Rafael Holdings’ Cyclo seeks Trappsol Cyclo approval
The NDA also requests a rare pediatric disease priority review voucher.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Rafael Holdings, Inc. reported that subsidiary Cyclo submitted a New Drug Application on October 28, 2026, seeking approval of Trappsol® Cyclo™ for Niemann-Pick Disease Type C in adult and pediatric patients from birth. The pivotal Phase 3 study enrolled 94 patients but did not meet its primary endpoint in the overall population; a prespecified analysis of patients receiving background miglustat and/or leucine showed a statistically significant treatment benefit. Within 60 days of receipt, FDA will determine whether the application is complete and acceptable for filing and, if accepted, whether Priority Review will be granted.
Fiscal 2026 consolidated net loss was $27.954 million, compared with $30.643 million in fiscal 2025; net cash used in operating activities was $29.987 million, versus $18.924 million. Cash and cash equivalents were $22.074 million and working capital $14.830 million as of July 31, 2026. Recurring losses led management to conclude substantial doubt exists about Rafael’s ability to continue as a going concern for at least 12 months from issuance. The company depends on additional capital, with no assurance funding will be available on acceptable terms or at all.
Management also said internal control over financial reporting was ineffective as of July 31, 2026, because Cyclo’s material weakness in accrual and related expense controls remained unremediated.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Hollow bars mark forward-looking points. How the balance works
Positive
- Moderate pointConsolidated net loss narrowed to $27.954 million from $30.643 million in fiscal 2025.
Negative
- Major pointPhase 3 primary endpoint was not met in the overall population.
- Major point. Forward-looking: it has not happened yet and may not happen.Going-concern doubt extends at least 12 months from financial statement issuance.
- Major pointMaterial weakness remained unremediated as of July 31, 2026.
- Moderate pointOperating cash use was $29.987 million, versus $18.924 million in fiscal 2025.
Filing Explained
As of
Key Figures
Key Terms
New Drug Application regulatory
primary endpoint medical
Priority Review regulatory
going concern financial
material weakness financial
PDUFA target action date regulatory
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
What did Rafael Holdings (RFL) report from the Trappsol Cyclo Phase 3 trial?
What is the FDA status of Rafael Holdings (RFL)'s Trappsol Cyclo NDA?
Why does Rafael Holdings (RFL) cite substantial doubt about going concern?
What internal control weakness did Rafael Holdings (RFL) report?
AI-generated analysis. How Rhea-AI works. Not financial advice.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
for the fiscal year ended
or
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices, zip code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
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 ☐
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 ☐
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.
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).
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.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 adjusted closing price on January 30, 2026 (the last business day of the registrant’s most recently completed second fiscal quarter) of the Class B common stock of $1.16 per share, as reported on the New York Stock Exchange, was approximately $
The number of shares outstanding of the registrant’s common stock as of October 26, 2026 was:
| Class A common stock, par value $0.01 per share: | ||
| Class B common stock, par value $0.01 per share: | |
DOCUMENTS INCORPORATED BY REFERENCE
RAFAEL HOLDINGS, INC.
TABLE OF CONTENTS
| Part I | ||||
| Item 1. | Business | 1 | ||
| Item 1A. | Risk Factors | 30 | ||
| Item 1B. | Unresolved Staff Comments | 84 | ||
| Item 1C. | Cybersecurity | 85 | ||
| Item 2. | Properties | 85 | ||
| Item 3. | Legal Proceedings | 85 | ||
| Item 4. | Mine Safety Disclosures | 85 | ||
| Part II | ||||
| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 86 | ||
| Item 6. | [Reserved] | 86 | ||
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 87 | ||
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risks | 94 | ||
| Item 8. | Financial Statements and Supplementary Data | 95 | ||
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 95 | ||
| Item 9A. | Controls and Procedures | 95 | ||
| Item 9B. | Other Information | 96 | ||
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 96 | ||
| Part III | ||||
| Item 10. | Directors, Executive Officers and Corporate Governance | 97 | ||
| Item 11. | Executive Compensation | 98 | ||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 98 | ||
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | 98 | ||
| Item 14. | Principal Accounting Fees and Services | 98 | ||
| Part IV | ||||
| Item 15. | Exhibits, Financial Statement Schedules | 99 | ||
| Item 16. | Form 10-K Summary | 100 | ||
| SIGNATURES | 101 | |||
i
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, including statements regarding FDA’s review of our New Drug Application for Trappsol® Cyclo™, including whether it will be accepted for filing, granted priority review, be approved, or be eligible for or receive a rare pediatric disease priority review voucher. 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.
