Rafael Holdings, Inc. - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended July 31, 2020. 

or

☐ Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934.

Commission File Number: 000-55863 

RAFAEL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

520 Broad Street, Newark, New Jersey 07102

(Address of principal executive offices, zip code)

(212) 658-1450

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant, based on the closing price on January 31, 2020 (the last business day of the registrant’s most recently completed second fiscal quarter) of the Class B common stock of $20.24 per share, as reported on the New York Stock Exchange, was approximately $183.5 million.

The number of shares outstanding of the registrant’s common stock as of October 26, 2020 was:

DOCUMENTS INCORPORATED BY REFERENCE

The definitive proxy statement relating to the registrant’s Annual Meeting of Stockholders, to be held January 13, 2021, is incorporated by reference into Part III of this Form 10-K to the extent described therein.

Index

RAFAEL HOLDINGS, INC.

Annual Report on Form 10-K

Part I

As used in this Annual Report, unless the context otherwise requires, the terms the “Company,” “Rafael Holdings,” “we,” “us,” and “our” refer to Rafael Holdings, Inc., a Delaware corporation, and its subsidiaries, collectively. Each reference to a fiscal year in this Annual Report refers to the fiscal year ending in the calendar year indicated (for example, fiscal 2020 refers to the fiscal year ended July 31, 2020).

Item 1. Business.

OVERVIEW

Rafael Holdings, Inc. (“Rafael Holdings” or the “Company”), a Delaware corporation, owns interests in pre-clinical and clinical stage pharmaceutical companies and commercial real estate assets. The assets are operated as two separate lines of business. The pharmaceutical holdings include preferred and common equity interests and a warrant to purchase additional equity interests in Rafael Pharmaceuticals, Inc., or Rafael Pharmaceuticals, which is a clinical stage, oncology-focused, pharmaceutical company committed to the development and commercialization of therapies that exploit the metabolic differences between normal cells and cancer cells, and a majority equity interest in LipoMedix Pharmaceuticals Ltd., or LipoMedix, a clinical stage oncological pharmaceutical company based in Israel. In addition, in 2019, we established the Barer Institute (“Barer”), a wholly-owned early stage venture focused on developing a pipeline of therapeutic compounds, including compounds to regulate cancer metabolism. The venture is pursuing collaborative research agreements with leading scientists from top academic institutions. We have recently initiated efforts to develop other early stage ventures.

The commercial real estate holdings consist of a building at 520 Broad Street in Newark, New Jersey that serves as headquarters for the Company and certain other affiliated entities and hosts other tenants and an associated 800-car public garage and a portion of a building in Israel.

Financial information by segment is presented in Note 15 in the Notes to our Consolidated Financial Statements in Item 8 of this Annual Report.

Our headquarters are located at 520 Broad Street, Newark, New Jersey 07102. The main telephone number at our headquarters is (212) 658-1450 and our corporate web site’s home page is www.rafaelholdings.com.

We make available free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to these reports, and all beneficial ownership reports on Forms 3, 4 and 5 filed by directors, officers and beneficial owners of more than 10% of our equity through the investor relations page of our web site (https://rafaeholdings.com/irpass.com) as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Our web site also contains information not incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission.

THE SPIN-OFF

On March 26, 2018, IDT Corporation, or IDT, the former parent corporation of the Company, completed a tax-free spinoff (the “Spin-Off”) of the Company’s capital stock, through a pro rata distribution of common stock to its stockholders of record as of the close of business on March 13, 2018.

RECENT DEVELOPMENTS

On August 28, 2020 we sold a 3-story, 65,253 square foot office building located at 225 Old New Brunswick Road in Piscataway, New Jersey for $3,875,000.

Rafael Pharmaceuticals recently announced two milestones in its clinical trial phase programs including completing target enrollment of 500 patients ahead of schedule in August 2020 of its pivotal phase 3 pancreatic cancer program and in October 2020 crossing enrollment of its hundredth patient in its pivotal phase 3 study for relapsed or refractory Acute Myeloid Leukemia study.

BUSINESS DESCRIPTION

We own interests in pre-clinical and clinical pharmaceutical companies and commercial real estate assets. The assets are operated as two separate lines of business and we are looking to increase the value of both of our holdings.

Pharmaceuticals

Overview

We have an investment in Rafael Pharmaceuticals, a clinical stage, oncology-focused pharmaceutical company committed to the development and commercialization of therapies that exploit the metabolic differences between normal cells and cancer cells. We also have an investment in LipoMedix, which is based in Israel, and is a clinical stage oncology company. In addition, we have recently established the Barer Institute, or Barer, a wholly-owned early stage venture focused on developing a pipeline of therapeutic compounds, including compounds to regulate cancer metabolism. The venture is pursuing collaborative research agreements with leading scientists from top academic institutions. In addition, we have recently initiated efforts to develop other early stage pharmaceutical ventures.

Rafael Pharmaceuticals

We own an interest in Rafael Pharmaceuticals through a 90%-owned non-operating subsidiary, Pharma Holdings, LLC, or Pharma Holdings. Pharma Holdings owns 50% of CS Pharma Holdings, LLC (“CS Pharma”), a non-operating entity that owns equity interests in Rafael Pharmaceuticals. Accordingly, the Company holds an effective 45% indirect interest in the assets held by CS Pharma. Pharma Holdings holds 53,374,137 million shares of Rafael Pharmaceuticals Series D Convertible Preferred Stock, 979,617 common shares and a warrant to increase ownership to up to 56% of the fully diluted equity interests in Rafael Pharmaceuticals (the “Warrant”). The Warrant is exercisable at the lower of 70% of the price sold in an equity financing, or $1.25 per share, subject to certain adjustments, and will expire upon the earlier of August 15, 2021, a qualified initial public offering, or liquidation event of Rafael Pharmaceuticals.

Howard Jonas, Chairman of the Board and Chief Executive Officer of the Company, and Chairman of the Board of Rafael Pharmaceuticals, owns 10% of Pharma Holdings.

Pharma Holdings also holds certain governance rights in Rafael Pharmaceuticals, including appointment of directors.

As of July 31, 2020, we and our subsidiaries collectively owned securities representing 51% of the outstanding capital stock of Rafael Pharmaceuticals and 37% of the capital stock on a fully diluted basis (excluding the remainder of the Warrant).

The Series D Convertible Preferred Stock has a stated value of $1.25 per share (subject to appropriate adjustment to reflect any stock split, combination, reclassification or reorganization of the Series D Preferred Stock or any dilutive issuances, as described below). Holders of Series D Stock are entitled to receive non-cumulative dividends when, as and if declared by the board of Rafael Pharmaceuticals, prior to any dividends to any other class of capital stock of Rafael Pharmaceuticals. In the event of any liquidation, dissolution or winding up of the Company, or in the event of any deemed liquidation, proceeds from such liquidation, dissolution or winding up shall be distributed first to the holders of Series D Stock. Except with respect to certain major decisions, or as required by law, holders of Series D Stock vote together with the holders of the other preferred stock and common stock and not as a separate class.

We serve as the managing member of Pharma Holdings and Pharma Holdings serves as the managing member of CS Pharma, with broad authority to make all key decisions regarding their respective holdings. Any distributions that are made to CS Pharma from Rafael Pharmaceuticals that are in turn distributed by CS Pharma, will need to be made pro rata to all members, which would entitle Pharma Holdings to 50% (based on current ownership) of such distributions. Similarly, if Pharma Holdings were to distribute proceeds it receives from CS Pharma, it would do so on a pro rata basis, entitling the Company to 90% (based on current ownership) of such distributions.

Separately, as of July 31, 2020, Howard Jonas and Deborah Jonas jointly owned $525,000 of Series C Convertible Notes of Rafael Pharmaceuticals, and The Howard S. and Deborah Jonas Foundation owns $525,000 of Series C Notes of Rafael Pharmaceuticals.

On September 19, 2017, IDT approved a compensatory arrangement with Howard Jonas related to the right held by Pharma Holdings to receive additional Rafael Pharmaceutical shares (“Bonus Shares”) upon the achievement of certain milestones. Under that arrangement, IDT transferred to Howard Jonas the contractual right to receive “Bonus Shares” for an additional 10% of the fully diluted capital stock of Rafael Pharmaceuticals at the time of issuance that was previously held by Pharma Holdings, which is contingent upon achieving certain milestones. This right was previously held by Pharma Holdings, subject to its right to transfer to recipients that Pharma Holdings, in its sole discretion, felt merit because of special efforts by such persons in assisting Rafael Pharmaceuticals and its products. Pharma Holdings distributed the rights to its members and transferred the portion it received to Howard Jonas. If any of the milestones are met, the Bonus Shares are to be issued without any additional payment. Howard Jonas has the right to transfer the Bonus Shares, in his discretion, to others, including those who are instrumental to the future success of Rafael Pharmaceuticals. These milestones have not yet been met and no Bonus Shares have been issued.

On February 3, 2020, Rafael Pharmaceuticals entered into a Line of Credit Loan Agreement (“Line of Credit Agreement”) with RP Finance, LLC (“RP Finance”), which provides a revolving commitment of up to $50,000,000 to fund clinical trials and other capital needs.

The Company owns 37.5% of the equity interests in RP Finance and is required to fund 37.5% of funding requests from Rafael Pharmaceuticals under the Line of Credit Agreement. Howard Jonas owns 37.5% of the equity interests in RP Finance, and is required to fund 37.5% of funding requests from Rafael Pharmaceuticals under the Line of Credit Agreement. The remaining 25% equity interests in RP Finance is owned by other shareholders of Rafael Pharmaceuticals.

Under the Line of Credit Agreement, all funds borrowed will bear interest at the mid-term Applicable Federal Rate published by the U.S. Internal Revenue Service. The maturity date is the earlier of February 3, 2025, upon a change of control of Rafael Pharmaceuticals or a sale of Rafael Pharmaceuticals or its assets. Rafael Pharmaceuticals can draw on the facility on 60 days’ notice. The funds borrowed under the Line of Credit Agreement must be repaid out of certain proceeds from equity sales by Rafael Pharmaceuticals.

In connection with entering into the Line of Credit Agreement, Rafael Pharmaceuticals agreed to issue to RP Finance shares of its common stock representing 12% of the issued and outstanding shares of Rafael Pharmaceuticals common stock, with such interest subject to anti-dilution protection as set forth in the Line of Credit Agreement. In August 2020, Rafael Pharmaceuticals called for a $5 million draw on the line of credit facility for use in the operations of Rafael Pharmaceuticals including clinical trial related expenses, and the facility was funded by RP Finance LLC in the amount of $5 million in August 2020 and September 2020. The Company funded $1,875,000 in accordance with its 37.5% ownership interests in RP Finance.

Science and Preclinical:

Rafael Pharmaceuticals is developing its lead product CPI-613^® (devimistat), an investigational new drug for the treatment of solid tumors and hematologic malignancies. This molecule has been developed based on Altered Metabolism Directed (AMD) platform. It is a small molecule and suitable for intravenous (IV) administration.

In the 1920’s, Nobel Prize winner Dr. Otto Warburg observed that cancer cells metabolize glucose differently than normal cells. More recently it has been recognized that tumor-specific alteration of metabolism is pervasive, affecting all metabolic processes. Both cytosolic and mitochondrial processes are crucially transformed during the evolution of metastatic disease. This profoundly altered metabolism of cancer cells has recently emerged as one of the most promising new domains for therapeutic targeting of cancer. In many cancer cells, uptake of glucose is substantially increased. Glucose is metabolized to pyruvate which then is either reduced to lactate by lactate dehydrogenase (LDH) or oxidized to acetyl coenzyme A (acetyl-CoA) by pyruvate dehydrogenase (PDH) for introduction into the mitochondrial tricarboxylic acid (TCA) cycle. The acetyl-CoA then can be used for either energy generation or biosynthetic intermediate production, both crucial to tumor cell survival and growth. Glutamine is an additional carbon source, also essential for sustaining the TCA cycle in tumor cells. Glutamine transport and metabolism are also upregulated in many tumor types. Glutamine is converted to glutamate and then to α-ketoglutarate (α-KG). α-KG is then converted to succinyl-CoA by α-ketoglutarate dehydrogenase (KGDH) for subsequent processing through the TCA cycle. The regulation of this metabolism of pyruvate and α-ketoglutarate is profoundly altered in tumor cells, presenting potential clinical targets, as discussed immediately below.

CPI-613^® (devimistat) is a stable analog of normally transient, acylated catalytic intermediates of lipoate. These intermediates normally serve as signals to the PDH and KGDH regulatory systems altered in cancer; thus, CPI-613^® (devimistat) misinforms these tumor systems, selectively turning off the cancer cell TCA cycle. CPI-613^® (devimistat) tumor selectivity is further enhanced because cancer cells take up the drug preferentially. More specifically, CPI-613^® (devimistat) selectively inactivates PDH in tumor cells, including hyper-activating the corresponding tumor-specific configuration of regulatory pyruvate dehydrogenase kinase isoforms (PDKs). PDKs phosphorylate and inactivate PDH. As well, CPI-613^® (devimistat) simultaneously inactivates KGDH by hyper-activating a redox feedback loop normally controlling the enzyme’s activity and reconfigured in tumors. The simultaneous inhibition of these two TCA cycle enzymes dramatically compromises mitochondrial metabolic flows, triggering multiple, redundant apoptotic and necrotic cell death pathways selectively in tumor cells [Zachar et al., J Mol Med, 2011, 89:1137-48; Stuart et al., Cancer Metab. 2014, 2, 4: reviewed in Bingham et al., Expert Rev Clin Pharmacol. 2014, 7:837-46 and Hammoudi et al., Chin J Cancer. 2011, ;30:508-25]. Rafael Pharmaceuticals also continues to develop extensive insight into this drug family and the exploitation of its mechanism of action to improve clinical outcomes.

There are many potential advantages of CPI-613^® (devimistat) over alternative anti-metabolism and anti-cancer drugs. It is believed to selectively target altered metabolism in cancer cells (above). Therefore, CPI-613^® (devimistat) is expected to be minimally toxic to healthy cells (i.e. safe and well tolerated), allowing extended treatment courses (reducing likelihood of relapse). Moreover, its low side-effect toxicity allows CPI-613^® (devimistat) to be used in combination with other drugs. These include established standards of care for major malignancies, allowing treatment of surgically unresectable cancers. Moreover, this low toxicity supports creation of cocktails of anti-metabolic drugs empowered synergistically by the CPI-613 component. Further, this benevolent toxicity profile allows treatment of vulnerable, elderly patients. CPI-613^® (devimistat) attacks multiple, individually essential targets (PDH, KGDH). So, we expect that it will be less susceptible to emergence of drug resistance. The redesign of metabolism is general to most or all cancers. Thus, CPI-613^® (devimistat) is also expected to have broad spectrum activity, i.e. the potential to treat diverse tumor types, including difficult-to-treat cancers, high risk cancers and advanced stage cancers. By targeting metabolism, Rafael Pharmaceuticals expects this drug to be effective against formerly resistant tumor types and to suppress metabolism-based drug-resistance.

Several pre-clinical pharmacology and toxicology studies [including good laboratory practice toxicology (GLP Tox) studies] were conducted to investigate the pharmacokinetics (PK), drug metabolism, safety and anticancer activity of CPI-613^® (devimistat). In in vitro and ex vivo studies, CPI-613^® (devimistat) exhibited strong anticancer activities against an array (including solid tumors or hematologic malignancies) of tumor cell lines and cells derived from patients (including patients with drug resistance) in several studies. These anticancer activities were significantly higher compared to untreated cells or cells treated with current chemotherapeutic agents. In contrast, CPI-613^® (devimistat) was either minimally taken up into or produced little effect in a variety of healthy cells. In pre-clinical combination therapy studies, CPI-613^® (devimistat) exhibited no additive toxicity. The drug also demonstrated significant synergy with other chemotherapeutic agents (Pardee et. al. Clin Cancer Res. 2018, 24:2060-2073). In vivo animal models bearing diverse tumor types were used to evaluate dose response, PK and metabolism of CPI-613^® (devimistat). The drug was well-tolerated in all animal models. Prolonged survival was observed when compared to untreated controls and more commonly used chemotherapeutic agents in several studies. GLP toxicology studies showed that any adverse events related to CPI-613^® (devimistat) were transient and mostly observed during acute dosing; animals returned to normal post-dose (i.e. toxicities were reversable or recoverable). Toxicokinetic (TK) exposures of C_max (peak concentration) and area under curve (AUC) of CPI-613^® (devimistat) from GLP Tox studies in rats and minipigs have shown very good safety margins to cover PK exposures of C_max and AUC of CPI-613^® (devimistat) from AML and pancreatic cancer patients in clinical trials, i.e. safety margins of 2.5 – 11.6 folds based on the highest observed C_max and AUC at maximum tolerated dose (MTD) from 13-week rat and 13-week minipigs studies divided by the highest observed C_max and AUC at MTD of CPI-613^® (devimistat) in combination with chemotherapies in AML and pancreatic cancer patients.

