Old West Investment Management, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. An average return of 25% was delivered by the fund for the Q1 of 2021, ahead of its S&P 500 benchmark that delivered a 6% return for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Old West Investment Management, in their Q1 2021 investor letter, mentioned Rafael Holdings, Inc. (NYSE: RFL), and shared their insights on the company. Rafael Holdings, Inc. is a Newark, New Jersey-based clinical-stage oncology pharmaceutical company that currently has a $682.7 million market capitalization. Since the beginning of the year, RFL delivered an impressive 76.72% return, extending its 12-month gains to 192.06%. As of April 28, 2021, the stock closed at $41.38 per share.
Here is what Old West Investment Management has to say about Rafael Holdings, Inc. in their Q1 2021 investor letter:
“Rafael Holdings is a holding company that was spun-off from IDT in March 2018 with the following assets:
1) Majority interests in two promising pharma companies, Rafael Pharmaceutical (“Rafael Pharma”, “Pharma”) and Lipomedix.
2) A wholly owned venture focused on developing a pipeline of therapeutic compounds, The Barer Institute.
3) And a portfolio of commercial real estate properties.
We believe that an investment in Rafael Holdings represents an extremely asymmetric opportunity where a portion of the company’s current value is protected by its portfolio of real estate properties, LipoMedix and The Barer Institute, while its stake in Rafael Pharmaceutical is potentially worth many, many multiples of its current market cap. We also believe that the investment is hidden from the broader investment community due its obscure structure, hence the extreme valuation discount. As an example, the company is classified on Bloomberg as an “Investment Company” due to its real estate assets rather than a biotech company where we believe the greatest level of value disconnect exists. The “crown jewel”, Rafael Pharma, has presented at multiple medical conferences, but always as a privately held biotech company. A deeper analysis and knowledge of IDT/Howard Jonas is needed to know that an ownership interest in Pharma is possible through an investment in
Rafael Holdings.Corporate Background
Cornerstone Pharmaceuticals (renamed Rafael Pharmaceuticals in 2018) was founded in 2001 based upon a premise known as Altered Metabolism of cancer cells, or the scientific study that cancer cells produce energy differently than healthy cells. Based on this groundbreaking scientific work, Cornerstone’s founders set off to dedicate their careers to studying the ways that cancer cells produce energy.
In 2012, Howard Jonas was introduced to a Cornerstone Pharma executive, and after learning more about the company and its mission, he offered his services as a board member. Several years into his volunteer service, Jonas had become convinced of the company’s work and was impressed by the scientific and medical clinical trials being conducted at Wake Forest Baptist University. In need of cash to further its research, Howard agreed to fund the company’s future in exchange for the right to own a majority stake in Rafael Pharma through IDT. In addition to IDT’s investment, Howard invested $15 million personally.
As trials progressed, it appeared that IDT might be sitting on an asset that could revolutionize treatment therapies for difficult to treat cancers and deadly diseases. In a Phase I clinical trial at Wake Forest Baptist Medical Center, Rafael dosed 18 patients with its lead compound, CPI-613, in combination with a common chemotherapy regimen, Folfirinox, for patients with Stage IV metastatic pancreatic cancer. Of the 18 patients dosed, 4 experienced a complete response and 8 others had radiographic responses, so an objective response (complete remission or partial remission) rate of 61%. As a comparison, Folfirinox by itself has a complete response (CR) rate of less than 1% and an objective response rate of 31.6%. A few of the patients that experienced remissions from the Phase 1 trial have been vocal advocates for the company and drug in hopes of helping others. You can read one of their incredible and inspirational testimonials on this blog; www.cpi613.com. Based on these incredible results, Rafael Pharma launched a Phase III trial to examine CPI-613 in 500 stage IV metastatic pancreatic cancer patients at 70 locations and successfully completed the trial despite the ongoing impacts of the COVID-19 pandemic.
Given these exciting results, Howard decided to spin-off Rafael Holdings from IDT in 2018 with approximately half of the parent company cash and all of IDT’s real estate assets to fund future trials.
Rafael Pharmaceutical
CPI-613 (Devimistat) is currently conducting numerous clinical trials, including the Phase 3 trial for first line metastatic pancreatic cancer, a Phase 3 trial for acute myeloid leukemia (AML), a Phase 2 trial for relapsed Burkitt’s lymphoma, a Phase II Trial for Fist Line Locally Advanced Pancreatic Cancer, five additional Phase 1/2 trials, and several preclinical studies.