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. 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 Item 1A. Risk Factors. Some of these risks include:
| ● | We have limited resources and could find it difficult to raise additional capital. |
| ● | Our future success will likely depend on our ability to obtain regulatory approval and successfully commercialize Trappsol® Cyclo™ (remibetadex). If we are unable to do so, or we experience significant delays in doing so, our business will be materially harmed.
|
| ● | We submitted a New Drug Application to FDA for Trappsol® Cyclo™ (remibetadex) on October 28, 2026 based on a Phase 3 trial that did not meet its primary endpoint in the overall population. FDA may refuse to file the NDA, issue a complete response letter, require additional clinical or nonclinical trials, or approve it only for a limited population or with labeling that limits market acceptance. |
| ● | Even if we were to obtain FDA approval for Trappsol® Cyclo™ for treatment of the designated Rare Pediatric Disease NPC, the Rare Pediatric Disease Priority Review Voucher Program may no longer be in effect or may have been revised at the time of any such approval, or we might not be able to capture the value of the Rare Pediatric Disease Priority Review Voucher Program even if the program is still in effect. |
| ● | Preclinical and clinical drug development is a lengthy and expensive process, with an uncertain outcome. Our and the Pharmaceutical Companies’ (as defined in Item 1. Business.) preclinical and clinical programs may experience delays or may never advance, which would adversely affect the ability to obtain regulatory approvals for product candidates, or commercialize any product candidates for which regulatory approval is obtained, on a timely basis or at all, which could have an adverse effect on our business. |
| ● | We and our Portfolio of Companies (as defined in Item 1. Business.) may expend our and their limited resources to pursue a particular product candidate or an 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. |
| ● | We and the Pharmaceutical Companies are dependent upon third parties for a variety of functions. These arrangements may not provide us with the benefits we expect. |
| ● | Results of preclinical studies and early clinical trials may not be predictive of results of future preclinical studies or clinical trials. |
ii
| ● | We and the Portfolio Companies face substantial competition, and if competitors develop and market technologies or products more rapidly than those companies do or that are more effective, safer or less expensive than the product candidates that those companies develop, our commercial opportunities will be negatively impacted. |
| ● | Our or the Pharmaceutical Companies’ product candidates may cause significant adverse events, toxicities or other undesirable side effects when used alone or in combination with other approved products or investigational new drugs that may result in a safety profile that could preclude further development, prevent regulatory approval, prevent market acceptance or limit their commercial potential if regulatory approval were to be received or result in other significant negative consequences. |
| ● | Rafael Medical Devices’ device candidates may cause significant adverse events, toxicities or other undesirable side effects when used alone or in combination with other approved or cleared devices or investigational or approved drugs that may result in a safety profile that could prevent regulatory approval, prevent market acceptance, limit their commercial potential, result in significant negative consequences, or potential product liability claims. |
| ● | We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cyber security incidents, could harm our ability to operate our business and that of the Portfolio Companies effectively. |
| ● | We may not be able to consummate any investment, business combination, or other transaction. |
| ● | We are controlled by our principal stockholder, which limits the ability of other stockholders to affect the management of the Company. |
| ● | If we or the Portfolio Companies are unable to adequately maintain or protect our proprietary technology and product candidates and device candidates and services, if the scope of the patent protection obtained is not sufficiently broad, or if the terms of patents are insufficient to protect product candidates, device candidates, services or technologies for an adequate amount of time, competitors could develop and commercialize technology and products similar or identical to that technology or those product candidates, device candidates and services, and our ability to successfully commercialize technology or product candidates, device candidates or services may be materially impaired. |
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 2026 refers to the fiscal year ended July 31, 2026).
iii
Item 1. Business.
