B share offering. Management said cash, hedge-fund investments and offering proceeds were expected to fund obligations for at least 12 months from the financial-statement issuance date.
- After year-end, Rafael Holdings advanced the full $25 million under a line of credit to Rafael Pharmaceuticals: $1.9 million on September 24 and $23.1 million on October 1, 2021. The funds are subject to a company-approved budget.
- A June 2021 merger agreement would make Rafael Pharmaceuticals a wholly owned subsidiary in exchange for Rafael Holdings Class B shares; the filing anticipated a stockholder vote later in 2021. Completion was not assured. The transaction was expected to involve issuing approximately 17.1 million shares to Rafael Pharmaceuticals security holders.
- Rafael Pharmaceuticals’ lead candidate devimistat (CPI-613) remained investigational. The pivotal AVENGER 500 pancreatic-cancer trial had completed enrollment of 528 patients, with top-line results expected in calendar 2021. The AML pivotal trial passed a preplanned interim futility analysis in July 2021 and continued.
- Key risks include clinical-trial and regulatory failure or delay, reliance on third-party manufacturers and research providers without redundant supply arrangements, financing needs, related-party and governance conflicts, and real-estate leasing and valuation uncertainty. COVID-19 had not materially affected FY2021 operations, but the company warned of potential future disruption to trials, supply and property demand.
- The July 2019 OSHA matter was settled for $127,294, with about $32,000 outstanding at year-end. A related employee injury suit was described as remote, and no accrual was recorded.
Most important facts for investors to verify
- Whether the merger with Rafael Pharmaceuticals closed, the final share issuance and resulting ownership and dilution.
- Final AVENGER 500 results and subsequent status of the AML trial, including any regulatory or safety developments.
- Post-offering liquidity after the $25 million advance to Rafael Pharmaceuticals, ongoing R&D funding and debt service.
- Whether related-party tenants renew or exercise termination rights, and progress in leasing the largely vacant Newark office building.
- The assumptions and valuation supporting the Level 3 hedge-fund balance and Altira impairment, as well as the collectability of related-party receivables and amounts due from RP Finance.