Business Overview
Rafael Holdings, Inc. (NYSE:RFL) is a diversified holding company with a unique and compelling investment strategy, centered on identifying and nurturing promising biotechnology and healthcare companies. With a track record of prudent capital allocation and a keen eye for identifying high-potential opportunities, Rafael Holdings has established itself as a force to be reckoned with in the dynamic healthcare landscape.
Founded in 2015 and headquartered in Newark, New Jersey, Rafael Holdings has evolved from a real estate-focused entity into a multi-faceted investment platform, leveraging its expertise and resources to build a diverse portfolio of healthcare-related assets. The company's strategic shift has been marked by a series of strategic investments and acquisitions, each carefully curated to align with its overarching vision of driving innovation and addressing unmet medical needs.
Key Investments and Developments
One of the company's key early investments was a majority equity interest in LipoMedix Pharmaceuticals Ltd., a clinical-stage Israeli company focused on developing an innovative cancer therapy. In 2019, Rafael Holdings established Barer Institute, a preclinical cancer metabolism research operation, to focus on developing a pipeline of novel therapeutic compounds. Barer pursued collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Around this time, Rafael Holdings also formed Rafael Medical Devices, an orthopedic-focused medical device company developing instruments for minimally invasive surgeries.
The company faced some challenges in 2020 and 2021, including negative results from clinical trials conducted by its majority-owned subsidiary Cornerstone Pharmaceuticals, which led to the company fully impairing the value of its investment in Cornerstone. During this period, Rafael Holdings also discontinued further material investment in its Levco subsidiary, which was subsequently dissolved in 2023.
Despite these setbacks, Rafael Holdings continued to actively manage its investment portfolio. In 2021, the company made several strategic investments, including purchasing shares in Cyclo Therapeutics, a clinical-stage biotechnology company developing cyclodextrin-based products for neurodegenerative diseases. Rafael Holdings also acquired a controlling interest in Day Three Labs, a company focused on cannabis manufacturing technology, in early 2024. Over the years, Rafael Holdings has used a combination of equity investments, convertible notes, and other financial instruments to build and manage its diverse portfolio of healthcare-related assets.
Transformative Merger
One of the crown jewels in Rafael Holdings' portfolio is its pending merger with Cyclo Therapeutics, Inc. (Nasdaq:CYTH), a clinical-stage biotechnology company dedicated to developing life-changing medicines for patients and families living with challenging diseases. This transformative transaction, announced in August 2024, represents a pivotal moment in Rafael Holdings' evolution, as the company positions itself to become a dominant player in the rare disease treatment space.
Cyclo Therapeutics' lead therapeutic asset, Trappsol® Cyclo™, is currently being evaluated in a comprehensive Phase 3 clinical trial (TransportNPC™) for the treatment of Niemann-Pick Disease Type C1 (NPC1), a rare and fatal genetic disorder that affects the brain, lungs, liver, spleen, and other organs. The successful completion of this trial, with topline data expected in the first half of 2025, could pave the way for the submission of a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) and a Marketing Authorization Application (MAA) to the European Medicines Agency (EMA) later that year.
Investment Portfolio
Rafael Holdings' investment thesis is further bolstered by the company's majority ownership positions in several other promising healthcare ventures, including LipoMedix Pharmaceuticals, a clinical-stage Israeli company focused on the development of a novel cancer therapy, and Day Three Labs, a company empowering third-party manufacturers to reimagine their cannabis offerings with innovative technology.
Financials and Liquidity
Financially, Rafael Holdings has maintained a robust balance sheet, with cash and cash equivalents of $48.3 million as of January 31, 2025. The company's current ratio of 9.26 and quick ratio of 9.26 underscore its strong liquidity position, allowing it to weather potential market volatility and pursue strategic initiatives with confidence.
For the fiscal year 2024, Rafael Holdings reported revenue of $637,000 and a net loss of $34.4 million. Operating cash flow for the year was negative $7.8 million, while free cash flow stood at negative $8 million. In the most recent quarter (Q2 FY2025), the company recorded revenue of $77,000, representing a year-over-year growth of 13.2%. However, the net loss for the quarter widened to $5.3 million, primarily driven by higher research and development expenses and a $3.1 million impairment charge related to goodwill in the Infusion Technology segment.
The company's revenue is generated entirely from the United States and Israel, with rental revenue from its owned real estate asset in Israel representing 75% of consolidated revenue in the first six months of fiscal 2025. As of January 31, 2025, Rafael Holdings reported a debt-to-equity ratio of 0.029, indicating a conservative capital structure.
Operating Segments
Rafael Holdings operates through three main reportable segments: Healthcare, Infusion Technology, and Real Estate.
The Healthcare segment, which includes the company's majority equity interests in LipoMedix, Barer, Farber, Cornerstone, and Rafael Medical Devices, has not generated any revenues to date. For the six months ended January 31, 2025, the segment's general and administrative expenses were $4.7 million, up 4% from the prior year period, while research and development expenses were $2 million, up 83% year-over-year, reflecting increased R&D efforts, particularly at Cornerstone following its acquisition in March 2024.
The Infusion Technology segment, comprised of Rafael's majority equity interest in Day Three, recorded $51 million in revenue for the six months ended January 31, 2025. However, the segment also incurred a $3.1 million goodwill impairment charge during the three months ended January 31, 2025, due to reductions in certain operations, including a layoff. General and administrative, research and development, and depreciation and amortization expenses for this segment totaled $628 million for the six-month period.
The Real Estate segment, which consists of Rafael's ownership of a portion of a commercial building in Israel, generated $154 million in rental revenue for the six months ended January 31, 2025, up 14% from the prior year period. General and administrative expenses for this segment were $167 million, up 111% year-over-year, while depreciation and amortization was $31 million, up 3%. Overall, the Real Estate segment contributed $44 million in income from operations for the six-month period.
Challenges and Outlook
The ongoing COVID-19 pandemic has had a tangible impact on certain segments of Rafael Holdings' operations, particularly its Infusion Technology division. This led to a reduction in workforce and the aforementioned $3.1 million goodwill impairment charge during the three months ended January 31, 2025. The company's management team has been proactive in addressing these headwinds, streamlining operations and focusing resources on its most promising avenues of growth.
In November 2022, the company resolved to curtail its early-stage development efforts, including pre-clinical research at its Barer Institute subsidiary. Since then, Rafael Holdings has sought partners for its Farber program and entered into a license agreement for one of its pre-clinical technologies, demonstrating its commitment to optimizing its portfolio and focusing on high-potential assets.
Looking ahead, Rafael Holdings is poised for transformative growth, driven by the anticipated success of the Cyclo Therapeutics merger and the continued development of its diversified portfolio. Upon closing of the planned merger with Cyclo Therapeutics, the company intends to focus its efforts on making Trappsol® Cyclo™ its lead clinical program. This strategic focus on rare disease treatments, innovative cancer therapies, and disruptive cannabis technologies positions Rafael Holdings as a formidable player in the healthcare industry.
As Rafael Holdings navigates the dynamic market landscape, investors will be closely watching the company's ability to execute on its ambitious growth strategy, effectively integrate new acquisitions, and drive sustainable shareholder value. With a seasoned management team, a robust balance sheet, and a pipeline of promising investments, Rafael Holdings appears well-equipped to capitalize on the vast opportunities within the healthcare sector.