8-K/A: Rafael Holdings Completes Merger with Cyclo Therapeutics, Bolstering Rare Disease Pipeline

Rafael Holdings finalizes its acquisition of Cyclo Therapeutics, aiming to advance cyclodextrin-based treatments for neurodegenerative diseases.

Summary

• Rafael Holdings, Inc. has completed its merger with Cyclo Therapeutics, Inc.
• The merger involves First Merger Sub merging into Cyclo, followed by Cyclo merging into Second Merger Sub, both subsidiaries of Rafael.
• Rafael issued 7,132,228 shares of Class B common stock in exchange for Cyclo's common stock, based on an exchange ratio of 0.3525.
• Outstanding Cyclo options were converted into options to acquire Rafael Class B common stock.
• Warrants to purchase Cyclo common stock were converted into warrants to purchase Rafael Class B common stock, with some warrant holders electing to receive cash.
• Rafael forgave the outstanding principal and accrued interest on convertible notes due from Cyclo.
• The merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
• Rafael had agreed to fund Cyclo's TransportNPC clinical trial up to a maximum amount of $25 million, including pre-closing funding.
• The fair value of consideration transferred in the merger is estimated at $49.948 million.
• Goodwill recognized is approximately $16.147 million.
• Intangible assets acquired are valued at $1.170 million, and in-process research and development (IPR&D) is valued at $38.200 million.

Sentiment

Score: 7

Explanation: The document is neutral to positive. The merger is a positive development for both companies, but there are also risks and challenges associated with the integration and development of new products.

Positives

• The merger allows Rafael Holdings to consolidate Cyclo Therapeutics' assets and research pipeline.
• Rafael gains access to Cyclo's cyclodextrin-based products for neurodegenerative diseases.
• The merger is structured as a tax-free reorganization, potentially providing tax benefits.
• Rafael had agreed to fund Cyclo's TransportNPC clinical trial up to a maximum amount of $25 million, including pre-closing funding.
• The merger is expected to enhance Rafael's position in the biotechnology sector.

Negatives

• Rafael assumes Cyclo's liabilities as part of the merger.
• The merger involves transaction costs, estimated at $198 thousand for Rafael and $298 thousand for Cyclo.
• Goodwill of $16.147 million is recognized, which could be subject to impairment in the future.
• The combined company will have deferred tax liabilities of approximately $11.4 million.

Risks

• The success of the merger depends on the integration of Cyclo's operations and research programs.
• The acquired IPR&D may not result in successful products.
• The combined company faces risks associated with clinical trials and regulatory approvals.
• The company may need to raise additional capital to fund ongoing operations and research.
• The unaudited pro forma condensed combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings or cost savings that may be associated with the Transactions.

Future Outlook

The combined company will focus on developing cyclodextrin-based products for neurodegenerative diseases, particularly Niemann-Pick Type C disease and Alzheimer's disease. Rafael had agreed to fund Cyclo's TransportNPC clinical trial up to a maximum amount of $25 million, including pre-closing funding.

Industry Context

The merger reflects a trend in the biotechnology industry towards consolidation and strategic acquisitions to expand pipelines and leverage synergies. Rafael Holdings is positioning itself to be a key player in the rare disease treatment market.

Comparison to Industry Standards

• It is difficult to compare the results to industry standards as Cyclo Therapeutics is a clinical stage biotechnology company that develops cyclodextrin-based products for the treatment of neurodegenerative diseases.
• Other companies in the rare disease space include BioMarin Pharmaceutical, Sarepta Therapeutics, and Vertex Pharmaceuticals.
• These companies have significantly higher revenues and market capitalizations compared to the combined Rafael Holdings and Cyclo Therapeutics.

Related Party Transactions

• Since October 2016, we have paid a monthly fee of $5,000 a portion of this which was paid in shares for the year 2024 to a non-profit organization of which C.E. Rick Strattan is the Executive Director, in consideration of consulting services provided to us by Mr. Strattan.
• In June 2019, we engaged Joshua M. Fine, the son of our Chief Executive Officer, to serve as our Chief Financial Officer.
• Kevin J. Strattan, the son of C.E. Rick Strattan, has been employed by us since 2008, and since 2014 has been our Vice President, Finance Compensation.
• Corey E. Strattan, the daughter-in-law of C.E. Rick Strattan, has been employed by us since 2011 as a documentation specialist and logistics coordinator.
• On August 21, 2024, the Company entered into a Merger Agreement with Rafael Holdings, a significant shareholder.
• On April 20, 2023, Scott Fine, Chief Executive Officer and certain board members and an affiliate purchased 784,436 shares of common stock and we issued 784,436 warrants to purchase 784,436 shares of common stock.
• On October 20, 2023, Scott Fine, Chief Executive Officer and certain board members exercised warrants and in exchange were issued new warrants.

Stakeholder Impact

• Shareholders of Cyclo Therapeutics received shares of Rafael Holdings Class B common stock.
• Employees of both companies may experience changes as a result of the integration.
• Patients with Niemann-Pick Type C disease and Alzheimer's disease may benefit from the development of new treatments.
• Suppliers and creditors of both companies may be affected by the merger.

Next Steps

• Integrate Cyclo Therapeutics' operations and research programs into Rafael Holdings.
• Continue clinical trials for Trappsol Cyclo for Niemann-Pick Type C disease and Alzheimer's disease.
• Seek regulatory approvals for Trappsol Cyclo.
• Explore further development and commercialization opportunities for cyclodextrin-based products.

Key Dates

Keywords

merger, Rafael Holdings, Cyclo Therapeutics, acquisition, biotechnology, pharmaceuticals, neurodegenerative diseases, cyclodextrin, TransportNPC, clinical trial, financial statements, convertible notes, warrants, common stock, goodwill, intangible assets, IPR&D