OVERVIEW
Rafael Holdings, Inc. (“Rafael Holdings”, “Rafael”, “we” or the “Company”) is a biotechnology company that develops pharmaceuticals and holds interests in clinical and early-stage companies that develop pharmaceuticals and medical devices. Our lead candidate is Trappsol® Cyclo™ (remibetadex), an investigational therapy for the potential treatment of Niemann-Pick Disease Type C (“NPC”), a rare, fatal and progressive genetic disorder. We have completed the pivotal Phase 3 clinical trial of Trappsol® Cyclo™ and on October 28, 2026 submitted a New Drug Application to the U.S. Food and Drug Administration. We also hold: (i) a majority equity interest in LipoMedix Pharmaceuticals Ltd. (“LipoMedix”), a clinical stage pharmaceutical company; (ii) Barer Institute Inc. (“Barer”), a wholly-owned subsidiary holding equity interests in early stage cancer assets; (iii) a majority equity, and debt, interest in Cornerstone Pharmaceuticals, Inc. (“Cornerstone”), formerly known as Rafael Pharmaceuticals Inc., a cancer metabolism-based therapeutics company; (iv) a majority equity interest in Rafael Medical Devices, LLC (“Rafael Medical Devices”), an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries; and (v) a majority equity interest in Day Three Labs, Inc. (“Day Three”), which empowers third-party manufacturers to bring to market better, cleaner, more precise and predictable versions of their product by utilizing Day Three’s technology and which holds equity and debt interests in two industry related companies. Our primary focus is to obtain FDA approval of Trappsol® Cyclo™, for which we submitted a New Drug Application on October 28, 2026 following the recent completion of Cyclo’s pivotal Phase 3 clinical trial, and, if approved, to bring that product to market. We also evaluate opportunities to expand our investment portfolio through strategic investments, including in therapeutics, that address high unmet medical needs. We continuously evaluate our other holdings to ensure the future focus of our resources is on core assets and specifically the Trappsol® Cyclo™ clinical development and commercialization efforts.
Historically, we owned real estate assets. As of July 31, 2026, we hold a portion of a commercial building in Jerusalem, Israel as our sole remaining real estate asset.
On March 25, 2025, we consummated the Merger (as defined below) with Cyclo whereby Cyclo became a wholly-owned subsidiary. In May 2023, we first invested in Cyclo, a clinical-stage biotechnology company that develops cyclodextrin-based products for the potential treatment of neurodegenerative diseases. Cyclo’s lead drug candidate is Trappsol® Cyclo™ (hydroxypropyl-β-cyclodextrin, IV), a treatment for NPC. NPC is a rare and fatal autosomal recessive genetic disease resulting in disrupted cholesterol metabolism that impacts the brain, lungs, liver, spleen, and other organs. In January 2017, FDA granted Fast Track designation to Trappsol® Cyclo™ for the treatment of NPC. Initial patient enrollment in the U.S. Phase I study commenced in September 2017 and, in May 2020, Cyclo announced Top Line data indicating Trappsol® Cyclo™ was well tolerated in this study. Cyclo has completed its pivotal Phase 3 Clinical Trial evaluating Trappsol® Cyclo™ in Pediatric and Adult Patients with Niemann-Pick Disease, Type C and announced topline data from the study on September 30, 2026. The study did not meet its primary endpoint in the overall population; a prespecified analysis in patients receiving background miglustat and/or leucine therapy demonstrated a statistically significant treatment benefit. On October 28, 2026, Cyclo submitted a New Drug Application (“NDA”) to FDA seeking approval of Trappsol® Cyclo™ for the treatment of the neurovisceral manifestations of NPC in adult and pediatric patients from birth. Within 60 days of receipt, the FDA will determine whether the application is complete and acceptable for filing and, if accepted, whether Priority Review will be granted. If the application is accepted, the FDA will assign a Prescription Drug User Fee Act (PDUFA) target action date. The NDA includes a request for a rare pediatric disease priority review voucher. The United States Adopted Names (“USAN”) Council has assigned the nonproprietary name “remibetadex” to Trappsol® Cyclo™. In addition, on April 16, 2026, Cyclo entered into an exclusive, worldwide, royalty-bearing Patent License Agreement with the Massachusetts Institute of Technology (“MIT”) for certain patent rights relating to small molecules to improve myelination in Alzheimer’s disease and APOE4 carriers, under which Cyclo may develop and commercialize products containing hydroxypropyl-β-cyclodextrin for Alzheimer’s disease.
LipoMedix is a clinical stage Israeli company based in Israel that is focused on the development of a product candidate, Promitil, that holds the potential to be a therapy for cancer based on liposome delivery. As of July 31, 2026, our ownership interest in LipoMedix was approximately 95%. As needed, we provide debt or equity funding to LipoMedix to support its development and clinical efforts. LipoMedix has recently initiated an IST (investigator sponsored study) specifically an open-label, Phase II Single-Arm Trial of PROMITIL Combined with Radiotherapy in patients with Cisplatin-Ineligible Head and Neck Cancer. LipoMedix is also currently exploring strategic options for its lead candidate, including potential licensing opportunities, collaborations with industry partners, and investigator-initiated studies.