The manufacturing of CPI-613^® (devimistat) is relatively low cost, efficient, and scalable. In addition to intravenous CPI-613^® (devimistat), development of oral formulation of CPI-613^® (devimistat) is currently underway.

Clinical Highlights:

More than 700 patients were dosed with CPI-613^® (devimistat) to date in 19 ongoing or completed clinical trials.

Currently six clinical trials are ongoing. Out of that, two trials completed enrolling participants and four trials are enrolling patients.

Pancreatic Cancer: CPI-613^® (devimistat) in Combination with Modified FOLFIRINOX in First-Line Metastatic Pancreatic Cancer.

Twenty patients were enrolled in this phase 1 study. The MTD of CPI-613^® (devimistat) was 500 mg/m². The median number of treatment cycles given at the maximum tolerated dose was 11. Two patients were enrolled at a higher dose of 1,000 mg/m², and both had a dose-limiting toxicity. No deaths due to adverse events were reported. For the 18 patients given the maximum tolerated dose, the most common grade 3–4 non-hematological adverse events were hyperglycaemia, hypokalaemia, peripheral sensory neuropathy, diarrhea, and abdominal pain. The most common grade 3–4 hematological adverse events were neutropenia, lymphopenia, anaemia, and thrombocytopenia. Sensory neuropathy (all grade 1–3) was recorded in 17 out of the 18 patients and was managed with dose de-escalation or discontinuation of oxaliplatin per standard of care. Of the 18 patients given the maximum tolerated dose, 11 (61%) patients achieved an objective response (complete or partial). Patients exhibited a median overall survival (OS) of 19.9 months and median progression-free survival (PFS) of 9.9 months. The interim result of this study was published in Lancet Oncology (Alistar et al., Lancet Oncol. 2017 Jun;18(6):770-778.). In this clinical trial setting evaluating the FOLFIRINOX regimen an objective response rate (ORR) of 31.6%, median OS of 11.1 months and median PFS of 6.4 months (Conroy et al., N Engl J Med 2011;364:1817-25.) was reported.

Based on the clinical experience of this trial in pancreatic cancer, Rafael initiated a phase 3 pivotal trial (AVENGER 500^®) of CPI-613^® (devimistat) in combination with modified FOLFIRINOX as first-line treatment for patients with metastatic pancreatic cancer in December 2018. This trial compares the efficacy and safety of FOLFIRINOX (FFX, control arm) with CPI-613^® (devimistat) in combination with modified FOLFIRINOX (CPI-613^® + mFFX, test arm). Patients 18-75 years old of both sexes with metastatic (stage IV) pancreatic adenocarcinoma, not previously treated for metastatic disease and with ECOG performance status of 0 – 1 are eligible for enrollment in this study. This trial completed target enrollment of 500 patients ahead of schedule in August 2020. Efficacy data for this trial is anticipated to be available for analysis as early as the second quarter of calendar year 2021.

Acute Myeloid Leukemia: CPI-613^® (devimistat) in Combination with High Dose Cytarabine and Mitoxantrone in Patients with Relapsed or Refractory Acute Myeloid Leukemia (AML).

Two trials were conducted to investigate the safety and efficacy of CPI-613^® (devimistat) in combination with high dose cytarabine and mitoxantrone in patients with relapsed or refractory AML. The result of the phase 1 study was published in Clinical Cancer Research (Pardee et al., Clin Cancer Res. 2018 May 1;24(9):2060-2073). Overall, the treatment was well tolerated. Pooled dataset of both phase 1 and phase 2 trials in elderly patients (≥ 50 years) with relapsed or refractory AML demonstrated 52% CR + CRi and median OS of 10.4 months. In contrast, in a clinical trial evaluating high dose cytarabine, mitoxantrone and L-asparaginase in relapsed or refractory AML in elderly patients (≥ 60 years) demonstrated 33% CR + CRi and median OS of only 5.2 months (Ahmed et al., Leuk Res. 2015 September ; 39(9): 945–949.).

Based on the clinical experience in these trials in AML, Rafael Pharmaceuticals initiated a phase 3 pivotal trial (ARMADA 2000) of CPI-613^® (devimistat) in patients with relapsed or refractory AML in November 2018. This study initiated to compare the efficacy and safety of CPI-613^® (devimistat) in combination with high dose cytarabine and mitoxantrone (CHAM) with high dose cytarabine and mitoxantrone (HAM, control arm) and control sub-groups: combination of mitoxantrone, etoposide and cytarabine (MEC) and combination of fludarabine, cytarabine, and filgrastim (FLAG). Patients ≥ 50 years with relapsed or refractory AML and an ECOG performance status of 0 to 2 are eligible for this study. The efficacy data for this trial is anticipated to be available for interim analysis as early as the second quarter of calendar year 2021.

Pancreatic Cancer: CPI-613^® (devimistat) in Combination with Gemcitabine and Nab-paclitaxel in First-Line Locally Advanced or Metastatic Pancreatic Cancer

A total of 22 patients were dosed in this phase 1 study and 20 patients were evaluable for efficacy, safety and dose finding. The maximum tolerated dose (MTD) of CPI-613^® (devimistat) was determined to be 1,500 mg/m². Dose limiting toxicities were not reached. Overall, the treatment was well tolerated with toxicities mainly related to chemotherapy. Most common grade 3 and 4 toxicities were hematologic toxicity and neuropathy. PK analysis and biomarker analysis are planned. Patients exhibited 50% objective response rate. Patients are still being followed up for survival analysis.

Peripheral T-cell Lymphoma: phase 1 Dose-Escalation Study of CPI-613^® (devimistat), in Combination with Bendamustine, in Patients with Relapsed or Refractory T-cell Lymphoma

10 patients have received at least one dose of CPI-613^® (devimistat) in combination with bendamustine in this phase 1 study. Eight patients are evaluable for safety and efficacy. Overall, the patients exhibited a good safety profile. The most common grade 3 or higher toxicities were lymphopenia and neutropenia. CPI-613^® (devimistat) in combination with bendamustine exhibited what it deemed to be a signal of efficacy with 75% ORR, 9.2 months median OS and 6.4 months median PFS. All 3 patients with Complete Responses were diagnosed with peripheral T-cell lymphoma, not otherwise specified (PTCL-NOS). Although the numbers are small, continued investigation is warranted as these response rates in a poor risk population of patients with relapsed or refractory T-Cell Lymphoma are very exciting.

Other Ongoing Clinical Trials:

Planned Clinical Trial:

LipoMedix

LipoMedix is a clinical-stage, privately held Israeli company focused on the development of an innovative, safe and effective cancer therapy based on liposome delivery.

In May 2020, the Company invested $1 million (including conversion of the outstanding notes plus interest) to purchase 4,000,000 shares of Lipomedix, increasing the Company’s ownership from 57.9% to 67.7%.

Science and Preclinical:

LipoMedix was established in order to advance the pharmaceutical and clinical development of a patented prodrug of mitomycin-C and its efficient delivery in liposomes to cancer-affected target organs. This formulation, known as Promitil^® – Pegylated Liposomal Mitomycin-C Lipidic Prodrug (PL-MLP) – overcomes the toxicity associated with the clinical use of mitomycin-C and turns it into a targeted, anticancer prodrug that could potentially become the therapy of choice in a variety of cancers. The inventor and scientific founder, of LipoMedix is Alberto Gabizon, M.D., Ph.D., of the Hebrew University – Shaare Zedek Medical Center, Israel who is also the co-inventor and co-developer of Doxil^® (pegylated liposomal doxorubicin), a successful and widely-used anticancer product based on a similar drug development strategy. Prof. Gabizon is one of the few scientists intimately familiar with the successful development and commercialization process of liposomal drugs.

Promitil^® is an innovative nanomedicine designed for controlled delivery of a chemotherapeutic agent in a proprietary prodrug form. LipoMedix believes it has advantages in single or combination therapy over conventional anticancer agents that have serious adverse side effects, and limited efficacy with resistance to treatment. Promitil^® is based on an innovative and breakthrough technology that could potentially help cancer patients receive safer therapy with a more potent antitumor effect.

In preclinical trials, Promitil^® inhibited a range of cancer types in animal models (pancreatic, colorectal, stomach, breast, ovarian, melanoma, bladder), including multidrug (MDR-1)-resistant tumors, and potentiated the activity of radiotherapy and various co-administered cancer drugs. The API (MLP), a prodrug of mitomycin C, is carried by a pegylated liposomal delivery system that confers an extended circulation time in vivo and enhanced delivery to tumors. The API is stable in plasma but activated to mitomycin-C by reductive cleavage in some tissues and in tumors where abundant reductive systems are present. In preclinical trials, Promitil^® was significantly more efficacious and less toxic than mitomycin-C by a 3-fold factor. Preclinical indications of the efficacy of Promitil^® in combination with radiation was observed in in vivo mouse models of colon cancer. Promitil^® improved antitumor efficacy of radiotherapy in mouse models of colorectal cancer, while equitoxic doses of mitomycin C did not. Promitil^® is a powerful radio-sensitizer that, in combination with radiotherapy, may result in improvements in the treatment of locally advanced cancers. Use of a liposomal delivery system in a chemo-radiotherapy combination is a novel approach, not yet explored in cancer treatment.

Clinical:

Lipomedix has completed various clinical stages of Promitil^® including phase 1A (solid tumors) and IB (as single agent and in combination with capecitabine and/or bevacizumab in colorectal cancer). Another phase 1B testing Promitil^® as radiosensitizer is ongoing and nearing completion.

A total of 144 patients have been treated with Promitil^® as a single agent or in combination with other anticancer drugs or radiotherapy under the framework of a phase 1A and two IB clinical studies (n=105) and under named patient approval for compassionate use (n=39). Promitil^® was well tolerated and safe for use at a broad dose range. The majority of the adverse events reported were mild to moderate and unrelated to the study drug.

Promitil^® is given by intravenous infusion once every 3 or 4 weeks and is well tolerated and except for mild myelosuppression does not cause any problematic toxicities such as skin irritation, mouth ulcers, neuropathic pain, diarrhea, or hair loss. It is a very robust product with a shelf life under refrigerated storage of over 6 years.

A phase 1A dose escalation open trial (Golan et al., “Pegylated liposomal mitomycin C prodrug enhances tolerance of mitomycin C: a phase 1 study in advanced solid tumor patients.” Cancer Medicine, 4:1472–1483, 2015) has demonstrated that Promitil^® has successfully and substantially modified the pharmacokinetic characteristics of mitomycin C delivery, resulting in the ability to clinically administer much larger amounts of active drug (approximately 3 times greater mitomycin C-equivalent dose than the maximal tolerated dose of mitomycin C), with an acceptable toxicity profile with no dose-limiting toxicity after 1^st cycle of Promitil^® in all cohorts, and with long circulation time to ensure adequate tumor drug delivery.

A phase 1B continuation trial in advanced colon cancer patients receiving Promitil^® as third line therapy has confirmed the safety and pharmacokinetic features of Promitil^® in this patient population, as well as the feasibility of combining Promitil^® with Bevacizumab and/or Capecitabine (Gabizon et al, "Pharmacokinetics of mitomycin-c lipidic prodrug entrapped in liposomes and clinical correlations in metastatic colorectal cancer patients" Investigational New Drug, 38(5):1411-1420, 2020). No deaths were related to study treatment and of the 39 reported SAEs, only one was considered possibly related to study treatment. This stage of colon cancer has an ominous patient prognosis with median survival of approximately 5 months for untreated patients, and 6 – 7 months using any of the two approved therapies (Regorafenib, TAS-102), and a rate of objective partial responses (tumor shrinkage) nearly zero.

In this phase 1B study, 40% (21/52) of patients that underwent disease evaluation on week 9-12 of the study showed Stable Disease with a 1-year survival rate of 52% and median survival of 13.9 months (phase 1 Clinical Study Report, data on file at LipoMedix), suggesting that Promitil^® activity in colon cancer is substantial, but requires confirmation in phase 2 studies. LipoMedix believes that the next development step should be to conduct a phase 2B trial of Promitil^® against an active comparator (e.g. Regorafenib) using as endpoints PFS and OS, which will provide information on the added value of Promitil^® in colorectal cancer. LipoMedix believes that an approximately 100-patient strong study should determine the relative value of Promitil^® in advanced colorectal carcinoma. Given the large number of patients with this condition, LipoMedix anticipates this study can be completed relatively quickly (approximate enrollment time 18 months) with centers in four countries only. An IND application for this study has been approved by the FDA in November 2018. An effective treatment for this patient population represents an important unmet clinical need that Promitil^® will attempt to fill, and for which LipoMedix is entitled to a 5-year period of market exclusivity post-NDA, based on the approval of a new chemical entity (MLP), with or without a 505(b)(2) pathway.

Additional trials with LipoMedix flagship product, Promitil^®, undergoing or in planning include:

Promitil^®-based pipeline products:

In addition to Promitil^®, LipoMedix has developed a pipeline of Promitil^®-based products with potentially important applications:

Barer

Barer is a wholly-owned early stage venture focused on developing a pipeline of therapeutic compounds, including compounds to regulate cancer metabolism and is pursuing collaborative research agreements with leading scientists from top academic institutions. In addition, we have recently initiated efforts to develop other early stage pharmaceutical ventures.

OUR STRATEGY

Pharmaceutical Investments

We plan to continue to invest in Rafael Pharmaceuticals and LipoMedix, as approved by our Board and deemed strategic, in order for those companies to execute on their plans and continue clinical trials as warranted by results and developments while continuing to seek other opportunities to invest in additional pharmaceutical or biotechnology ventures. In addition, we have established a wholly owned venture to develop a pipeline of therapeutic compounds, including compounds to regulate cancer metabolism named Barer Institute. The venture is pursuing collaborative research agreements with scientists from top academic institutions. In addition, we have recently initiated efforts to develop other early stage pharmaceutical ventures.

Rafael Pharmaceuticals

The mission of Rafael Pharmaceuticals is to develop innovative, highly selective, well tolerated and highly effective anticancer agents by selectively targeting altered metabolism in cancer cells.

Rafael Pharmaceutical’s immediate goal is extending and enhancing the lives of patients with hard-to-treat cancers with significant unmet needs including gastrointestinal (GI) cancers (along with selected hematological malignancies) with the immediate objective of improving the quality of life of patients with pancreatic cancer, which is believed to be the deadliest cancer worldwide with very limited treatment options.

As per Rahib et al, 2014; Pancreatic Cancer will surpass breast, prostate, and colorectal cancers by 2030 and will become the second leading cause of cancer-related death. Since 1997, the median overall survival following standard frontline therapies in metastatic pancreatic cancer has increased from 6.8 months (gemcitabine) to 11.1 months (FOLFIRINOX) (Conroy et al., N Engl J Med 2011;364:1817-25. Von Hoff et al., N Engl J Med 2013;369:1691-703). Pancreatic ductal adenocarcinoma (PDAC) is an immune-privileged cancer and appears to escape from the antitumor immune response unlike other neoplastic entities. In PDAC, response rate with immune checkpoint inhibitors anti-programmed cell death protein 1 (PD-1) or anti-cytotoxic T-lymphocyte-associated antigen 4 (CTLA-4) alone or in combination is not satisfactory to date (Kabacaoglu et al., Front Immunol. 2018 Aug 15;9:1878).