To date, CPI-613 has achieved multiple remissions from some of the deadliest cancers, administered as both a single agent as well as in combination with standard drug therapies.The company expects multiple major milestones this year, led by its Phase III Metastatic Pancreatic Cancer trial. The Phase III trial was fully enrolled this past August, 18 months ahead of schedule. In October, the FDA granted fast track approval, and the company is expecting the data read-out in Q3 of this year. If successful, the treatment would become standard of care and CPI-613 would potentially become a $5+ billion per year Revenue indication for Pancreatic Cancer alone. At a 3-6x Revenue multiple, which is a historical range that big Pharma would pay for an oncology asset like this one, Rafael Holdings’ 50%
stake in Rafael Pharma would be valued at roughly $7.5-$15 billion, or 12x-23x the current market cap. This ignores all of the other indications for CPI-613 and the other assets owned by Rafael Holdings, which could add substantial value to the company.At the world-renowned JPMorgan Healthcare Conference this past January, Rafael Pharma CEO, Sanjeev Luther, disclosed data for the first time from its Compassionate Use Cohort in Metastatic Pancreatic Cancer. Seven First-Line patients and 19 Second-Line Patients have been treated with CPI-613, showing a 71% response rate in first-line and 53% response rate in second-line. There are also four confirmed CR’s in compassionate use out of the first 27 patients. This “unheard of” data, as described by Rafael Pharma’s Management team, confirms the results from the earlier Phase I trial.
Ono Pharmaceutical Out-Licensing Agreement
Rafael Pharma’s June 2019 announced Out-Licensing Agreement with Ono Pharmaceutical to accelerate clinical development and commercialization of CPI-613 in Japan and other Asian countries was one of the major milestones that increased our confidence and comfort as Rafael Holdings shareholders. Under the terms of the agreement, Rafael Pharma received a one-time upfront payment of $12.9 million and up to an additional $150.3 million if certain development and commercial milestones are achieved. We believe Rafael Pharma has already received a portion of the milestone payments following Ono’s commencement of its Phase I study of CPI-613 (ONO-7912 in Japan) for patients with Pancreatic Cancer six months ago. The commencement of this trial and partial milestone payment is indicative of Ono’s confidence in the drug and conviction of success. If successful, Rafael Pharma will also receive low double-digit royalties based on Revenue in Japan, South Korea, Taiwan, and ASEAN (Association of Southeast Asian Nations) countries which would build on top of the above figures and valuation outlining the value creation opportunity.
World Class Management Team
One of the key characteristics that has continued to excite us concerns the caliber of people working for Rafael Holdings and its various subsidiaries. Rafael Pharma Board Members include Dr. Richard Axel, a world-renowned chemist at Columbia University and former Nobel Prize winner in Physiology and Medicine, and Dr. Chi Van Dang, the Director of the Abramson Cancer Center at the University of Pennsylvania and one of the world’s leading authorities on cancer metabolism. 68% owned LipoMedix is led by CEO, Alberto Gabizon. Gabizon is the co-inventor and co-developer of Doxil, a multiple myeloma treatment that generates hundreds of millions in Revenue per year. And Rafael Holdings therapeutics venture, The Barer Institute, is named after Sol Barer, the co-founder of Celgene, an asset acquired by Bristol-Myers for $74 billion in 2019. Barer has agreed to use his name and connections to form and try and replicate the success of Celgene inside of Rafael Holdings. The Barer Institute has already reached collaborative research agreements with leading scientists in the field of cancer at leading academic institutions.
Most excitedly however, was the recent hiring of Ameet Mallik to become Rafael Holdings Chief Executive Officer. Mallik will join Rafael Holdings on May 1st from Novartis where he is currently the U.S. Head of Oncology. It is hard to imagine that the top oncology executive at one of the world’s largest pharmaceutical companies would leave a “cushy” job making millions to take the helm at a tiny biotech company less than 1% of his current employer’s size unless he felt it was a “once in a lifetime” opportunity. Mallik’s employment agreement will give him equity in whatever the future at Rafael looks like (we believe that
Rafael Holdings and Rafael Pharma will merge to become a pureplay biotech with greater float and more liquidity). We estimate that RFL stock would need to appreciate more than 5x from current levels for Mallik to “breakeven” on the move and to account for the opportunity cost of moving from a $15 billion Revenue business inside of Novartis.”
Kalinovskiy/Shutterstock.com
Our calculations show that Rafael Holdings, Inc. (NYSE: RFL) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Rafael Holdings, Inc. was in 9 hedge fund portfolios, compared to 7 funds in the third quarter. RFL delivered a decent 69.60% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