In 2019, we established Barer, originally as a preclinical cancer metabolism research operation, to focus on developing a pipeline of novel therapeutic compounds, including compounds designed to regulate cancer metabolism with potentially broader application in other indications beyond cancer. Barer was comprised of scientists and academic advisors that are experts in cancer metabolism, chemistry, and drug development. In addition to its own internal discovery efforts, Barer pursued collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Barer’s majority owned subsidiary, Farber Partners, LLC (“Farber”), was formed around one such agreement with Princeton University’s Office of Technology Licensing (“Princeton”) for technology from the laboratory of Dr. Joshua Rabinowitz, in the Department of Chemistry, Princeton University, for an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. In November 2022, we resolved to curtail its early-stage development efforts, including pre-clinical research at Barer and have, since that date, ceased almost all of such activity. Since then, we have sought partners for Farber programs and have entered into a license agreement for one of its technologies that is in the pre-clinical research stage with the Ludwig Institute of Cancer Research and have transferred majority ownership of another one of its technologies, SHMT, to a new company, Forme Therapeutics, that is being managed by Dr. Joshua Rabinowitz with the goal of developing SHMT while seeking out external investment and partnerships. Going forward, we expect that Barer will primarily operate as an entity holding interest in these two cancer-focused opportunities.
1
On March 13, 2024, Cornerstone consummated a restructuring of its outstanding debt and equity interests (the “Cornerstone Restructuring”). As a result of the Cornerstone Restructuring, Rafael became a 67% owner of the issued and outstanding common stock of Cornerstone (the “Cornerstone Acquisition”), and Cornerstone became a consolidated subsidiary of Rafael. See Note 6 to the Consolidated Financial Statements for additional information on the Cornerstone Restructuring, Cornerstone Acquisition, and RP Finance Consolidation. We are currently reviewing Cornerstone’s current efforts, prospects and available resources to determine the optimal operational direction.
In May 2021, we formed Rafael Medical Devices, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries. In August 2023, Rafael Medical Devices sold an aggregate 31.6% equity interest to third parties for $925,000. In February 2025, we invested approximately $582,000 in cash, and Rafael Medical Devices raised approximately $44,000 from third parties in exchange for Rafael Medical Devices’ Class A Units. In July 2026, we converted the balance of an intercompany promissory note plus accrued interest, totaling $2,087,086, in exchange for Rafael Medical Devices’ Class A Units. As a result, we currently hold an 83% equity interest in Rafael Medical Devices. On December 11, 2024, Rafael Medical Devices received a substantial equivalence determination for the VECTR System from the Food and Drug Administration (“FDA”) in response to Rafael Medical Devices’ 510(k) premarket notification. FDA’s clearance of the VECTR System is for use in minimally invasive ligament or fascia release surgeries, such as carpal tunnel release in the wrist and cubital tunnel release in the elbow. The VECTR System has been classified into Class II and is subject to special controls (performance standards). Rafael Medical Devices’ development of future products will depend upon the success of the VECTR System and our Company’s ability to identify attractive investment and development opportunities.
In January 2024, we entered into a series of transactions with Day Three and certain of its shareholders, acquiring a controlling interest in Day Three and subsequently consolidating Day Three’s results (the “Day Three Acquisition”). On March 14, 2025, Day Three Labs Manufacturing (“DTLM”), a majority-owned subsidiary of Day Three, entered into an Asset Purchase Agreement and Licensing Agreement, pursuant to which DTLM sold assets and licensed certain applications of their Unlokt™ technology used in their cannabinoid ingredient manufacturing business in exchange for equity and debt interests in these companies.
Financial information by segment is presented in Note 17 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 website (https://rafaelholdings.irpass.com) as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Our website also contains information not incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange Commission.
BUSINESS DESCRIPTION
We work to advance the pipeline development of Trappsol® Cyclo™ (remibetadex) as our primary focus and as research and clinical results warrant, continued investment in our other Portfolio Companies, including Cyclo, LipoMedix, Barer, Rafael Medical Devices, Cornerstone and Day Three (collectively the “Portfolio Companies”). We also further seek to expand our portfolio through opportunistic and strategic investments, including investments in therapeutics which address high unmet medical needs. Historically, the Company owned real estate assets. Currently, the Company holds a portion of a commercial building in Jerusalem, Israel as its remaining real estate asset.