In an early stage trial, CPI-613^® (devimistat) in combination with modified FOLFIRINOX exhibited a promising signal of efficacy with 61% objective response rate (ORR), 19.9 months overall survival (OS) and 9.9 months progression-free survival (PFS). The combination was also well tolerated. This is in comparison to the earlier clinical trial evaluating the FOLFIRINOX regimen for approval wherein they reported an ORR of 31.6%, median OS of 11.1 months and median PFS of 6.4 months (Conroy et al., N Engl J Med 2011;364:1817-25.) The further evaluation of CPI-613^® (devimistat) in pancreatic cancer is warranted.

As a part of the immediate goal of Rafael Pharmaceuticals to improve the quality of life of patients with pancreatic cancer, Rafael Pharmaceuticals has initiated the following trials:

FOLFIRINOX / FOLFOX / FOLFIRI are standard of care for several gastrointestinal (GI) cancers (e.g. colorectal, esophagus, anal canal). With a broadly applicable mechanism of action, Rafael Pharmaceuticals expects that CPI-613^® (devimistat) will also exhibit promising safety and efficacy profiles in GI cancers where FOLFIRINOX is used as standard of care. With this expectation, Rafael Pharmaceutical is planning to initiate a phase 2 trial of devimistat in combination with FOLFOX / FOLFIRI / Avastin in colorectal cancer.

LipoMedix

The strategy for LipoMedix is as follows:

Real Estate

Our strategy related to our real estate business includes:

REGULATION

REVIEW AND APPROVAL OF DRUGS IN THE UNITED STATES

In the United States, the FDA approves and regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and implements regulations. The failure to comply with requirements under the FDCA and other applicable laws at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by the FDA and the Department of Justice or other governmental entities.

Each of Rafael Pharmaceutical’s, LipoMedix’s (Rafael Pharmaceutical and Lipomedix collectively, referred to as “the Pharmaceutical Investment Companies”) and Barer (together with the Pharmaceutical Investment Companies, referred to as the “Pharmaceutical Companies”) product candidates must be approved by the FDA through a New Drug Application, or NDA. An applicant seeking approval to market and distribute a new drug product in the United States must typically undertake the following:

Before an applicant begins testing a compound with potential therapeutic value in humans, the drug candidate enters the preclinical testing stage. Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, and the purity and stability of the drug substance, as well as in vitro and animal studies to assess the potential safety and activity of the drug for initial testing in humans and to establish a rationale for therapeutic use. The conduct of the preclinical tests must comply with federal regulations and requirements including good laboratory practices. The sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. An IND is an exemption from the FDCA that allows an unapproved drug to be shipped in interstate commerce for use in an investigational clinical trial and a request for FDA authorization to administer an investigational drug to humans. Such authorization must be secured prior to interstate shipment and administration of any new drug that is not the subject of an approved NDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug candidate at any time before or during clinical trials due to safety concerns or non-compliance.

A sponsor may choose, but is not required, to conduct a foreign clinical study under an IND. When a foreign clinical study is conducted under an IND, all FDA IND requirements must be met unless waived. When the foreign clinical study is not conducted under an IND, the sponsor must ensure that the study complies with certain FDA regulatory requirements in order to use the study as support for an IND or application for marketing approval. Such studies must be conducted in accordance with GCP, including review and approval by an independent ethics committee, or IEC, and informed consent from subjects. The GCP requirements encompass both ethical and data integrity standards for clinical studies. The FDA’s regulations are intended to help ensure the protection of human subjects enrolled in non-IND foreign clinical studies, as well as the quality and integrity of the resulting data. They further help ensure that non-IND foreign studies are conducted in a manner comparable to that required for IND studies.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, inclusion and exclusion criteria, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND before a clinical trial can begin in the US. In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects.

Human clinical trials are typically conducted in four sequential phases, which may overlap or be combined:

Phase 1. The drug is initially introduced into a small number of healthy human subjects or, in certain indications such as cancer, patients with the target disease or condition (e.g., cancer) and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness and to determine optimal dosage.

Phase 2. The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

Phase 3. These clinical trials are commonly referred to as “pivotal” studies, which denotes a study which presents the data that the FDA or other relevant regulatory agency will use to determine whether or not to approve a drug. The drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product and to provide adequate information for the labeling of the product.

Phase 4. Post-approval studies may be conducted after initial marketing approval. These studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to the FDA for any of the following: serious and unexpected suspected adverse reactions; findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the drug; and any clinically important increase in the case of a serious suspected adverse reaction over that listed in the investigator brochure.

Concurrent with clinical trials, companies often complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the drug as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the drug candidate and, among other things, must develop methods for testing the identity, strength, quality, purity, and potency of the final drug. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.

If clinical trials are successful, the next step in the drug development process is the preparation and submission to the FDA of an NDA or BLA, Biologics License Application. The NDA or BLA is the vehicle through which drug applicants formally propose that the FDA approve a new drug or biologic for marketing and sale in the United States for one or more indications. The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission of an NDA or BLA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited circumstances. For example, products with orphan drug designation are not subject to user fees.

The FDA reviews all NDAs submitted to identify if there are any deficiencies before it can officially accept them for in-depth review, also known as "filing" of the NDA. The FDA may also request additional information before deciding whether to accept an NDA application for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the NDA.

After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use, whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity and has appropriate labeling of the product for its intended use. There is a two-tiered system of review times – standard review and priority review. A priority review designation means FDA’s goal is to take action on an application within six months (compared to 10 months under standard review) in addition to the 2-month validation period. During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy, or REMS, is necessary to assure the safe use of the drug or biologic. If the FDA concludes that a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not approve the NDA without a REMS, if deemed required.

Before approving an NDA, the FDA will typically inspect the facilities at which the product is to be manufactured. These preapproval inspections may cover all facilities associated with an NDA submission, including drug component manufacturing (e.g., active pharmaceutical ingredients), finished drug product manufacturing, and control testing laboratories. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.

The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions about the approval of the drug.

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If a complete response letter is issued, the applicant may either submit a Complete Response, addressing all of the deficiencies identified in the letter, or withdraw the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

If a product receives regulatory approval, the approval may be limited to specific diseases and dosages or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In addition, the FDA may require phase 4 testing which involves clinical trials designed to further assess a product’s safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Fast track, breakthrough therapy and priority review designations

The FDA is authorized to designate certain products for expedited review if they are intended to address an unmet medical need in the treatment of a serious or life-threatening disease or condition. These programs are fast track designation, breakthrough therapy designation, and priority review designation.

Accelerated approval pathway

The FDA may grant accelerated approval to a product for a serious or life-threatening condition that provides meaningful therapeutic advantage to patients over existing treatments based upon a determination that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA may also grant accelerated approval for such a condition when the product has an effect on an intermediate clinical endpoint that can be measured earlier than an effect on irreversible morbidity or mortality, or IMM, and that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Products granted accelerated approval must meet the same statutory standards for safety and effectiveness as those granted traditional approval. If post-marketing clinical studies fail to verify clinical benefit, FDA may withdraw approval.

Post-Approval Requirements

Any drug that receives FDA approval is subject to continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, by submitting supplemental NDAs, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions. Other potential consequences include, among other things:

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, and its implementing regulations, as well as the Drug Supply Chain Security Act, or DSCA, which regulate the distribution and tracing of prescription drugs and prescription drug samples at the federal level, and set minimum standards for the regulation of drug distributors by the states. The PDMA, its implementing regulations and state laws limit the distribution of prescription pharmaceutical product samples, and the DSCA imposes requirements to ensure accountability in distribution and to identify and remove counterfeit and other illegitimate products from the market.

Abbreviated new drug applications for generic drugs

In 1984, with passage of the Hatch-Waxman Amendments to the FDCA, Congress established an abbreviated regulatory scheme authorizing the FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by the FDA pursuant to NDAs. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application, or ANDA, to the agency. An ANDA is a comprehensive submission that contains, among other things, data and information pertaining to the active pharmaceutical ingredient, bioequivalence, drug product formulation, specifications and stability of the generic drug, as well as analytical methods, manufacturing process validation data and quality control procedures. ANDAs are “abbreviated” because they generally do not include preclinical and clinical data to demonstrate safety and effectiveness. Instead, in support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference-listed drug, or RLD.

505(b)(2) NDAs

As an alternative path to FDA approval for modifications to formulations or uses of products previously approved by the FDA pursuant to an NDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Hatch-Waxman Amendments and permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant. If the 505(b)(2) applicant can establish that reliance on FDA’s previous findings of safety and effectiveness is scientifically and legally appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the previously approved reference drug. The FDA may then approve the new product candidate for all, or some, of the label indications for which the reference drug has been approved, as well as for any new indication sought by the 505(b)(2) applicant.

Pediatric studies and exclusivity

Under the Pediatric Research Equity Act, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With enactment of FDASIA 2012, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and any other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to waiver requests, deferral requests and requests for extension of deferrals are contained in FDASIA. Unless and until FDA promulgates a regulation stating otherwise, the pediatric data requirements do not apply to products with orphan designation. However, in accordance with FDARA 2017, certain orphan designated drugs are no longer exempt from having to conduct pediatric studies. FDARA requires that any original NDA or BLA submitted on or after August 18, 2020, for a new active ingredient, must contain studies of molecularly targeted pediatric cancers, unless a deferral or a waiver is granted, if the drug that is intended for the treatment of an adult cancer and directed at a molecular target that has been determined to be substantially relevant to the growth or progression of a pediatric cancer.

Orphan drug designation and exclusivity

Under the Orphan Drug Act, the FDA may designate a drug product as an “orphan drug” if it is intended to treat a rare disease or condition, generally meaning that it affects fewer than 200,000 individuals in the United States, or more in cases in which there is no reasonable expectation that the cost of developing and making a drug product available in the United States for treatment of the disease or condition will be recovered from sales of the product. A company must request orphan drug designation before submitting an NDA for the drug and rare disease or condition. If the request is granted, the FDA will disclose the identity of the therapeutic agent and its potential use. Orphan drug designation does not shorten the PDUFA goal dates for the regulatory review and approval process, although it does convey certain advantages such as tax benefits and exemption from the PDUFA application fee. The first applicant to obtain approval of an orphan drug is eligible for seven years of exclusivity, or twelve years of exclusivity for a biologic, during which FDA may not approve another drug with the same active ingredient for the approved orphan indication unless the subsequent product is shown to be clinically superior.

Patent term restoration and extension

A patent claiming a new drug product or its method of use may be eligible for a limited patent term extension, also known as patent term restoration, under the Hatch-Waxman Act, which permits a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. Patent term extension is generally available only for drug products whose active ingredient has not previously been approved by the FDA. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the ultimate approval date. Patent term extension cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. A patent that covers multiple drugs for which approval is sought can only be extended in connection with one of the approvals. The United States Patent and Trademark Office reviews and approves the application for any patent term extension in consultation with the FDA.

FDA approval and regulation of companion diagnostics

If safe and effective use of a therapeutic depends on an in vitro diagnostic, then the FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic product. In August 2014, the FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion diagnostics. According to the guidance, for novel drugs, a companion diagnostic device and its corresponding therapeutic should be approved or cleared contemporaneously by the FDA for the use indicated in the therapeutic product’s labeling.

REVIEW AND APPROVAL OF DRUGS IN EUROPE AND OTHER FOREIGN JURISDICTIONS

In addition to regulations in the United States, a manufacturer is subject to a variety of regulations in foreign jurisdictions to the extent they choose to sell any drug products in those foreign countries. Even if a manufacturer obtains FDA approval of a product, it must still obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those countries. To obtain regulatory approval of an investigational drug or biological product in the European Union, a manufacturer must submit a marketing authorization application (MAA) to the European Medicines Agency or EMA. For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, clinical trials are to be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.

PHARMACEUTICAL COVERAGE, PRICING AND REIMBURSEMENT

In the United States and markets in other countries, patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Even if our product candidate is approved, sales of our products will depend, in part, on the extent to which third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations, provide coverage, and establish adequate reimbursement levels for, such products. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors are increasingly challenging the prices charged, examining the medical necessity, and reviewing the cost-effectiveness of medical products and services and imposing controls to manage costs. Third-party payors may limit coverage to specific products on an approved list, also known as a formulary, which might not include all of the approved products for a particular indication.

There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. Such reforms could have an adverse effect on anticipated revenue from product candidates that the Pharmaceutical Companies may successfully develop and for which they may obtain marketing approval and may affect their overall financial condition and ability to develop product candidates.

HEALTHCARE LAW AND REGULATION

In addition to FDA restrictions on marketing of drug products, federal and state fraud and abuse laws restrict business practices in the pharmaceutical industry. Restrictions under applicable federal and state healthcare laws and regulations include the following:

Real Estate

The commercial real estate holdings consist of the building at 520 Broad Street in Newark, New Jersey that serves as headquarters for the Company and, certain affiliated entities, an 800-car public garage, and a portion of a building in Israel.

520 Broad Street in Newark New Jersey is a 20-story commercial office building containing approximately 496,000 square feet. The building was completed in 1957 and is of steel-frame construction with cast-in-place concrete floors. The facade is constructed of stone and metal framed glass curtain wall sections. The public garage has three levels, plus additional surface parking that, in total, can accommodate approximately 800 parking spaces. The Newark market is undergoing a renewal with major commercial and residential projects currently in development or coming to the market. The building also sits within an Opportunity Zone. The opportunity zone designation provides multiple potential benefits to an acquirer of an asset in an opportunity zone including a temporary deferral of inclusion in taxable income for capital gains reinvested in an opportunity zone investment; a step-up in basis for capital gains reinvested in an opportunity zone investment; and a permanent exclusion from taxable income of capital gains from the sale or exchange of an investment in an opportunity zone investment if the investment is held for at least 10 years. We continue to seek opportunities to maximize the value of our real estate holdings in multiple ways and we are also evaluating other avenues of maximizing value through redevelopment of vacant space into more marketable and thereby valuable uses.

The building serves as the headquarters of Rafael Holdings, IDT, and Genie Energy, Ltd. (“Genie”), who occupy the second through fourth floors. Currently, approximately 30% of the building is leased, including leases to IDT and Genie.

The IDT lease expires in April 2025 and is for 80,000 square feet and includes two parking spots per thousand square feet of space leased. The annual base rent is approximately $1.6 million. IDT has the right to terminate the lease upon four months’ notice and, upon early termination, IDT will pay a penalty equal to 25% of the portion of the rent due over the course of the remaining term. IDT has the right to lease an additional 50,000 square feet in the building at the same terms as the base lease, in 25,000 square feet increments. Upon expiration of the lease, IDT has the right to renew the lease for another five years on substantially the same terms, with a 2% increase in the rental payments.

The Genie lease expires in April 2025 and is for 8,631 square feet and includes two parking spots per thousand square feet of space leased. The annual base rent is approximately $210,000. Genie has the right to terminate the lease upon four months’ notice and, upon early termination, Genie will pay a penalty equal to 25% of the portion of the rent due over the course of the remaining term. Upon expiration of the lease, Genie has the right to renew the lease for another five years on substantially the same terms, with a 2% increase in the rental payments.

In addition to the IDT and Genie leases, there are three additional leases for space in the building. The first lease is for a portion of the sixth floor for an eleven-year term, of which the first six years are non-cancellable. The second lease is for a portion of the ground floor and basement for a term of ten years, seven months and the third lease is for another portion of the ground floor for a term of ten years, four months. The leases have all commenced. At July 31, 2020 and July 31, 2019, the carrying value of the land, building and improvements at 520 Broad Street was $42.9 million and $43.8 million, respectively.

The real estate holding in Israel is a condominium portion of an office building built in 2004 located in the Har Hotzvim section of Jerusalem, Israel. The condominium is one floor of approximately 12,400 square feet. Har Hotzvim is a high-tech industrial park located in northwest Jerusalem. It is the city’s main zone for science-based and technology companies, among them Intel, Teva and Mobileye. As of July 31, 2020, the space is fully leased to two tenants; one is IDT and another third-party tenant.

