Rafael Holdings, Inc. — Form 10-Q Summary
Reporting period: Second fiscal quarter and six months ended January 31, 2022. Amounts below are in U.S. dollars; financial statement amounts are unaudited. The company operates pharmaceutical development and commercial real estate businesses.
Financial results and position
| Metric | Three months ended Jan. 31, 2022 | Six months ended Jan. 31, 2022 | Prior-year comparable period |
|---|---|---|---|
| Revenue | $1.11 million | $2.14 million | $0.96 million and $2.01 million |
| Operating loss | $1.71 million | $51.21 million | $10.82 million and $13.31 million |
| Consolidated net loss | $2.57 million | $131.98 million | $8.24 million and $9.67 million |
| Net loss attributable to Rafael Holdings | $2.32 million | $114.35 million | $8.17 million and $9.61 million |
| Basic and diluted loss per share | $0.12 | $5.91 | $0.50 and $0.60 |
- Revenue increased approximately 16% for the quarter and 6% for the six-month period. Revenue came from real estate; the Pharmaceuticals segment reported no revenue.
- The six-month loss included a $79.1 million impairment of the Rafael Pharmaceuticals investment, a $25.0 million reserve against its line-of-credit receivable, and $10.1 million of provisions for related-party receivables. These charges followed adverse clinical-trial developments.
- The quarterly operating loss improved year over year, in part because of a roughly $19.0 million stock-compensation reversal from forfeited CEO restricted shares and the absence of the prior-year $7.0 million Altira impairment. Quarterly SG&A was reported as a net credit of $0.9 million.
- Real estate revenue was $2.14 million for the six months, and the segment reported a $0.24 million operating loss. Consolidated margins are not presented as a conventional gross-margin measure in the filing.
- Cash and cash equivalents were $65.0 million at January 31, 2022; restricted cash was $5.0 million and hedge-fund investments were $5.0 million. Current assets were $71.5 million versus current liabilities of $22.8 million. Management said cash and hedge-fund investments were expected to cover obligations for 12 months from issuance of the statements.
- Six-month cash flows were $(13.8) million from operations, $(26.9) million from investing, and $97.9 million provided by financing. Financing included approximately $104.2 million of stock-sale proceeds, offset by $6.2 million of transaction costs.
- Current liabilities included a $14.8 million net note payable. The $15 million real-estate-backed loan bears interest at a 7.25% minimum rate and matures August 1, 2022, with an option to extend to August 1, 2023 for a fee. The company paid approximately $5 million of CEO severance from restricted cash in February 2022.
Material changes and notable events
- Rafael Pharmaceuticals’ AVENGER 500 Phase 3 trial of devimistat did not meet its primary overall-survival endpoint. An independent monitoring committee recommended stopping the ARMADA 2000 Phase 3 trial because it was unlikely to meet its primary endpoint. Rafael Holdings fully impaired its investment and related loans and receivables in the six months ended January 31.
- The company withdrew its Form S-4 on February 2, 2022, terminating the merger agreement to acquire the remaining Rafael Pharmaceuticals shares.
- In November 2021, Rafael Holdings purchased additional LipoMedix shares for approximately $3.0 million, increasing its ownership to about 84%.
- CEO Ameet Mallik resigned effective January 31, 2022. The company recorded $5.0 million of severance expense and later paid it in February.
- The company reported a material weakness in controls over accounting for losses attributable to noncontrolling interests. Management said a separate weakness in earnings-per-share controls had been remediated by January 31, 2022; remediation of the noncontrolling-interest weakness was still in progress. Disclosure controls were therefore deemed ineffective at period-end.
Outlook, risks and contingencies
- No numerical earnings or revenue guidance was provided. Management said available cash and hedge-fund investments were expected to meet obligations for the next 12 months. It does not anticipate dividends until sustainable profitability and minimum cash reserves are achieved.
- Further development and prospects for devimistat were described as uncertain. The company’s pharmaceutical activities remain development-stage and depend on research, clinical progress, and access to capital.
- COVID-19 and Russia’s invasion of Ukraine were cited as uncertain risks; management said the war’s impact could not be estimated. The company also identified cybersecurity, clinical-data, and financing-access risks.
- An October 2021 email compromise at a related party led to payment of two invoices; one had been recovered by the filing date. A personal-injury case related to the Newark property was being defended, with loss considered remote and no accrual recorded. The OSHA penalty related to the property had been paid in full.
Investor verification points
- Confirm the effects of the failed devimistat trials, full investment and receivable impairments, and termination of the Rafael Pharmaceuticals merger.
- Review the remaining material weakness in noncontrolling-interest accounting, related prior-period errors, and the status and testing of remediation.
- Assess liquidity after the February severance payment, the restricted-cash balance, operating cash burn, and the August 2022 loan maturity and extension terms.
- Evaluate related-party exposure: related parties represented a substantial share of real-estate revenue, and Rafael Pharmaceuticals and RP Finance receivables were fully reserved.
- Check subsequent filings for changes in clinical programs, financing needs, real-estate leasing, cybersecurity remediation, and legal matters.