2
Portfolio Companies
Overview
We are a biotechnology company that develops pharmaceuticals and holds interests in clinical and early-stage companies that develop pharmaceuticals and medical devices. Our lead candidate is Trappsol® Cyclo™, an investigational therapy for the potential treatment of NPC, a rare, fatal and progressive genetic disorder. We have completed the pivotal Phase 3 clinical trial of Trappsol® Cyclo™ and on October 28, 2026 submitted a New Drug Application to the U.S. Food and Drug Administration. We also hold (i) a majority equity interest in LipoMedix, a clinical stage pharmaceutical company, (ii) Barer, a wholly-owned subsidiary holding equity interests in early stage cancer assets whose operations have been substantially curtailed, (iii) a majority interest in Cornerstone, formerly known as Rafael Pharmaceuticals Inc., a cancer metabolism-based therapeutics company, (iv) a majority equity interest in Rafael Medical Devices, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries, and (v) a majority interest in Day Three, a company which empowers third-party manufacturers to bring to market better, cleaner, more precise and predictable versions of their product by utilizing Day Three’s technology and which holds equity and debt interests in two industry related companies. Our primary focus is to obtain FDA approval of Trappsol® Cyclo™, for which we submitted a New Drug Application on October 28, 2026 following the recent completion of Cyclo’s pivotal Phase 3 clinical trial, and, if approved, to bring that product to market. We also evaluate opportunities to expand our investment portfolio through strategic investments, including in therapeutics, that address high unmet medical needs. We continuously evaluate our other holdings to ensure the future focus of our resources is on core assets and specifically the Trappsol® Cyclo™ clinical development and commercialization efforts.
Cyclo Therapeutics, LLC / Trappsol® Cyclo™
Cyclo Therapeutics, LLC (referred to as Cyclo) is a clinical-stage wholly owned subsidiary that develops cyclodextrin-based products primarily for the potential treatment of NPC and other diseases.
Cyclo filed a Type II Drug Master File with the United States (US) Food and Drug Administration (“FDA”) in 2014 for Trappsol® Cyclo™ (hydroxypropyl-β-cyclodextrin, IV) as a treatment for Niemann-Pick Disease, Type C (“NPC”). NPC is a rare and fatal autosomal recessive genetic disease resulting in disrupted cholesterol metabolism that impacts the brain, lungs, liver, spleen, and other organs. In 2015, Cyclo launched an International Clinical Program for Trappsol® Cyclo™ as a potential treatment for NPC. In 2016, Cyclo filed an Investigational New Drug application (“IND”) with FDA and was notified by FDA that its study may proceed for its initial Phase I Protocol. In addition to the ongoing clinical development program within the IND, Trappsol® Cyclo™ has been granted Orphan Drug Designation (May 2010), Fast Track Designation (January 2017), and Rare Pediatric Disease Designation (December 2017) by FDA. It is recognized that a Pediatric Study Plan (PSP) is not required for non-oncology products with Orphan Drug status in the US, however, a Pediatric Investigational Plan (PIP) has been agreed with the European Medicines Agency (EMA) for Trappsol® Cyclo™ which includes clinical trials in patients from birth to less than 18 years of age. Cyclo has also received Orphan Drug Designation in Europe (April 2015). If Trappsol® Cyclo™ were to be approved under an orphan-designated indication, it would provide Cyclo with the exclusive right to sell Trappsol® Cyclo™ for the treatment of NPC for seven years in the United States following FDA drug approval, and would provide 10 years of market exclusivity in Europe following EMA regulatory approval. An additional two years of exclusivity in Europe could be added upon acceptance by the EMA’s Pediatric Committee of Cyclo’s pediatric investigation plan (PIP) demonstrating that Trappsol® Cyclo™ addresses the pediatric population.
On December 1, 2017 FDA granted Cyclo’s request and designated hydroxypropyl-β-cyclodextrin for treatment of Niemann-Pick disease type C (NPC) as a drug for a “rare pediatric disease,” as defined in section 529(a)(3) of the Federal Food, Drug and Cosmetic Act (FD&C Act) (21 U.S.C. 360ff(a)(3)). Rare Pediatric Disease designation by FDA enables priority review voucher eligibility upon U.S. marketing approval of a designated drug for a rare pediatric disease. The Rare Pediatric Disease Priority Review Voucher, or PRV, program is intended to encourage development of therapies to prevent and treat rare pediatric diseases. The voucher, subject to meeting eligibility requirements and current statutory deadlines, could be awarded to the sponsor of a designated rare pediatric disease product application in the event that its New Drug Application (“NDA”) or Biologics License Application (“BLA”) receives FDA approval. Once received, the voucher could be used by us, or sold or transferred to another entity and used by that new holder of the voucher, to receive priority review for a future NDA submission, which generally can reduce FDA review time of such future submission to six months.