Depreciation expense of property, plant and equipment was $1.9 million and $1.8 million in fiscal 2020 and fiscal 2019, respectively.

COMPETITION

The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While Rafael Pharmaceuticals believes that Rafael Pharmaceuticals’ technology, development experience and scientific knowledge provide it with competitive advantages, Rafael Pharmaceuticals faces potential competition from many different companies, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that Rafael Pharmaceuticals successfully develops and commercializes will compete with existing therapies and new therapies that may become available in the future.

Rafael Pharmaceuticals competes in the segments of the pharmaceutical, biotechnology companies that either address cancer metabolism, or developing drugs for pancreatic cancer or AML. Various companies working to develop therapies in the field of cancer metabolism include, but are not limited to, Celgene, Inc. (now part of Bristol-Myers Squibb), Agios Pharmaceuticals, Inc., Pfizer, Inc., Calithera Biosciences, Inc., Sagimet Biosciences, Inc. (previously known as 3V Biosciences. Inc.), Aeglea Bio Therapeutics, Inc., Polaris Pharmaceuticals, Inc., Berg Health, Inc., Rgenix, Inc., Eleison Pharmaceuticals LLC, Forma Therapeutics Holdings LLC, TYME Technologies Inc., and ERYtech Pharma. Some of the key companies developing drugs for pancreatic cancer include, but are not limited to, AB Science, Inc., Ipsen, TYME Technologies Inc. and some of the key companies developing drugs for AML including, but not limited to, GlycoMimetics, Inc., Daiichi Sankyo Company Ltd., AROG Pharmaceuticals, Inc., Delta-Fly Pharma, Astex Pharmaceuticals; and Actinium Pharmaceuticals Inc.

LipoMedix faces competition from (i) other liposome and nanomedicine products in solid tumors (for example, Doxil (ALZA Corporation/Janssen), Onivyde (Ipsen), Abraxane (Celgene, now part of Bristol-Myers Squibb), Nanosomal Docetaxel (Intas/Jina), Lipusu (Luye Pharma); (ii) other drugs for relapsed/refractory advanced colorectal cancer including, but not limited to TAS-102 (Taiho), Regorafenib (Bayer), Fruquintinib (Hutchison), and (iii) other drugs for second line locally advanced pancreatic cancer including, but not limited to EndoTAG-1 + Gemcitabine (SynCore), Methylnaltrexone bromide (Progenics).

Many of our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, nonclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved medicines than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety, convenience, price, the effectiveness of assays or tests that are essential to identifying an appropriate patient population, which we refer to as companion diagnostics, in guiding the use of related therapeutics, the level of biosimilar competition and the availability of reimbursement from government and other third-party payors.

Our competitors may develop and commercialize therapeutics that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any therapeutics that we may develop. Our competitors also may obtain FDA or other regulatory approval for their therapeutics more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers or other third-party and government programs seeking to control healthcare costs.

With respect to our real estate business, we compete for commercial (office and retail) tenants in the areas our buildings are located. The commercial real estate market is highly competitive. Numerous commercial properties compete with us for tenants based on location, rental rates, tenant allowances, operating expenses and the quality and design of the property. Other factors tenants consider are; quality and breadth of tenant services provided, onsite amenities and reputation of the owner and property manager.

There is also competition to acquire real estate, including competition from domestic and foreign financial institutions, REITs, life insurance companies, pension trusts, trust funds, partnerships, individual investors and others. Should we decide to dispose of a property, we will also be in competition with sellers of comparable properties seeking suitable purchasers. However, in 2020 we were able to sell a 3-story, 65,253 square foot office building located in Piscataway, New Jersey for a sales price of $3,875,000, and net proceeds of $3,675,638.

INTELLECTUAL PROPERTY

Licenses

Rafael Pharmaceuticals maintains an exclusive license agreement with the Research Foundation of the State University of New York at Stony Brook, or RF, granting Rafael Pharmaceuticals the exclusive right to make, use and sell products covered under specified technology relating to lipoic acid derivatives with the right to grant sublicenses. This license agreement was subsequently amended in 2004, 2007 and 2017 and relates to Rafael Pharmaceutical’s AEMD class of compounds. Rafael Pharmaceuticals maintains a low single-digit royalty agreement with Altira Capital and Consulting, LLC, pursuant to which Rafael Pharmaceuticals is granted sole ownership of patents directed to lipoic acid derivatives and other technology.

Rafael Pharmaceuticals maintains an exclusive license agreement with Ono Pharmaceutical Co., Ltd, or Ono, whereby Rafael Pharmaceuticals granted Ono an exclusive right to make, use and sell CPI-613^® (devimistat) and related products in Japan, South Korea, Taiwan, and certain countries in Southeast Asia under specified intellectual property held by Rafael Pharmaceuticals. Ono granted to Rafael Pharmaceutical a non-exclusive right under intellectual property held by Ono to make, use, and sell CPI-613^® (devimistat) and related products in countries other than Japan, South Korea, Taiwan, and certain countries in Southeast Asia. Under the license agreement, Ono is required to use commercially reasonable efforts to develop the licensed products in territories licensed to Ono. The agreement may be terminated without cause by Ono or by Rafael Pharmaceuticals for material breach by Ono.

LipoMedix maintains an exclusive license agreement with Yissum Research and Development Company, the technology transfer arm of the Hebrew University of Jerusalem granting LipoMedix the exclusive right to make, use and sell products covered under specified patents relating to the mitomycin lipophilic prodrug and its liposomal formulation (Promitil^®) with the right to grant sublicenses. Lipomedix also maintains an exclusive license agreement with Shaare Zedek Scientific Company, the technology transfer arm of Shaare Zedek Medical Center (SZMC) granting LipoMedix the exclusive right to license any new I.P. developed at SZMC relating to the mitomycin lipophilic prodrug and its liposomal formulation (Promitil^®) with the right to grant sublicenses.

Patents

Rafael Pharmaceuticals patents its technology, inventions, and improvements that it considers important to the development of its business. A patent gives the patent holder the right to exclude any unauthorized use of the subject matter of the patent in those jurisdictions in which a patent is granted. As of October 9, 2020, Rafael Pharmaceuticals owns or in-licenses over ten U.S. patents, over thirty foreign patents registered in various countries, and many pending U.S. and foreign patent applications. Additional patent applications will be filed as studies continue. Patents that Rafael Pharmaceuticals has obtained for its platform technologies and patents that may issue in the future based on Rafael Pharmaceuticals’ currently pending patent applications for its platform technologies are scheduled to expire in years 2028 through 2041. These dates do not include patent term extensions. Rafael Pharmaceuticals has obtained U.S. orphan drug designation for CPI-613^® (devimistat) in the treatment of pancreatic cancer, AML, MDS, Burkitt’s Lymphoma and Peripheral T-cell Lymphoma (PTCL).

Rafael Pharmaceuticals maintains U.S. and international trademarks covering its lead development compound (CPI-613^® (devimistat)) and pancreatic cancer clinical trial (AVENGER 500^®). U.S. and international trademarks are also maintained for potential brand names of devimistat.

As of October 9, 2020, LipoMedix owns or in-licenses several families of U.S. patents. Additional patent applications will be filed as studies continue. Patents that LipoMedix has obtained and patents that may issue in the future based on LipoMedix’s currently pending patent applications for its platform technologies are scheduled to expire in years 2032 through 2035. These dates do not include patent term extensions.

Three new patent applications covering the use of Promitil^®, in combination with other chemotherapies and with radiotherapy, and a reformulation of Promitil with co-encapsulated mitomycin prodrug and doxorubicin have been approved by the USPTO in 2018-2020. The patent portfolio currently comprises 5 granted families of patents and another two applications under review.

MANUFACTURING

The Pharmaceutical Investment Companies do not own or operate, and currently have no plans to establish, any manufacturing facilities or fill-and-finish facilities. The Pharmaceutical Investment Companies currently rely, and expect to continue to rely, on third parties for the manufacture of their product candidates for preclinical and clinical testing, as well as for commercial manufacture of any products that they may commercialize. The Pharmaceutical Investment Companies obtain our supplies from these established contract manufacturers on a purchase order basis and do not have a long-term supply arrangement in place. The Pharmaceutical Investment Companies do not currently have arrangements in place for redundant supply for bulk drug substance or drug product. For all of the product candidates, the Pharmaceutical Investment Companies intend to identify and qualify additional manufacturers to provide the active pharmaceutical ingredient and the formulation and fill-and-finish.

For Rafael Pharmaceuticals, the compounds are organic compounds of low molecular weight, generally called small molecules. They can be manufactured in reliable and reproducible synthetic processes from readily available starting materials. The chemistry is amenable to scale-up and does not require unusual equipment in the manufacturing process. Rafael Pharmaceuticals expects to continue to develop drug candidates that can be produced relatively cost-effectively at contract manufacturing facilities.

LipoMedix’s Promitil^® and other pipeline candidates, are based on an active pharmaceutical ingredient (API) referred to as MLP (abbreviation of mitomycin-C lipid-based prodrug) that is formulated into customized nanoparticles. These nanoparticles consist of lipids and a polyethylene-glycol (PEG) polymer and are known as pegylated liposomes. MLP is currently synthesized by a third party using a proprietary, reliable and reproducible synthetic process from readily available raw materials. The MLP API is then shipped to another third-party facility specialized in liposome manufacture for clinical use. In principle, a single batch of API can serve for manufacture of several batches of Promitil^® liposomes. Nanoparticles represent a complicated manufacturing process as compared to many other pharmaceutical products and is an important area of focus for Lipomedix.

The Pharmaceutical Investment Companies generally expect to rely on third parties for the manufacture of any companion diagnostics they develop.

EMPLOYEES

As of October 1, 2020, Rafael Holdings had 19 employees full time and no part-time employees as follows: 8 employees primarily dedicated to the corporate entity, 6 employees dedicated to the real estate group and 5 dedicated to the Barer group. Rafael Pharmaceuticals employs 33 full-time and 4 part-time employees, who are involved in operations, research and development and LipoMedix employs 2 full-time and 2 part-time employees involved in operations, research and development, in addition to Prof. Gabizon.

Item 1A. Risk Factors.

RISK FACTORS

Our business, operating results or financial condition could be materially adversely affected by any of the following risks associated with any one of our businesses, as well as the other risks highlighted elsewhere in this document, particularly the discussions about competition. The trading price of our common stock could decline due to any of these risks. Note that references to “our”, “us”, “we”, “the Company”, etc. used in each risk factor below refers to the business about which such risk factor is provided.

Our business is subject to numerous risks as described in this section. Some of these risks include:

Risks Related to our Business

Public health threats could have an adverse effect on the Company’s operations and financial results.

In December 2019, a new coronavirus, now known as COVID-19, which has proved to be highly contagious, emerged in Wuhan, China and since has spread around the globe. We actively monitor the outbreak and its potential impact on our operations and those of our holdings. Although our operations are mainly in the United States, we have assets outside of the United States, and some of our pharmaceutical holdings conduct operations, manufacturing and clinical trial activities in Europe and Asia.

The impacts on the operations and specifically the ongoing clinical trials of our pharmaceutical holdings have been actively managed by respective pharmaceutical management teams who have worked closely with the appropriate regulatory agencies to continue clinical trial activities with as minimal impact as possible including receiving waivers for certain clinical trial activities from the respective regulatory agencies to continue the studies.

We have granted a rent concession to two of our retail tenants during the month of April. Additionally, one tenant has not paid rent in June and July 2020 due to the New Jersey state gym closures; however, we do not believe this is recurring and believe that the rental revenues will materially continue as the tenant has resumed paying original contractual rent payments. There is a general degree of uncertainty in the national commercial real estate market based on the COVID-19 pandemic and as a result there is a potential impact to the value of our real estate portfolio.

We have implemented a number of measures to protect the health and safety of our workforce including a mandatory work-from-home policy for our workforce who can perform their jobs from home as well as restrictions on business travel and workplace and in-person meetings.

Due to both known and unknown risks, including quarantines, closures and other restrictions resulting from the outbreak, operations and those of our holdings may be adversely impacted. Additionally, as there is an evolving nature to the COVID-19 situation, we cannot reasonably assess or predict at this time the full extent of the negative impact that the COVID-19 pandemic may have on our business, financial condition, results of operations and cash flows. The impact will depend on future developments such as the ultimate duration and the severity of the spread of the COVID-19 pandemic in the U.S. and globally, the effectiveness of federal, state, local and foreign government actions on mitigation and spread of COVID-19, the pandemic's impact on the U.S. and global economies, changes in our customers' behavior emanating from the pandemic and how quickly we can resume our normal operations, among others. For all these reasons, we may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business.

Risk Related to our Real Estate Assets

Economic, regulatory, and socio-economic changes that impact the real estate market generally, or that could affect patterns of use of commercial office space, may cause our operating results to suffer and decrease the value of our real estate properties.

If our properties do not generate income sufficient to meet operating expenses, and capital expenditures, it may cause our operating results to suffer and decrease the value of our real estate properties. The following factors, among others, may adversely affect the operating performance and long- or short-term value of our properties:

Any of these factors may prevent us from maintaining the value of our real estate properties.

The geography of our real estate holdings may make us particularly susceptible to adverse economic developments in the real estate markets of those areas.

In addition to general, regional and national economic conditions, our operating results are impacted by the economic conditions in New Jersey and Israel. Any adverse economic or real estate developments in New Jersey or Israel, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect our property revenue, and hence net operating income.

The global impact of the COVID-19 pandemic is continually evolving and presents material uncertainty and risk with respect to our financial condition, results of operations and cash flows. The COVID-19 pandemic could negatively impact our real estate business in a number of ways, including:

Our real estate is all commercial property and may leave our profitability vulnerable to a downturn in that sector.

All of our properties are commercial real estate. As a result, we are subject to risks inherent in operating a single type of property. The impact of the downturn in demand for office properties has been more pronounced than if we owned a more fully diversified portfolio of real estate properties.

An increase in real estate taxes may decrease our net operating income from properties.

From time to time our property taxes may increase as property values or assessment rates change or for other reasons deemed relevant by the assessors. An increase in the assessed valuation of a property for real estate tax purposes results in an increase in the related real estate taxes on that property. Although some tenant leases may permit us to pass through the tax increases to the tenants for payment, there is no assurance that renewal leases or future leases will be negotiated on the same basis and we may be responsible for these increases as well as unleased portions of the properties. Increases not passed through to tenants will adversely affect our net operating income and our cash available to pay distributions, if any.

We may suffer uninsured losses relating to real property or pay excessively expensive premiums for insurance coverage.

Although we attempt to ensure that all of our properties are adequately insured to cover casualty losses, there are certain types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Mortgage lenders generally insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage, bridge or mezzanine loans. We cannot be certain that this coverage will continue to be available, or available at reasonable cost, if at all, which could inhibit our ability to finance or refinance our properties. We may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that we will have adequate coverage for any losses we may suffer. In addition, other than any capital reserve we may establish, we will have limited sources of funding to repair or reconstruct any uninsured damaged property, and we cannot assure you that those reserves will be sufficient.

We are dependent on IDT and Genie for a large portion of our revenue and the loss of, or a significant reduction in revenue from IDT and its affiliates would reduce our revenue and adversely impact our results of operations.

We have generated the majority of our revenue from IDT and Genie. In the fiscal year ended July 31, 2020, IDT and Genie accounted for approximately 40% of our revenue. This decrease in concentration was primarily the result of a decrease in revenues from IDT and Genie due to modification of the terms of the leases. The loss of, or a significant reduction in, revenue from IDT and Genie would materially and adversely affect our revenue and results of operations.

The cost of complying with environmental and other governmental laws and regulations may adversely affect us.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations (including those of foreign jurisdictions) relating to environmental protection and human health and safety. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. We also are required to comply with various local, state and federal fire, health, life-safety and similar regulations. Some of these laws and regulations may impose joint and several liability on tenants or owners for the costs of investigating or remediating contaminated properties. These laws and regulations often impose liability whether or not the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The cost of removing or remediating could be substantial. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent a property or to use the property as collateral for borrowing.

