Rafael Holdings, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended July 31, 2020; this is an annual report, not a standalone fourth-quarter filing. Amounts below are in U.S. dollars unless noted.
Business context
Rafael Holdings operates two segments: pharmaceutical investments and commercial real estate. Its pharmaceutical portfolio includes an indirect interest in clinical-stage Rafael Pharmaceuticals, a 67% stake in LipoMedix, and the wholly owned early-stage Barer Institute. Real estate includes the Newark office building and garage, an Israeli office property, and, through July 2020, a Piscataway office/data-center building. The pharmaceutical segment generated no revenue.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $4.910 million | $4.931 million |
| Operating loss | $8.465 million | $6.696 million |
| Net loss attributable to Rafael Holdings | $10.415 million | $4.693 million |
| Basic and diluted loss per share | $0.66 | $0.35 |
| Cash used in operating activities | $4.666 million | $3.132 million |
- Revenue was almost entirely real-estate related. Rental and parking revenue totaled $4.430 million; related-party rental and other revenue contributed $2.562 million. Related parties represented 52% of total revenue.
- Operating loss widened 26%; research and development expense rose 133% to $2.391 million, primarily as Barer began operations. Selling, general and administrative expense increased to $9.118 million.
- FY2020 net loss included a $4.0 million impairment of the Altira equity-method investment and a $0.799 million impairment of other pharmaceutical investments. These were partly offset by a $2.385 million unrealized gain on hedge-fund investments.
- At July 31, 2020, cash and cash equivalents were $6.206 million, total assets $136.347 million, total liabilities $5.819 million, and total equity $130.528 million. Current assets were $9.832 million versus current liabilities of $5.727 million; current liabilities included $3.5 million due for the Altira membership-interest purchase.
- No convertible debt remained at fiscal year-end: a $15.0 million related-party note plus accrued interest converted into shares in August 2019. The filing reports no other material borrowings on the balance sheet.
- Cash used in investing activities was $1.034 million; cash used in financing activities was $0.096 million. Cash declined by $5.818 million during the year.
Material changes and developments
- In May 2020, a $1.0 million investment increased Rafael’s ownership of LipoMedix from 58% to 67%.
- Rafael Pharmaceuticals completed enrollment of 500 patients in its pivotal phase 3 pancreatic-cancer AVENGER 500 trial in August 2020. The company anticipated data for analysis as early as Q2 2021. Its phase 3 AML study had passed 100 enrolled patients by October 2020, with interim analysis anticipated as early as Q2 2021.
- In August 2020, Rafael Holdings sold its Piscataway property for $3.875 million, receiving $3.676 million net of transfer taxes and broker commission. The property was classified as held for sale at fiscal year-end.
- Rafael Pharmaceuticals’ revolving credit facility through RP Finance permits up to $50 million. A $5 million draw was funded in August and September 2020; Rafael Holdings funded $1.875 million, consistent with its 37.5% interest in RP Finance.
Outlook, risks and contingencies
- Management expected cash, anticipated operating cash flows, the Piscataway sale proceeds, and a $2.0 million hedge-fund liquidation in October 2020 to cover anticipated working-capital, R&D, and capital needs for the following 12 months. This is management’s expectation, not a guarantee.
- COVID-19 created uncertainty for tenant payments, office and parking demand, property values, and clinical-trial operations. The company reported limited rent concessions and temporary nonpayment by a gym tenant; trial activities were being managed to limit disruption.
- Investment value depends heavily on clinical and regulatory outcomes. Devimistat and LipoMedix’s Promitil remain investigational; early-stage or interim results may not predict pivotal-trial results, approval, or commercial success.
- Rafael Holdings’ Rafael Pharmaceuticals ownership and warrant are complex. The warrant may require substantial additional funding to exercise, and the filing states the company may not be able to exercise it fully. Related-party relationships and voting control are also relevant; trusts for Howard Jonas’s children held approximately 72.3% of combined voting power as of October 26, 2020.
- Real-estate risks include low occupancy at 520 Broad Street (approximately 30% leased), tenant concentration, dependence on related-party rent, and uncertainty about post-pandemic office demand. IDT and Genie accounted for approximately 40% of revenue according to the risk-factor discussion.
- The company recorded approximately $225,000 of legal accruals, including matters associated with an OSHA settlement. It agreed to pay a $127,294 OSHA penalty in installments through November 2021. A separate employee personal-injury claim was described as remote, with no accrual recorded.
- No dividend is anticipated until sustainable profitability and minimum cash reserves are achieved. The company reported no off-balance-sheet arrangements considered reasonably likely to materially affect its financial condition.
Important facts for investors to verify
- Review the full audited statements and notes, especially cash-flow requirements, the $3.5 million Altira payable, and the basis for the full Altira impairment.
- Track actual results and timing from the AVENGER 500 and ARMADA 2000 pivotal trials; the filing’s clinical milestones and projected data dates are forward-looking.
- Confirm subsequent-period cash, hedge-fund liquidity, and the funding obligations associated with RP Finance draws and the pharmaceutical portfolio.
- Assess 520 Broad Street occupancy, tenant concentration and renewal or termination rights, and the effect of COVID-19 on rent collection and property value.
- Check the company’s effective and fully diluted Rafael Pharmaceuticals ownership, warrant terms and expiry extensions, potential dilution, and related-party governance disclosures.