Rafael Holdings, Inc. (RFL) recently recorded an impairment charge of approximately $79.1 million on its cost method investment in Cornerstone Pharmaceuticals. This impairment charge follows the occurrence of Data Events and covers the total amount of the Company’s cost method investment. Around $17.3 million of the impairment loss was applicable to noncontrolling interests in the Company’s subsidiaries, and it was allocated to the holders of interests in CS Pharma and Pharma Holdings. The move highlights the impact of these recent events on Rafael Holdings’ financial position and strategic investment decisions.
Cornerstone Pharmaceuticals is currently developing innovative cancer therapies based on liposome delivery. Rafael Holdings has had a significant stake in the company, collectively holding securities representing 51% of Cornerstone Pharmaceuticals’ outstanding capital stock and 42% of the capital stock on a fully diluted basis (excluding the remainder of the Warrant). This sizable investment represents the Company’s belief in the potential for groundbreaking therapies from Cornerstone Pharmaceuticals, and its recent impairment charge underscores the severity of the Data Events’ impact.
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Other Financial Effects Due to Data Events
In addition to the impairment charge on its Cornerstone Pharmaceuticals investment, Rafael Holdings has experienced other negative financial effects due to the Data Events. For instance, the total amount due to the Company from Cornerstone Pharmaceuticals related to the Line of Credit Agreement was fully reserved for $25 million during the three months ended October 31, 2021. Furthermore, the Company recorded a loss on related party receivables of approximately $0.5 million and $2.0 million related to other amounts owed by Cornerstone Pharmaceuticals during the three and nine months ended October 31, 2021, respectively.
Investments in LipoMedix Pharmaceuticals Ltd.
Rafael Holdings has made other significant investments in pharmaceutical companies, including LipoMedix Pharmaceuticals Ltd., a privately held Israeli company working on the development of cancer therapy based on liposome delivery. As of October 31, 2021, Rafael Holdings held 95% of LipoMedix’s outstanding ordinary shares after entering into a share purchase agreement in November 2020 to purchase shares for an aggregate purchase price of $3.0 million.
Stake in RP Finance
Rafael Holdings also has a stake in RP Finance, owning 37.5% of the equity interests and being required to fund 37.5% of funding requests from Cornerstone Pharmaceuticals under the RPF Line of Credit. Due to the Data Events, the Company recorded equity in the loss of RP Finance of $575 thousand during the three months ended October 31, 2021, and the equity method investment on its balance sheet was $0 as of October 31, 2021.
Continuing Investments in the Pharmaceutical Industry
Despite these setbacks, Rafael Holdings continues to invest in other areas of the pharmaceutical industry. For example, the Company entered into a common stock purchase agreement with Day Three Labs, Inc., acquiring 38% of its outstanding shares of common stock for a purchase price of $3.0 million. Rafael Holdings is also exploring further investments and partnerships within the pharmaceutical space, aiming to capitalize on the growth potential of innovative therapies and treatments.
Conclusion
In conclusion, the recent Data Events have had a significant impact on Rafael Holdings’ financial position and the value of its investment in Cornerstone Pharmaceuticals. The Company has recorded a sizeable impairment charge of $79.1 million and has seen additional financial consequences due to these events. Nonetheless, Rafael Holdings remains committed to investing in the pharmaceutical industry, as seen through its other investments in LipoMedix Pharmaceuticals Ltd. and Day Three Labs, Inc. As it navigates the fallout from the Data Events, Rafael Holdings will continue to explore promising opportunities within the pharmaceutical sector to help drive growth and innovation in this essential area of healthcare.
Note that we may hold securities mentioned in this article. The source of this article are the SEC filings available at https://www.sec.gov/Archives/edgar/data/1713863/000121390023048592/f10q0423_rafaelhold.htm that we extracted with the help of various software tools. Even though we have implemented various fact-checking processes, some incorrect information may have remained in the article (false positive). Let us know if you find any inconsistencies!