Environmental laws and regulations also may impose restrictions on the manner in which properties may be used or businesses may be operated, and these restrictions may require substantial expenditures by us. Environmental laws and regulations provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Third parties may seek recovery from owners of real properties for personal injury or property damage associated with exposure to released hazardous substances. Compliance with new or more stringent laws or regulations or stricter interpretations of existing laws may require material expenditures by us. For example, various federal, regional and state laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by greenhouse gas emissions. Among other things, “green” building codes may seek to reduce emissions through the imposition of standards for design, construction materials, water and energy usage and efficiency, and waste management. We are not aware of any such existing requirements that we believe will have a material impact on our current operations. However, future requirements could increase the costs of maintaining or improving our existing properties or developing new properties.

Our costs associated with complying with the Americans with Disabilities Act may affect cash available for our operations or to pay distributions or make additional investments.

Our real properties are generally subject to the Americans with Disabilities Act of 1990, as amended. Under this Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Act has separate compliance requirements for “public accommodations” and “commercial facilities” generally requiring that buildings and services be made accessible and available to people with disabilities. The Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We attempt to acquire properties that comply with the Act or any relevant law or regulation of a foreign jurisdiction or place the burden on the seller or other third-party, such as a tenant, to ensure compliance with those laws or regulations. However, we cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner.

We may be unable to renew leases or relet space as leases expire.

If tenants decide not to renew their leases upon expiration, we may not be able to relet the space. Even if tenants do renew or we can relet the space, the terms of a renewal or new lease, taking into account among other things, the cost of improvements to the property and leasing commissions, may be less favorable than the terms in the expired leases. In addition, changes in space utilization by tenants may impact our ability to renew or relet space without the need to incur substantial costs in renovating or redesigning the internal configuration of the relevant property. If we are unable to promptly renew the leases or relet the space at similar rates or if we incur substantial costs in renewing or reletting the space, our cash flow and ability to service debt obligations and pay dividends and distributions to security holders could be adversely affected.

We face significant competition for tenants.

The leasing of real estate is highly competitive. The principal competitive factors are rent, location, services provided and the nature and condition of the property to be leased. We directly compete with all owners, developers and operators of similar space in the areas in which our properties are located. Our commercial office properties are concentrated in New Jersey. There are number of competitive office properties in which our properties are located, which may be newer or better located than our properties and could have a material adverse effect on our ability to lease office space at our properties, and on the effective rents we are able to charge.

We face risks associated with property acquisitions.

We may acquire interests in properties, individual properties and portfolios of properties, including large portfolios that could significantly increase our size and alter our capital structure. Our acquisition activities may be exposed to, and their success may be adversely affected by, the following risks:

We may acquire properties subject to both known and unknown liabilities and without any recourse, or with only limited recourse to the seller. As a result, if a liability were asserted against us arising from our ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow. Unknown liabilities with respect to properties acquired might include:

Risks Related to our Pharmaceutical Industry Investments

We depend heavily on the success of Rafael Pharmaceuticals and the future success of its lead product candidate devimistat (CPI-613^® (devimistat)). Clinical trials of the product candidate may not be successful. If Rafael Pharmaceuticals is unable to commercialize its product candidates or experiences significant delays in doing so, our business will be materially harmed.

We have invested a significant amount of capital into Rafael Pharmaceuticals. Their ability to generate product revenue will depend heavily on the successful development and eventual commercialization of their product candidates.

The success of devimistat (CPI-613^® (devimistat)) will depend on many factors, including the following:

Many of these factors are beyond our or their control, including clinical development, the regulatory submission process, potential threats to their intellectual property rights and the manufacturing, marketing and sales efforts of any collaborator. If they or any collaborators do not achieve one or more of these factors in a timely manner or at all, they or such collaborators could experience significant delays or an inability to successfully commercialize devimistat (CPI-613^® (devimistat)) as the most advanced product candidate, which would materially harm our business.

Our pharmaceutical companies may not be able to develop any medicines of commercial value.

Any drug that companies develop in preclinical and clinical studies may not be able to succeed in demonstrating safety and efficacy of the product candidate in human clinical trials. Screening for and identifying product candidates may not result in the discovery and development of commercially viable medicines to treat cancer and other illnesses, the failure of which would harm to our pharmaceutical companies.

The Pharmaceutical Companies may not be successful in their efforts to identify or discover potential product candidates.

The key elements of our strategy are for the Barer Institute to identify, create and test compounds that target alterations found in cancer cells related to its production of energy widely known as cancer metabolism, for Rafael Pharmaceuticals to develop and clinically advance CPI-613 and for LipoMedix to find drug carrier systems such as liposomes or other nanoparticles to deliver effectively and safely powerful anticancer compounds for which minimizing toxicity is critical. A significant portion of the research that Rafael Pharmaceuticals’ and LipoMedix’s (collectively, referred to as “the Pharmaceutical Investment Companies”) are conducting involves new compounds and drug discovery methods and suitable drug delivery systems, including the Pharmaceutical Investment Companies’ proprietary technology. The drug discovery that the Pharmaceutical Investment Companies are conducting using the Pharmaceutical Investment Companies’ proprietary technology may not be successful in identifying compounds that are useful in treating cancer. The Pharmaceutical Investment Companies’ research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons, including:

Research programs to identify new product candidates require substantial technical, financial and human resources. The Pharmaceutical Companies may choose to focus the Pharmaceutical Companies’ efforts and resources on a potential product candidate that ultimately proves to be unsuccessful.

If the Pharmaceutical Companies are unable to identify suitable compounds for preclinical and clinical development, the Pharmaceutical Companies will not be able to obtain product revenue in future periods, which likely would result in significant harm to the Pharmaceutical Companies’ financial position and adversely impact the Pharmaceutical Companies’ valuation.

If clinical trials of the Pharmaceutical Investment Companies’ product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, the Pharmaceutical Investment Companies may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of the Pharmaceutical Investment Companies’ product candidates.

The Pharmaceutical Investment Companies, and any collaborators, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the United States Food and Drug Administration (FDA). Foreign regulatory authorities, such as the European Medicines Agency, or the EMA, impose similar requirements. The Pharmaceutical Investment Companies have not previously submitted a new drug application, or NDA, to the FDA or similar drug approval filings to comparable foreign regulatory authorities for any of the Pharmaceutical Investment Companies’ product candidates. Before obtaining marketing approval from regulatory authorities for the sale of the Pharmaceutical Investment Companies’ product candidates, the Pharmaceutical Investment Companies must conduct extensive clinical trials to demonstrate the safety and efficacy of the Pharmaceutical Investment Companies’ lead product candidates in humans as well as extensive preclinical development followed by extensive human clinical trials for any future candidates.

Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. The Pharmaceutical Investment Companies cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. The clinical development of the Pharmaceutical Investment Companies’ product candidates is susceptible to the risk of failure inherent at any stage of product development, including failure to demonstrate efficacy in a clinical trial or across a broad population of patients, the occurrence of adverse events that are severe or medically or commercially unacceptable, failure to comply with protocols or applicable regulatory requirements and determination by the FDA or any comparable foreign regulatory authority that a product candidate may not continue development or is not approvable. It is possible that even if one or more of the Pharmaceutical Investment Companies’ product candidates has a beneficial effect, that effect will not be detected during clinical evaluation as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of the Pharmaceutical Investment Companies’ clinical trials. Conversely, as a result of the same factors, the Pharmaceutical Investment Companies’ clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any. Similarly, in the Pharmaceutical Investment Companies’ clinical trials the Pharmaceutical Investment Companies may fail to detect toxicity of or intolerability caused by the Pharmaceutical Investment Companies’ product candidates, or mistakenly believe that the Pharmaceutical Investment Companies’ product candidates are toxic or not well tolerated when that is not in fact the case.

Any inability to successfully complete preclinical and clinical development could result in additional costs to the Pharmaceutical Investment Companies, or any future collaborators, and impair the Pharmaceutical Investment Companies’ ability to generate revenue from product sales, regulatory and commercialization milestones and royalties. Moreover, if the Pharmaceutical Investment Companies or the Pharmaceutical Investment Companies’ collaborators are required to conduct additional clinical trials or other testing of the Pharmaceutical Investment Companies’ product candidates beyond those that the Pharmaceutical Investment Companies currently contemplate, if the Pharmaceutical Investment Companies or the Pharmaceutical Investment Companies’ collaborators are unable to successfully complete clinical trials of the Pharmaceutical Investment Companies’ product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, the Pharmaceutical Investment Companies or the Pharmaceutical Investment Companies’ collaborators may:

The Pharmaceutical Investment Companies’ failure to successfully complete clinical trials of the Pharmaceutical Investment Companies’ product candidates and to demonstrate the efficacy and safety necessary to obtain regulatory approval to market any of the Pharmaceutical Investment Companies’ product candidates would significantly harm our investment.

Preclinical development is a long, expensive and uncertain process, and we may terminate one or more of our current preclinical development programs.

We may determine that certain preclinical product candidates or programs do not have sufficient potential to warrant the allocation of resources toward them. Accordingly, we may elect to terminate our programs for and, in certain cases, our licenses to, such product candidates or programs. If we terminate a preclinical program in which we have invested significant resources, we will have expended resources on a program that will not provide a full return on our investment and missed the opportunity to have allocated those resources to potentially more productive uses.

The manufacturing and manufacturing development of our products and product candidates present technological, logistical and regulatory risks, each of which may adversely affect our potential revenue.

The manufacturing and manufacturing development of pharmaceuticals, and, in particular, biologicals, are technologically and logistically complex and heavily regulated by the FDA and other governmental authorities. The manufacturing and manufacturing development of our products and product candidates present many risks, including, but not limited to, the following:

Any of these factors could delay clinical trials, regulatory submissions and/or commercialization of our products for particular diseases, interfere with current sales, entail higher costs and result in our being unable to effectively sell our products.

If we are unable to advance our product candidates through clinical development, obtain regulatory approval and ultimately commercialize our product candidates, or experience significant delays in doing so, our business will be materially harmed.

Commercialization of our product candidates we may develop will require additional preclinical and clinical development; regulatory and marketing approval in multiple jurisdictions, including by the FDA and the EMA; obtaining manufacturing supply, capacity and expertise; building of a commercial organization; and significant marketing efforts. The success of product candidates we may identify and develop will depend on many factors, including the following:

If we do not successfully achieve one or more of these activities in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize any product candidates we may develop, which would materially harm our business. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations.

Any favorable preclinical results are not predictive of results that may be observed in clinical trials.

Even if initial clinical trials in any of our product candidates we may develop are successful, these product candidates we may develop may fail to show the desired safety and efficacy in later stages of clinical development despite having successfully advanced through preclinical studies and initial clinical trials.

There is a high failure rate for drugs proceeding through clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in later stage clinical trials even after achieving promising results in earlier stage clinical trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit, or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development.

Any such adverse events may cause us to delay, limit, or terminate planned clinical trials, any of which would have a material adverse effect on our business, financial condition, results of operations, and prospects.

In addition, the results of preclinical studies may not be predictive of the results of later-stage preclinical studies or clinical trials. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their product candidates.

If the Pharmaceutical Investment Companies, or any collaborators, experience any of a number of possible unforeseen events in connection with clinical trials of the Pharmaceutical Investment Companies’ product candidates, potential clinical development, marketing approval or commercialization of the Pharmaceutical Investment Companies’ product candidates could be delayed or prevented.

The Pharmaceutical Investment Companies or their collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent the Pharmaceutical Investment Companies’ ability to receive marketing approval or commercialize the Pharmaceutical Investment Companies’ product candidates, including:

Product development costs for the Pharmaceutical Investment Companies, or any collaborators, will increase if the Pharmaceutical Investment Companies, or they, experience delays in testing or pursuing marketing approvals and the Pharmaceutical Investment Companies may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization of the Pharmaceutical Investment Companies’ product candidates. The Pharmaceutical Investment Companies do not know whether any preclinical tests or clinical trials will begin as planned, will need to be restructured or will be completed on schedule or at all. Significant preclinical study or clinical trial delays also could shorten any periods during which the Pharmaceutical Investment Companies, or any future collaborators, may have the exclusive right to commercialize the Pharmaceutical Investment Companies’ product candidates or allow the Pharmaceutical Investment Companies’ competitors, or the competitors of any collaborators, to bring products to market before the Pharmaceutical Investment Companies, or any collaborators do and impair the Pharmaceutical Investment Companies’ ability, or the ability of any collaborators, to successfully commercialize the Pharmaceutical Investment Companies’ product candidates and may harm the Pharmaceutical Investment Companies’ business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of the Pharmaceutical Investment Companies’ product candidates. The occurrence of any of these events would negatively impact the value of our investments.

If the Pharmaceutical Investment Companies experience delays or difficulties in the enrollment of patients in clinical trials, the Pharmaceutical Investment Companies’ receipt of necessary regulatory approvals could be delayed or prevented.

The Pharmaceutical Investment Companies or their collaborators may not be able to initiate or continue clinical trials for the Pharmaceutical Investment Companies’ product candidates if the Pharmaceutical Investment Companies or they are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or analogous regulatory authorities outside the United States. Enrollment may be particularly challenging for some of the orphan diseases the Pharmaceutical Investment Companies target in the Pharmaceutical Investment Companies’ programs. In addition, some of the Pharmaceutical Investment Companies’ competitors may have ongoing clinical trials for product candidates that would treat the same indications as the Pharmaceutical Investment Companies’ product candidates, and patients who would otherwise be eligible for the Pharmaceutical Investment Companies’ clinical trials may instead enroll in clinical trials of the Pharmaceutical Investment Companies’ competitors’ product candidates.

Patient enrollment is also affected by other factors including:

Rafael Pharmaceuticals focuses its development activities on patients with rarer or more difficult to treat forms of cancer. As a result, the potential patient populations for Rafael Pharmaceuticals’ clinical trials are narrowed, and Rafael Pharmaceuticals may experience difficulties in identifying and enrolling a sufficient number of patients in Rafael Pharmaceuticals’ clinical trials.

In addition, other companies are conducting clinical trials, or may in the future conduct clinical trials, which may have similar eligibility criteria as the Pharmaceutical Investment Companies’ current or future clinical trials and which could implicate enrollment of patients and selection of clinical trial sites.

Furthermore, the Pharmaceutical Investment Companies rely on contract research organizations, or CROs, and clinical trial sites to ensure the proper and timely conduct of the Pharmaceutical Investment Companies’ clinical trials and while the Pharmaceutical Investment Companies have agreements governing their committed activities, the Pharmaceutical Investment Companies have limited influence over their actual performance. The Pharmaceutical Investment Companies’ or their collaborators’ inability to enroll a sufficient number of patients for the Pharmaceutical Investment Companies’ clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in the Pharmaceutical Investment Companies’ clinical trials may result in increased development costs for the Pharmaceutical Investment Companies’ product candidates, which would cause the value of the Pharmaceutical Investment Companies’ to decline and limit the Pharmaceutical Investment Companies’ ability to obtain additional financing. The occurrence of any of these events would negatively impact the value of our investments.

If serious adverse side effects or unexpected characteristics are identified during the development of the Pharmaceutical Investment Companies’ product candidates, the Pharmaceutical Investment Companies may need to abandon or limit the Pharmaceutical Investment Companies’ development of some of the Pharmaceutical Investment Companies’ product candidates.

All of the Pharmaceutical Investment Companies’ lead product candidates are still in clinical stage development and their risk of failure is high. It is impossible to predict when or if any of the Pharmaceutical Investment Companies’ product candidates will prove effective or safe in humans or will receive marketing approval. Adverse events or undesirable side effects caused by, or other unexpected properties of, the Pharmaceutical Investment Companies’ product candidates could cause us, any future collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of the Pharmaceutical Investment Companies’ product candidates and could result in a more restrictive label, or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities. If adverse effects were to arise in patients being treated with any of the Pharmaceutical Investment Companies’ product candidates, it could require them to halt, delay or interrupt clinical trials of such product candidate or adversely affect the Pharmaceutical Investment Companies’ ability to obtain requisite approvals to advance the development and commercialization of such product candidate. If any of the Pharmaceutical Investment Companies’ product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, the Pharmaceutical Investment Companies, or any future collaborators, may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially show promise in earlier stage testing for treating cancer, or other diseases have later been found to cause side effects that prevented further development of the compound. If the Pharmaceutical Investment Companies are unable to develop any of their product candidates, it would negatively impact the value of our investments.

Results of preclinical studies and early clinical trials may not be predictive of results of future clinical trials.

The outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and the Pharmaceutical Companies could face similar setbacks. The design of a clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. The Pharmaceutical Companies have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if the Pharmaceutical Companies, or future collaborators, believe that the results of clinical trials for the Pharmaceutical Companies’ product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of the Pharmaceutical Companies’ product candidates.

In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same product candidate due to numerous factors, including changes in trial procedures set forth in protocols, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other clinical trial protocols and the rate of dropout among clinical trial participants. If the Pharmaceutical Companies fail to receive positive results in clinical trials of the Pharmaceutical Companies’ product candidates, the development timeline and regulatory approval and commercialization prospects for the Pharmaceutical Companies’ most advanced product candidates, and, correspondingly, the Pharmaceutical Companies’ business and financial prospects would be negatively impacted.

The Pharmaceutical Companies may expend their limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

Because the Pharmaceutical Companies have limited financial and managerial resources, their focus on research programs and product candidates that they may or will identify for specific indications. As a result, the Pharmaceutical Companies may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. The Pharmaceutical Companies’ resource allocation decisions may cause them to fail to capitalize on viable commercial medicines or profitable market opportunities. The Pharmaceutical Companies’ spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable medicines. If the Pharmaceutical Companies do not accurately evaluate the commercial potential or target market for a particular product candidate, they may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for them to retain sole development and commercialization rights to such product candidate.

The Pharmaceutical Companies have never obtained marketing approval for a product candidate and may be unable to obtain, or may be delayed in obtaining, marketing approval for any of their product candidates.

The Pharmaceutical Companies have never obtained marketing approval for a product candidate. It is possible that the FDA or foreign regulatory authorities may refuse to accept for substantive review, any NDAs that the Pharmaceutical Companies submit or may conclude after review of the Pharmaceutical Companies’ data that the relevant application is insufficient to obtain marketing approval of the relevant product candidates. If the FDA, or foreign regulatory authorities, does not accept or approve the Pharmaceutical Companies’ NDAs for any of their product candidates, those authorities may require that the Pharmaceutical Companies conduct additional clinical trials, preclinical studies or manufacturing validation studies and submit that data before they will reconsider the applications. Depending on the extent of these or any other FDA-required trials or studies, approval of any NDA or application that the Pharmaceutical Companies submit may be delayed by several years or may require them to expend more resources than they have available. It is also possible that additional trials or studies, if performed and completed, may not be considered sufficient by the FDA to approve the Pharmaceutical Companies’ NDAs. Any delay in obtaining, or an inability to obtain, marketing approvals would prevent commercialization of the Pharmaceutical Companies’ product candidates, generating revenue and achieving and sustaining profitability. If any of these outcomes occur, the Pharmaceutical Companies may be forced to abandon their development efforts, which could significantly harm the Pharmaceutical Companies’ business and the value of our investments.

Even if any of the Pharmaceutical Companies’ product candidates receives marketing approval, the Pharmaceutical Companies or others may later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, which could compromise the Pharmaceutical Companies’ ability, or that of any future collaborators, to market the product.

Clinical trials of the Pharmaceutical Companies’ product candidates are conducted in carefully defined sets of patients who have agreed to enter into clinical trials. Consequently, it is possible that the Pharmaceutical Companies’ clinical trials, or those of any future collaborator, may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of a product candidate, the Pharmaceutical Companies, or others, discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:

Should any of these events occur, the value of our pharmaceutical investments may be negatively impacted.

Even if any of the Pharmaceutical Companies’ product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

If any of the Pharmaceutical Companies’ product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors and others in the medical community. For example, current cancer treatments like chemotherapy and radiation therapy are well established in the medical community, and doctors may continue to rely on these treatments. If the Pharmaceutical Companies’ product candidates do not achieve an adequate level of acceptance, the Pharmaceutical Companies may not generate significant product revenue and may not become profitable. The degree of market acceptance of the Pharmaceutical Companies’ product candidates, if approved for commercial sale, will depend on a number of factors, including:

The failure to achieve market acceptance could significantly harm the Pharmaceutical Companies’ business and the value of our investments.

If, in the future, the Pharmaceutical Companies are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market the Pharmaceutical Companies’ product candidates, the Pharmaceutical Companies may not be successful in commercializing their product candidates if and when they are approved.

The Pharmaceutical Companies do not have a sales or marketing infrastructure and have little experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved medicine for which the Pharmaceutical Companies retain sales and marketing responsibilities, they must either develop a sales and marketing organization or outsource these functions to other third parties. In the future, the Pharmaceutical Companies may choose to build a focused sales and marketing infrastructure to sell, or participate in sales activities with their collaborators for, some of their product candidates if and when they are approved.

There are risks involved with both establishing the Pharmaceutical Companies’ own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which the Pharmaceutical Companies recruit a sales force and establishes marketing capabilities is delayed or does not occur for any reason, they would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if the Pharmaceutical Companies cannot retain or reposition their sales and marketing personnel.

Factors that may inhibit the Pharmaceutical Companies’ efforts to commercialize their medicines on their own include:

If the Pharmaceutical Companies enter into arrangements with third parties to perform sales, marketing and distribution services, their product revenue or the profitability of product revenue to them are likely to be lower than if the Pharmaceutical Companies were to market and sell any medicines that they develop themselves. In addition, the Pharmaceutical Companies may not be successful in entering into arrangements with third parties to sell and market their product candidates or may be unable to do so on terms that are favorable. The Pharmaceutical Companies likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market the Pharmaceutical Companies’ medicines effectively. If the Pharmaceutical Companies do not establish sales and marketing capabilities successfully, either on their own or in collaboration with third parties, the Pharmaceutical Companies will not be successful in commercializing their product candidates.

The Pharmaceutical Companies face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than they do.

The development and commercialization of new drug products is highly competitive. The Pharmaceutical Companies face competition with respect to their current product candidates, and the Pharmaceutical Companies and their collaborators will face competition with respect to any product candidates that they or their collaborators may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which the Pharmaceutical Companies are developing their product candidates, such as pancreatic cancer and acute myelogenous leukemia amongst others. Some of these competitive products and therapies are based on scientific approaches that are similar to the Pharmaceutical Companies’ approach. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

The Pharmaceutical Companies are developing most of their initial product candidates for the treatment of cancer. There are a variety of available drug therapies marketed for cancer. In many cases, these drugs are administered in combination to enhance efficacy, and cancer drugs are frequently prescribed off-label by healthcare professionals. Some of the currently approved drug therapies are branded and subject to patent protection, and others are available on a generic basis. Many of these approved drugs are well established therapies and are widely accepted by physicians, patients and third-party payors. Insurers and other third-party payors may also encourage the use of generic products. The Pharmaceutical Companies expect that if their product candidates are approved, they will be priced at a significant premium over competitive generic products. This may make it difficult for them to achieve their business strategy of using their product candidates in combination with existing therapies or replacing existing therapies with their product candidates.

Rafael Pharmaceuticals is focused on an area known as cancer metabolism and there are also a number of product candidates in preclinical or clinical development by third parties to treat cancer by targeting cancer metabolism. These companies include large pharmaceutical companies, including, but not limited to, AstraZeneca plc, Eli Lilly and Company, Roche Holdings Inc. and its subsidiary Genentech, Inc., GlaxoSmithKline plc, Merck & Co., Novartis, Pfizer, Inc., and Genzyme, a Sanofi company. There are also biotechnology companies of various sizes that are developing therapies to target cancer metabolism, including, but not limited to, 3V Biosciences, Threshold Pharmaceuticals, Eleison Pharmaceuticals, Forma Therapeutics, Alexion Pharmaceuticals, Inc., BioMarin Pharmaceutical Inc., Calithera Biosciences, Inc., Agios Pharmaceuticals, Inc., Forma Therapeutics Holdings LLC, Shire Biochem Inc., Raze Therapeutics, Inc. and Selvita S.A.

LipoMedix faces competition from (i) other liposome and nanomedicine products in solid tumors (for example, Doxil (Janssen), Onivyde (Ipsen), Abraxane (Celgene)); (ii) other non-liposomal chemotherapeutic drugs in gastrointestinal malignancies recently developed or under development (for example, TAS-102 (Taiho) in colorectal cancer); (iii) biological therapy (including small molecule kinase inhibitors) recently developed or under development for colon cancer (for example Regorafenib (Bayer)); (iv) immunotherapy approaches in gastrointestinal malignancies (for example Merck USA), antibodies and/or vaccinations; and (v) other large companies such as Roche.

The Pharmaceutical Companies’ competitors may develop products that are more effective, safer, more convenient or less costly than any that they are developing or that would render their product candidates obsolete or non-competitive. In addition, the Pharmaceutical Companies’ competitors may discover biomarkers that more efficiently measure metabolic pathways than the Pharmaceutical Companies’ methods, which may give them a competitive advantage in developing potential products. The Pharmaceutical Companies’ competitors may also obtain marketing approval from the FDA or other regulatory authorities for their products more rapidly than the Pharmaceutical Companies may obtain approval, which could result in the Pharmaceutical Companies’ competitors establishing a strong market position before they are able to enter the market.

Many of the Pharmaceutical Companies’ competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than the Pharmaceutical Companies do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of the Pharmaceutical Companies’ competitors. Smaller and other clinical stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with the Pharmaceutical Companies’ in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, the Pharmaceutical Companies’ programs.

Even if the Pharmaceutical Companies or their collaborators are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm the Pharmaceutical Companies’ business.

The commercial success of the Pharmaceutical Companies’ product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of the Pharmaceutical Companies’ product candidates will be paid by third-party payors, including government health administration authorities and private health coverage insurers. If coverage and reimbursement is not available, or reimbursement is available only to limited levels, the Pharmaceutical Companies, or any future collaborators, may not be able to successfully commercialize the Pharmaceutical Companies’ product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us, or any future collaborators, to establish or maintain pricing sufficient to realize a sufficient return on the Pharmaceutical Companies’ or their investments. In the United States, no uniform policy of coverage and reimbursement for products exists among third-party payors and coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage determination process is often a time-consuming and costly process that will require the Pharmaceutical Companies’ to provide scientific and clinical support for the use of their products to each payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.

There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, the Pharmaceutical Companies, or any future collaborators, might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenue the Pharmaceutical Companies are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder the Pharmaceutical Companies’ ability or the ability of any future collaborators to recoup the Pharmaceutical Companies’ or their investment in one or more product candidates, even if the Pharmaceutical Companies’ product candidates obtain marketing approval.

Patients who are provided medical treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Therefore, the Pharmaceutical Companies’ ability, and the ability of any future collaborators, to commercialize any of the Pharmaceutical Companies’ product candidates will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from third-party payors. Third-party payors decide which medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect the Pharmaceutical Companies’ ability or that of any future collaborators to sell the Pharmaceutical Companies’ product candidates profitably. These payors may not view the Pharmaceutical Companies’ products, if any, as cost-effective, and coverage and reimbursement may not be available to the Pharmaceutical Companies’ customers, or those of any future collaborators, or may not be sufficient to allow the Pharmaceutical Companies’ products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us, or any future collaborators, to decrease the price the Pharmaceutical Companies, or they, might establish for products, which could result in lower than anticipated product revenue. If the prices for the Pharmaceutical Companies’ products, if any, decrease or if governmental and other third-party payors do not provide coverage or adequate reimbursement, the Pharmaceutical Companies’ prospects for revenue and profitability will suffer.

There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers the Pharmaceutical Companies’ costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the product and the clinical setting in which it is used. Reimbursement rates may also be based on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.

In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. The Pharmaceutical Companies cannot be sure that coverage will be available for any product candidate that they, or any future collaborator, commercializes and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of the Pharmaceutical Companies’ product candidates for which they, or any future collaborator, obtain marketing approval could significantly harm the Pharmaceutical Companies’ operating results, the Pharmaceutical Companies’ ability to raise capital needed to commercialize products and the Pharmaceutical Companies’ overall financial condition.

Product liability lawsuits against the Pharmaceutical Companies or their collaborators could cause substantial liabilities and could limit commercialization of any medicines that the Pharmaceutical Companies or their collaborators may develop.

The Pharmaceutical Companies and their collaborators face an inherent risk of product liability exposure related to the testing of the Pharmaceutical Companies’ product candidates in human clinical trials and will face an even greater risk if the Pharmaceutical Companies or they commercially sell any medicines that the Pharmaceutical Companies or they may develop. If the Pharmaceutical Companies or their collaborators cannot successfully defend themselves against claims that the Pharmaceutical Companies’ product candidates or medicines caused injuries, the Pharmaceutical Companies could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

Although the Pharmaceutical Companies maintain product liability insurance coverage, it may not be adequate to cover all liabilities that the Pharmaceutical Companies may incur. The Pharmaceutical Companies anticipate that they will need to increase their insurance coverage when the Pharmaceutical Companies continue clinical trials and if the Pharmaceutical Companies successfully commercialize any medicine. Insurance coverage is increasingly expensive. The Pharmaceutical Companies may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. In addition, if one of their collaboration partners were to become subject to product liability claims or were unable to successfully defend themselves against such claims, any such collaboration partner could be more likely to terminate such relationships and therefore substantially limit the commercial potential of the Pharmaceutical Companies’ products.

If the Pharmaceutical Companies fail to comply with environmental, health and safety laws and regulations, they could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of their businesses.

The Pharmaceutical Companies are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. The Pharmaceutical Companies’ operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. The Pharmaceutical Companies’ operations also produce hazardous waste products. The Pharmaceutical Companies generally contract with third parties for the disposal of these materials and wastes. The Pharmaceutical Companies cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from their use of hazardous materials, the Pharmaceutical Companies could be held liable for any resulting damages, and any liability could exceed their resources. The Pharmaceutical Companies also could incur significant costs associated with civil or criminal fines and penalties.

Although the Pharmaceutical Companies maintain workers’ compensation insurance to cover them for costs and expenses they may incur due to injuries to their employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. The Pharmaceutical Companies do not maintain insurance for environmental liability or toxic tort claims that may be asserted against them in connection with their storage or disposal of biological, hazardous or radioactive materials.

In addition, the Pharmaceutical Companies may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair the Pharmaceutical Companies’ research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

The Pharmaceutical Companies rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm the Pharmaceutical Companies’ ability to operate their businesses effectively.

Despite the implementation of security measures, the Pharmaceutical Companies’ internal computer systems and those of third parties with which the Pharmaceutical Companies contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in the Pharmaceutical Companies’ operations, and could result in a material disruption of their clinical and commercialization activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of clinical trial data could result in delays in the Pharmaceutical Companies’ regulatory approval efforts and significantly increase their costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, the Pharmaceutical Companies’ data or applications, or inappropriate disclosure of confidential or proprietary information, the Pharmaceutical Companies could incur liability and their product research, development and commercialization efforts could be delayed.

Even if the Pharmaceutical Companies complete the necessary preclinical studies and clinical trials, the marketing approval process is expensive, time-consuming and uncertain and may prevent them from obtaining approvals for the commercialization of some or all of their product candidates. If the Pharmaceutical Companies or their collaborators are not able to obtain, or if there are delays in obtaining, required regulatory approvals, they will not be able to commercialize, or will be delayed in commercializing, their product candidates, and their ability to generate revenue will be materially impaired.

The Pharmaceutical Companies’ product candidates and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, export and import, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the EMA and comparable regulatory authorities in other countries. Failure to obtain marketing approval for a product candidate will prevent us from commercializing the product candidate. The Pharmaceutical Companies and their collaborators have not received approval to market any of our product candidates from regulatory authorities in any jurisdiction. The Pharmaceutical Companies have only limited experience in filing and supporting the applications necessary to gain marketing approvals and expects to rely on third-party contract research organizations to assist in this process.

Securing marketing approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. The Pharmaceutical Companies’ product candidates may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude the Pharmaceutical Companies obtaining marketing approval or prevent or limit commercial use.

The process of obtaining marketing approvals, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if approval is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidates involved. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent marketing approval of a product candidate. Any marketing approval the Pharmaceutical Companies or their collaborators ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved medicine not commercially viable.

Accordingly, if the Pharmaceutical Companies or their collaborators experience delays in obtaining approval or if the Pharmaceutical Companies or they fail to obtain approval of their product candidates, the commercial prospects for their product candidates may be harmed and their ability to generate any revenue will be materially impaired.

Current and future legislation may increase the difficulty and cost for the Pharmaceutical Companies and any future collaborators to obtain marketing approval of the Pharmaceutical Companies’ other product candidates and affect the prices obtained.

In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of the Pharmaceutical Companies’ other product candidates, restrict or regulate post-approval activities and affect the Pharmaceutical Companies’ ability, or the ability of any future collaborators, to profitably sell any products for which the Pharmaceutical Companies, or they, obtain marketing approval. The Pharmaceutical Companies expects that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and additional downward pressure on the price that the Pharmaceutical Companies, or any future collaborators, may receive for any approved products.

For example, in March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the PPACA. Among the provisions of the PPACA of potential importance to the Pharmaceutical Companies’ business and the Pharmaceutical Companies’ product candidates are the following:

Since January 2017, President Trump has signed two Executive Orders designed to delay the implementation of any certain provisions of the PPACA or otherwise circumvent some of the requirements for health insurance mandated by the ACA. Additionally, on January 22, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain mandated fees under the PPACA, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Further, the Bipartisan Budget Act of 2018, among other things, amends the PPACA, effective January 1, 2019, to increase from 50% to 70% the point-of-sale discount that is owed by pharmaceutical manufacturers who participate in Medicare Part D and to close the coverage gap in most Medicare drug plans, commonly referred to as the “donut hole”. The Trump administration has also announced that it will discontinue the payment of cost-sharing reduction, or CSR, payments to insurance companies until Congress approves the appropriation of funds for the CSR payments. The loss of the CSR payments is expected to increase premiums on certain policies issued by qualified health plans under the PPACA. A bipartisan bill to appropriate funds for CSR payments has been introduced in the Senate, but the future of that bill is uncertain. Further, each chamber of Congress has put forth multiple bills designed to repeal or repeal and replace portions of the PPACA. Although none of these measures has been enacted by Congress to date, Congress may consider other legislation to repeal and replace elements of the PPACA. Any repeal and replace legislation may have the effect of limiting the amounts that government agencies will pay for healthcare products and services. Due to these efforts, there is significant uncertainty regarding the future of the PPACA.

Policy changes, including potential modification or repeal of all or parts of the PPACA or the implementation of new health care legislation could result in significant changes to the health care system, which may prevent The Pharmaceutical Companies from being able to generate revenue, attain profitability or commercialize our drugs. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand or lower pricing for our product candidates, or additional pricing pressures.

Further, there has been heightened governmental scrutiny of pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.

We expect that healthcare reform measures that may be adopted in the future, could have a material adverse effect on the Pharmaceutical Companies industry generally and on our ability to maintain or increase sales of any of our product candidates that they successfully commercialize.

Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

Risk Related to Business Generally

The reporting requirements associated with our being a public company subjects us to significant expenses.

We are a public reporting company and are required to file with the Securities and Exchange Commission reports required by the Exchange Act of 1934. Specifically, among other requirements, we need to file quarterly reports on Form 10-Q, annual reports on Form 10-K and under some circumstances, current reports on Form 8-K, in accordance with strict timelines. We are also required to file annual proxy materials. In addition, as part of those filings, we are required to provide annual audited financial statements. Compliance with such requirements significantly increased our legal and accounting costs and demand significant attention from management. The resources and time required to comply with rules applicable to public companies divert financial and human resources from focusing on our business, and we can provide no assurance that the benefits of our being public outweigh the disadvantages and costs associated with compliance. We currently approximate our total costs to be approximately $2,000,000 a year as a result of being a public reporting company.

Eight trusts for the benefit of sons and daughters of Howard S. Jonas, our Chief Executive Officer and Chairman of the Board of Directors, hold shares that, in the aggregate, represent more than a majority of the combined voting power of our outstanding capital stock, which may limit the ability of other stockholders to affect our management.

Eight trusts for the benefit of sons and daughters of Howard S. Jonas (the “Trusts”), our Chief Executive Officer and Chairman of the Board, collectively have voting power over 5,126,612 shares of our common stock (which includes 787,163 shares of our Class C common stock, which are convertible into shares of our Class B common stock on a 1-for-1 basis, and 4,339,449 shares of our Class B common stock), representing approximately 72.3% of the combined voting power of our outstanding capital stock, as of October 26, 2020. In addition, as of October 26, 2020, Howard S. Jonas holds 104,450 shares of our Class B common stock. Each of the Trusts has a different, independent trustee. We are not aware of any voting agreement between or among any of the Trusts and/or Howard S. Jonas, but if such a voting agreement or other similar arrangement exists or were to be consummated, or if all or several or all of the Trusts were to act in concert, certain or all of the Trusts and/or Howard S. Jonas would be able to control matters requiring approval by our stockholders, including the election of all of the directors and the approval of significant corporate matters, including any merger, consolidation or sale of all or substantially all of our assets. As a result, the ability of any of our other stockholders to influence our management may be limited.

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.

Upon the completion of the Spin-Off, we became a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, a newly public company is not required to comply with either the management or the auditor reporting requirements related to internal control over financial reporting until its second annual report, if applicable.

Further, we qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

We may take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of our initial registration statement filed related to our Spin-Off from IDT, or such earlier time that we are no longer an emerging growth company and, if we do, the information that we provide stockholders may be different than you might receive from other public companies in which you hold equity. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our shares of common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

In addition, if we no longer qualify as an emerging growth company, as an accelerated filer, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our stock.

Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

The relationships between Howard S. Jonas and IDT Corporation, Genie Energy and Rafael Pharmaceuticals, Inc. could conflict with our stockholders’ interests.

Howard S. Jonas, Chairman of our Board of Directors and our Chief Executive Officer is also the chairman of IDT Corporation, chairman of the board of Genie and is chairman of the board of Rafael Pharmaceuticals and holds certain direct and indirect interests in Rafael Pharmaceuticals in addition to his interests through ownership of our common stock. These relationships may cause a conflict of interest with our stockholders.

Furthermore, one additional member of our executive management team serves as an officer of IDT.

We have limited resources and could find it difficult to raise additional capital.

We may need to raise additional capital for operations and in order for stockholders to realize increased value on our securities. Given the current global economy and other factors, if we need to raise additional capital there can be no assurance that we will be able to obtain the necessary funding on commercially reasonable terms in a timely fashion. Failure to receive the funding could have a material adverse effect on our business, prospects, and financial condition.

Our limited operating history makes it difficult to evaluate our business and prospects and may increase your investment risk.

We hold a Warrant to purchase a significant stake in Rafael Pharmaceuticals, as well as other equity and governance rights in Rafael Pharmaceuticals, which we can’t exercise, in full, at this time and may never be able to exercise.

We hold a Warrant to purchase a significant stake in Rafael Pharmaceuticals, as well as other equity and governance rights in Rafael Pharmaceuticals, which we can’t exercise, in full, at this time and may never be able to exercise. We currently own 51% of the issued and outstanding equity in Rafael Pharmaceuticals. Approximately 8% of the issued and outstanding equity is owned by our subsidiary CS Pharma and 42% is held by our subsidiary Pharma Holdings. Our subsidiary Pharma Holdings holds a non-dilutive option to increase our total ownership to 56%. Based on the current shares issued and outstanding of Rafael Pharmaceuticals as of July 31, 2020, we, and our affiliates, would need to pay approximately $16 million to exercise the Warrant in full. On an as-converted fully diluted basis (for all convertible securities of Rafael Pharmaceuticals outstanding), we, and our affiliates would need to pay approximately $104 million to exercise the Warrant in full including additional issuances under the Line of Credit. Howard Jonas holds 10% of the interest in Pharma Holdings and would need to contribute 10% of any cash necessary to exercise any portion of the Warrant. Following any exercise, a portion of our interest in Rafael Pharmaceuticals would continue to be held for the benefit of the other equity holders in Pharma Holdings and CS Pharma. Given the Company’s anticipated available cash, we would not be able to exercise the Warrant in its entirety and we may never be able to exercise the Warrant in full. Rafael Pharmaceuticals may also issue additional equity interests, such as stock options, which will require us to pay additional cash to maintain our ownership percentage or exercise the Warrant in full.

Howard Jonas has the contractual right to receive “Bonus Shares” for an additional 10% of the fully diluted capital stock of Rafael Pharmaceuticals at the time of issuance which is contingent upon achieving certain milestones. If any of the milestones are met and the Bonus Shares are issued, we will need additional cash to maintain our ownership percentage or exercise the Warrant in full.

In connection with entering into the Line of Credit Agreement, Rafael Pharmaceuticals agreed to issue to RP Finance shares of its common stock representing 12% of the issued and outstanding shares of Rafael Pharmaceuticals common stock, with such interest subject to anti-dilution protection as set forth in the Line of Credit Agreement. If additional shares are issued, we will need additional cash to maintain our ownership percentage or exercise the Warrant in full.

Given our complicated ownership in Rafael Pharmaceuticals as described herein, the market doesn’t value and may never fully value our investment in Rafael Pharmaceuticals.

Our limited operating history makes it difficult to evaluate our business and prospects and may increase your investment risk.

We have only a limited operating history upon which you can evaluate our business and prospects. We expect to encounter risks and difficulties frequently encountered by early-stage companies in the industries in which we operate.

We have not yet demonstrated our ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials, obtain marketing approvals, manufacture a commercial scale medicine, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes about ten to fifteen years to develop one new medicine from the time it is discovered to when it is available for treating patients. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history.

In addition, as a new business in general, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.

If we do not successfully address these risks, our revenue could decline and our ability to pursue our growth strategy and attain profitability could be compromised.

Risks Related to Our Financial Condition

We hold significant cash, cash equivalents, and investments that are subject to various market risks.

A of July 31, 2020, we held approximately $6.2 million in cash and cash equivalents, approximately $385 thousand in third-party and related party receivables, approximately $7.5 million in interests in hedge funds and approximately $1.2 million in securities in another entity that are not liquid. Investments in hedge funds carry a degree of risk, as there can be no assurance that we will be able to redeem any hedge fund investments at any time or that our investment managers will be able to accurately predict the course of price movements of securities and other instruments and, in general, the securities markets have in recent years been characterized by great volatility and unpredictability. Our passive interests in other entities are not currently liquid and we cannot assure that they we will be able to liquidate them when we desire, or ever. As a result of these different market risks, our holdings of cash, cash equivalents, and investments could be materially and adversely affected.

General Risk Factors

Investors may suffer dilution.

We may engage in equity financing to fund our future operations and growth or issue equity securities in commercial or other transactions. If we raise additional funds by issuing equity securities, or issue equity securities for other purposes, stockholders may experience significant dilution of their ownership interest (both with respect to the percentage of total securities held, and with respect to the book value of their securities) and such securities may have rights senior to those of the holders of our common stock.

The trading price of the shares of our Class B common stock is likely to remain volatile, and purchasers of our Class B common stock could incur substantial losses.

Our stock price is likely to remain volatile. The stock market in general and the market for real estate/pharmaceutical companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their Class B common stock at or above the price paid for the shares. The market price for our Class B common stock may be influenced by many factors, including:

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts may publish about us and our business. We do not currently have analyst coverage and may never obtain research coverage by equity research analysts. Equity research analysts may elect not to provide research coverage of our common stock after the completion of the Spin-Off, and such lack of research coverage may adversely affect the market price of our common stock. In the event we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts or others downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our principal executive office is located in 520 Broad Street, Newark, New Jersey.

LipoMedix has a Research and Services agreement with Shaare Zedek Scientific Ltd. by which laboratory space at Shaare Zedek Medical Center is used for R&D activities. This agreement is conditioned to grant support for the Shaare Zedek Oncology department either directly from LipoMedix or indirectly through the Israel Innovation Authority Fund (Israel Chief Scientist Office). This arrangement has been in place since 2012, and the grant support is negotiable and renewed on an annual basis. However, there can be no guarantees that Shaare Zedek will continue this agreement in the future.

LipoMedix leases an Administrative Office in Giv’at Ram Hi-Tech Park from the Hebrew University. Rent is $3,600, annually, and the lease agreement runs through 2021.

See Item 1—“Real Estate” for a discussion of properties held by the Company for investment purposes and Item 8—“Financial Statements and Supplemental Data,” for a detailed listing of such facilities. 

Item 3. Legal Proceedings.

On September 17, 2018, LipoMedix was notified of a claim initiated by one of its founders seeking payment of consulting fees in the amount of approximately $377,000 and seeking to place restrictions on LipoMedix’ bank accounts and other assets to protect his claim. LipoMedix did not believe that the individual had the right to receive any payment at the current time. LipoMedix responded to the demand for the placement of restrictions on its assets. In May 2019, LipoMedix received a letter from the other founder requesting payment of his consulting fees. On July 15, 2019, the parties settled the matters and the two founders will be paid a percentage of future investments and certain other proceeds.

On July 12, 2019, the Company received a Citation and Notification of Penalty from the Occupational Safety and Health Administration of the U.S. Department of Labor, or OSHA, related to an OSHA inspection of 520 Broad Street, Newark, New Jersey. The citation seeks to impose penalties related to alleged violations of the Occupation Safety and Health Act of 1970 at 520 Broad Street. On July 31, 2019, the Company filed a Notice of Contest with OSHA contesting the citation in its entirety. On February 14, 2020, the Company entered into a Settlement Agreement with OSHA, as related to the citation received on July 12, 2019. As part of the Settlement Agreement, the Company agreed to pay a penalty of $127,294 in eight quarterly installment payments through November 2021.

The Company accounts for contingencies when a loss is considered probable and can be reasonably estimated. For the matters disclosed above, a legal accrual for approximately $225,000 has been recorded for legal fees and losses believed to be both probable and reasonably estimable, but an exposure to additional loss may exist in excess of the amount accrued.

On December 31, 2019, an employee of the Company filed a complaint in connection with the incident that led to the OSHA inspection noted above for personal injuries against the Company and other parties in the New Jersey Supreme Court for an incident that took place on January 31, 2019 at 520 Broad Street, Newark, New Jersey. The Company intends to vigorously defend this matter. The loss is considered remote and no accrual has been recorded.

The Company may from time to time be subject to legal proceedings that may arise in the ordinary course of business. Although there can be no assurance in this regard, other than noted above, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Item 4. Mine Safety Disclosures.

Not applicable.

Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

PRICE RANGE OF COMMON STOCK

Our Class B common stock trades on the New York Stock Exchange under the symbol “RFL.” Trading commenced on the NYSE American on March 27, 2018 and on November 21, 2019, the Company commenced trading on the New York Stock Exchange.

On October 26, 2020, there were 254 holders of record of our Class B common stock and one holder of record of our Class A common stock. All shares of Class A common stock are beneficially owned by Howard Jonas. The number of holders of record of our Class B common stock does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers. On October 28, 2020, the last sales price reported on the NYSE for the Class B common stock was $16.72 per share.

We do not anticipate paying dividends on our common stock until we achieve sustainable profitability (after satisfying all of our operational needs) and retain certain minimum cash reserves. Distributions will be subject to the need to retain earnings for investment in growth opportunities or the acquisition of complementary assets. The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.

The information required by Item 201(d) of Regulation S-K will be contained in our Proxy Statement for our Annual Stockholders Meeting, which we will file with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference herein.

Performance Graph of Stock

We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.

Issuer Repurchases of Equity Securities

None

Item 6. Selected Financial Data.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities and Exchange Act of 1934 and are not required to provide the information under this item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in this Annual Report. The forward-looking statements are made as of the date of this Annual Report, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K.

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report.

Overview

Rafael Holdings, Inc., (“Rafael Holdings” or the “Company”), a Delaware corporation, owns interests in pre-clinical and clinical stage pharmaceutical companies and commercial real estate assets. The assets are operated as two separate lines of business.

The pharmaceutical holdings include preferred and common equity interests and a warrant to purchase additional equity interests in Rafael Pharmaceuticals, Inc., or Rafael Pharmaceuticals, which is a clinical stage, oncology-focused, pharmaceutical company committed to the development and commercialization of therapies that exploit the metabolic differences between normal cells and cancer cells, and a majority equity interest in LipoMedix Pharmaceuticals Ltd., or LipoMedix, a clinical stage oncological pharmaceutical company based in Israel. In addition, in 2019, we established the Barer Institute ("Barer"), a wholly-owned early stage venture focused on developing a pipeline of therapeutic compounds, including compounds to regulate cancer metabolism. The venture is pursuing collaborative research agreements with leading scientists from top academic institutions. In addition, we have recently initiated efforts to develop other early stage pharmaceutical ventures.

The commercial real estate holdings consist of a building at 520 Broad Street in Newark, New Jersey that serves as headquarters for the Company and certain affiliated entities, and an associated 800-car public garage, an office/data center building in Piscataway, New Jersey and a portion of a building in Israel.

Business Update - COVID-19

In December 2019, a new coronavirus, now known as COVID-19, which has proved to be highly contagious, emerged in Wuhan, China and since has spread around the globe. We actively monitor the outbreak and its potential impact on our operations and those of our holdings. Although our operations are mainly in the United States, we have assets outside of the United States, and some of our pharmaceutical holdings conduct operations, manufacturing and clinical trial activities in Europe and Asia.

The impacts on the operations and specifically the ongoing clinical trials of our pharmaceutical holdings have been actively managed by respective pharmaceutical management teams who have worked closely with the appropriate regulatory agencies to continue clinical trial activities with as minimal impact as possible including receiving waivers for certain clinical trial activities from the respective regulatory agencies to continue the studies.

We have granted a rent concession to two of our retail tenants during the month of April. Additionally, one tenant has not paid rent in June and July 2020 due to the New Jersey state gym closures; however, we do not believe this is recurring and believe that the rental revenues will materially continue as the tenant has resumed paying original contractual rent payments upon the State of New Jersey lifting of closures. There is a general degree of uncertainty in the national commercial real estate market based on the COVID-19 pandemic and as a result there is a potential impact to the value of our real estate portfolio.

We have implemented a number of measures to protect the health and safety of our workforce including a mandatory work-from-home policy for our workforce who can perform their jobs from home as well as restrictions on business travel and workplace and in-person meetings.

Due to both known and unknown risks, including quarantines, closures and other restrictions resulting from the outbreak, operations and those of our holdings may be adversely impacted. Additionally, as there is an evolving nature to the COVID-19 situation, we cannot reasonably assess or predict at this time the full extent of the negative impact that the COVID-19 pandemic may have on our business, financial condition, results of operations and cash flows. The impact will depend on future developments such as the ultimate duration and the severity of the spread of the COVID-19 pandemic in the U.S. and globally, the effectiveness of federal, state, local and foreign government actions on mitigation and spread of COVID-19, the pandemic's impact on the U.S. and global economies, changes in our customers' behavior emanating from the pandemic and how quickly we can resume our normal operations, among others. For all these reasons, we may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business.

Results of Operations

Our business consists of two reportable segments - Pharmaceuticals and Real Estate. We evaluate the performance of our Pharmaceuticals segment based primarily on research and development efforts and results of clinical trials and our Real Estate segment based primarily on results of operations. Accordingly, the income and expense line items below loss from operations are only included in the discussion of consolidated results of operations.

Pharmaceuticals Segment

To date, the Pharmaceuticals segment has not generated any revenues. The entirety of the expenses in the Pharmaceuticals segment relate to the activities of LipoMedix and Barer. Research and development increased for the fiscal year ended July 31, 2020, due to an increase in overall expenses in fiscal 2020 compared to fiscal 2019 due to Barer commencing operations in fiscal 2020. For the years ended July 31, 2020 and 2019, we held a 67% and 51% interest, respectively, in LipoMedix and consolidated our majority interest in LipoMedix.

Our consolidated income and expense for our Pharmaceuticals segment were as follows:

Real Estate Segment

Revenues. Rental and Parking revenues decreased by approximately $21,000 in the fiscal year ended July 31, 2020, compared to the prior fiscal year, primarily due to the decrease in parking as the majority of the customers who were utilizing the parking garage are now working from home due to COVID-19 during fiscal 2020.

Selling, general and administrative expenses.  Selling, general and administrative expenses consists mainly of payroll, benefits, facilities, consulting and professional fees. The increase in selling, general and administrative expenses in the fiscal year ended July 31, 2020 compared to the fiscal year ended July 31, 2019 is primarily due to increased payroll and bonus payments in the first and second quarters of fiscal 2020, as well as increased costs of building maintenance and repairs.

Depreciation expenses. Depreciation expenses increased in the fiscal year ended July 31, 2020 compared to the prior fiscal year due to increased fixed assets in place from building improvements.

Consolidated operations

Our consolidated income and expense line items below income from operations were as follows:

Interest (expense) income, net. Interest (expense) income, net decreased in the year ended July 31, 2020 due to a reduction in cash and marketable securities in connection with the partial exercise of the Warrant in fiscal 2019 as well as the decrease in interest (expense) income related to the conversion of the convertible note in January 2019. Interest income (expense) for the year ended July 31, 2020 totaled approximately $52 thousand of interest income and ($84) thousand of interest expense, respectively. Interest income (expense) for the year ended July 31, 2019 totaled approximately $1.13 million of interest income and ($661) thousand of interest expense, respectively.

Net (loss) gain resulting from foreign exchange transactions.  Net (loss) gain resulting from foreign exchange transactions are comprised entirely from changes in movements in New Israeli Shekels relative to the U.S. Dollar.

Gain on sales of marketable securities. The Company liquidated all marketable securities in January 2019 in connection with the partial exercise of the Warrant.

Impairment of investments - Other Pharmaceuticals. The Company recorded an impairment loss of $0.8 million related to the Company’s investment using the measurement alternative for the year ended July 31, 2020.

Unrealized gain on investments - Hedge Funds. The Company recorded unrealized gains of approximately $2.4 million for the year ended July 31, 2020.

(Provision for) benefit from income taxes. During the year ended July 31, 2020, there was a provision for income taxes for $29 thousand.

Impairment of equity method investment of Altira. The Company recorded an impairment loss of $4.0 million related to the Company’s investment in 33.333% of Altira for the year ended July 31, 2020.

Equity in earnings of RP Finance. In fiscal 2020, the Company recognized approximately $192 thousand in income from its ownership interests of 37.5% in RP Finance.

Net loss attributable to noncontrolling interests. The change in the net loss attributable to noncontrolling interests was due to the net loss attributable to the noncontrolling interests in LipoMedix for the year ended July 31, 2020.

Liquidity and Capital Resources

General

As of July 31, 2020, we had cash and cash equivalents of $6.2 million. We expect our cash from operations in the next 12 months and the balance of cash and cash equivalents that we held as of July 31, 2020, in addition to the subsequent $3.7 million obtained from the sale of our office building in Piscataway, New Jersey in August 2020, and the $2.0 million received from the partial liquidation of our Investments - Hedge Funds in October 2020 to be sufficient to meet our currently anticipated working capital, research and development, and capital expenditure requirements during the next 12 months from the issuance of these consolidated financial statements.

Operating Activities

Our cash flows from operations varies from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically payments of trade accounts payable. The increase in cash used in operating activities for the year ended July 31, 2020 as compared to the year ended July 31, 2019 was primarily related to the increased net loss offset by noncash expense and income items.

Investing Activities

Cash used in investing activities for the year ended July 31, 2020 was related to the initial payments of $0.5 million towards the acquisition of a 33.333% membership interest in Altira for a product-in-development, and $0.5 million related to building improvements made to our real estate holdings.

Cash used in investing activities for the year ended July 31, 2019 related to the exercise of a portion of the Warrant to purchase a 51% equity interest in Rafael Pharmaceuticals for approximately $55.9 million, offset by the net proceeds from the sale of marketable securities of approximately $25.0 million.

Financing Activities

Cash used in financing activities for the year ended July 31, 2020 was related to payments for taxes related to shares withheld for employee taxes, offset by proceeds from exercise of options. The decrease in cash flows from financing activities from the year ended July 31, 2019 was due primarily to the proceeds from issuance of convertible notes and proceeds from shares during the prior fiscal year.

We do not anticipate paying dividends on our common stock until we achieve sustainable profitability and retain certain minimum cash reserves. The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.

Trends and Uncertainties – COVID-19

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged and has subsequently expanded to a pandemic resulting in significant risks and disruptions to the health and welfare of the global population and economy. For the period ended April 30, 2020, COVID-19 has not had a material impact on our operations, and we anticipate that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months.

We actively monitor the outbreak and its potential impact on our operations and those of our holdings. Although our operations are mainly in the United States, we have assets outside of the United States, and some of our pharmaceutical holdings conduct operations, manufacturing and clinical trial activities in Europe and Asia.

The impacts on the operations and specifically the ongoing clinical trials of our pharmaceutical holdings have been actively managed by respective pharmaceutical management teams who have worked closely with the appropriate regulatory agencies to continue clinical trial activities with as minimal impact as possible including receiving waivers for certain clinical trial activities from the respective regulatory agencies to continue the studies.

We have granted a rent concession to two of our retail tenants during the month of April. Additionally, one tenant has not paid rent in June and July 2020 due to the New Jersey state gym closures; however, we do not believe this is recurring and believe that the rental revenues will materially continue as the tenant has resumed paying original contractual rent payments. There is a general degree of uncertainty in the national commercial real estate market based on the COVID-19 pandemic and as a result there is a potential impact to the value of our real estate portfolio.  

We have implemented a number of measures to protect the health and safety of our workforce including a mandatory work-from-home policy for our workforce who can perform their jobs from home as well as restrictions on business travel and workplace and in-person meetings.

Due to both known and unknown risks, including quarantines, closures and other restrictions resulting from the outbreak, operations and those of our holdings may be adversely impacted. Additionally, as there is an evolving nature to the COVID-19 situation, we cannot reasonably assess or predict at this time the full extent of the negative impact that the COVID-19 pandemic may have on our business, financial condition, results of operations and cash flows. The impact will depend on future developments such as the ultimate duration and the severity of the spread of the COVID-19 pandemic in the U.S. and globally, the effectiveness of federal, state, local and foreign government actions on mitigation and spread of COVID-19, the pandemic's impact on the U.S. and global economies, changes in our customers’ behavior emanating from the pandemic and how quickly we can resume our normal operations, among others. For all these reasons, we may incur expenses or delays relating to such events outside of our control, which could have a material adverse impact on our business.

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to revenue recognition, allowance for doubtful accounts, income taxes and valuation of investments and long-lived assets. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See Note 1 to the Consolidated Financial Statements in this Annual Report for a complete discussion of our significant accounting policies. 

Off-Balance Sheet Arrangements

We do not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.

In connection with the Spin-Off, we and IDT entered into a tax separation agreement, which sets forth the responsibilities of IDT and us with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including the Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. IDT is generally responsible for our federal, state, local and foreign income taxes for periods before and including the Spin-Off. We are generally responsible for all other taxes relating to our business. We and IDT will each generally be responsible for managing those disputes that relate to the taxes for which each of us is responsible and, under certain circumstances, may jointly control any dispute relating to taxes for which both of us are responsible.

Item 7A. Quantitative and Qualitative Disclosures about Market Risks.

FOREIGN CURRENCY RISK

Revenue from tenants located in Israel represented 6% and 3% of our consolidated revenues in the fiscal years ended July 31, 2020 and 2019, respectively. The entirety of these revenues is in currencies other than the U.S. Dollar. Our foreign currency exchange risk is somewhat mitigated by our ability to offset a portion of these non U.S. Dollar-denominated revenues with operating expenses that are paid in the same currencies. While the impact from fluctuations in foreign exchange rates affects our revenues and expenses denominated in foreign currencies, the net amount of our exposure to foreign currency exchange rate changes at the end of each reporting period is generally not material.

INVESTMENT RISK

In addition to, but separate from our primary business, we will hold a portion of our assets in hedge funds and a passive investment in another entity. Investments in hedge funds carry a degree of risk and depend to a great extent on correct assessments of the future course of price movements of securities and other instruments. There can be no assurance that our investment managers will be able to accurately predict these price movements. The securities markets have in recent years been characterized by great volatility and unpredictability. Our passive interests in other entities are not currently liquid and we cannot assure that they we will be able to liquidate them when we desire, or ever. Accordingly, the value of our investments may go down as well as up and we may not receive the amounts originally invested upon redemption.

Item 8.  Financial Statements and Supplementary Data. 

The Consolidated Financial Statements of the Company and the report of the independent registered public accounting firm thereon starting on page F-2 are included herein.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of July 31, 2020. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

Management’s Annual Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under management’s supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of July 31, 2020 utilizing the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of July 31, 2020 is effective.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of assets; and provide reasonable assurances that: (1) transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States; (2) receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the Company’s financial statements are prevented or timely detected.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control over Financial Reporting

There were no significant changes made in the Company’s internal control over financial reporting during the fourth quarter of the year ended July 31, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.”

Item 9B. Other Information. 

None.

Part III

Item 10. Directors, Executive Officers and Corporate Governance.

The following is a list of our directors and executive officers along with the specific information required by Rule 14a-3 of the Securities Exchange Act of 1934:

Executive Officers

Howard S. Jonas—Chairman of the Board and Chief Executive Officer

David Polinsky—Chief Financial Officer

Menachem Ash—President and General Counsel

Directors

Howard S. Jonas—Chairman of the Board

Stephen Greenberg

Dr. Boris C. Pasche

Dr. Michael J. Weiss

The remaining information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2019, and which is incorporated by reference herein.

Corporate Governance

We have included as exhibits to this Annual Report on Form 10-K certificates of our Chief Executive Officer and Chief Financial Officer certifying the quality of our public disclosure.

We make available free of charge through the investor relations page of our web site (http://rafaelholdings.irpass.com/) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and all beneficial ownership reports on Forms 3, 4 and 5 filed by directors, officers and beneficial owners of more than 10% of our equity, as soon as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission. We have adopted codes of business conduct and ethics for all of our employees, including our principal executive officer, principal financial officer and principal accounting officer. Copies of the codes of business conduct and ethics are available on our web site.

Our web site and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission.

Item 11. Executive Compensation.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference herein.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference herein.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference herein.

Item 14. Principal Accounting Fees and Services.

The information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference herein.

Part IV

Item 15. Exhibits, Financial Statement Schedules.

(a) The following documents are filed as part of this Report:

Consolidated Financial Statements covered by Report of Independent Registered Public Accounting Firm.

All schedules have been omitted since they are either included in the Notes to Consolidated Financial Statements or not required or not applicable.

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other time. Investors should not rely on them as statements of fact.

(b) Exhibits.

Item 16. Form 10-K Summary

None.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: October 29, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Rafael Holdings, Inc.

Index to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Rafael Holdings, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Rafael Holdings, Inc. (the “Company”) as of July 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, equity and cash flows for the years then ended, and the related notes (collectively referred to as “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

RAFAEL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

RAFAEL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

RAFAEL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY FOR THE YEARS ENDED JULY 31, 2020 AND 2019

 (in thousands, except share and per share data)

See accompanying notes to consolidated financial statements.

RAFAEL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)