3
NPC is a devastating lysosomal storage disorder which can occur in both the pediatric and adult population. Many children diagnosed with NPC die before their fifth birthday. This has a significant public health impact in relation to the resources required to support the needs of patients and their families. The manifestation of NPC is extremely varied, with some patients suffering from different severities of systemic effects such as hepatomegaly and other organomegalies and/or neurological effects which have significant impact on quality of life and ability to thrive. Despite two FDA-approved products treating various aspects of the disease, there still remains an unmet medical need and new therapies are urgently required.
Trappsol® Cyclo™ is an investigational new drug designed to deliver a first-in-class proprietary cyclodextrin formulation that is administered intravenously (IV) in order to mobilize lysosomal cholesterol. Trappsol® Cyclo™ is designed to directly impact the root cause of NPC by mobilizing cholesterol from late-stage endosomes and lysosomes. The Trappsol® Cyclo™ development program includes 5 studies: 1 completed Phase 1 study, 1 completed Phase 1/2 study, 1 ongoing Open Label Extension (OLE) study to the completed Phase 1 study, 1 completed Phase 3 study and a sub-study (outside the US) under the Phase 3 study in accordance with the current PIP agreed with the EMA. The PIP covers patients from birth to less than 18 years of age.
In completed and ongoing studies, treatment of NPC with IV Trappsol® Cyclo™ has indicated engagement on central and peripheral neurologic symptoms associated with NPC. Furthermore, biochemical markers of cholesterol mobilization indicate the potential to be able to ameliorate systemic disease. Subject to FDA’s review of our NDA and EMA’s review of any future application for regulatory approval, Trappsol® Cyclo™ treatment may hold the potential to offer a significant improvement to quality of life, life expectancy and unmet medical need of patients with NPC.
Cyclo also continues to operate its legacy fine chemical business, consisting of the sale of cyclodextrins and related products to the pharmaceutical, nutritional, and other industries, primarily for use in diagnostics and specialty drugs.
Cyclo’s core business has transitioned to a biotechnology company primarily focused on the development of cyclodextrin-based biopharmaceuticals for the potential treatment of NPC and other diseases.
Global Phase 3 Clinical Study (TransportNPCTM)
We recently completed our TransportNPCTM Phase 3 multicenter, double-blind, randomized, placebo-controlled pivotal trial to evaluate the safety, tolerability, and efficacy of 2000 mg/kg of Trappsol® Cyclo™ (administration as a slow infusion over 6.5 hours every 2 weeks) and standard of care, or SOC, compared to placebo and SOC in patients with NPC. The trial was authorized in more than 30 sites across 13 countries (Argentina, Australia, Brazil, Germany, Israel, Italy, Poland, Saudi Arabia, Spain, Taiwan, Turkey, UK and US). It fully enrolled 94 patients for a total study duration period of four years, inclusive of a 2-year open-label extension, or OLE. The primary endpoint was mean change in 5D-NPC-CSS and 4D-NPC-CSS composite severity score, with secondary endpoints of SCAFI, PAS following swallowing (via video fluorography), and Vineland-2. Enrollment of the planned 94 patients was completed in May 2024 and, as such, the interim analysis (planned to be conducted when all 94 patients have reached the 48 week timepoint) was conducted in June 2025. In June 2026, the study achieved its Last Patient, Last Visit (LPLV) milestone after all 94 enrolled patients completed the 96-week evaluation period. This concluded the double-blind phase of the study. Data from the 94-patient trial, with patients ranging in age from 3 to 70 years, indicated that Trappsol® Cyclo™ (2000 mg/kg administered intravenously every two weeks) was well-tolerated and indicated a directionally favorable treatment effect. The complete dataset has been submitted to FDA as part of the NDA and remains subject to FDA review. The Phase 3 study did not meet the primary endpoint in the overall population; a prespecified analysis in patients receiving background miglustat and/or leucine therapy demonstrated a statistically significant treatment benefit.
On October 28, 2026, Cyclo submitted a New Drug Application (“NDA”) to FDA seeking approval of Trappsol® Cyclo™ for the treatment of the neurovisceral manifestations of NPC in adult and pediatric patients from birth. Within 60 days of receiving the application, the FDA will determine whether the application is complete and acceptable for filing and, if accepted, whether Priority Review will be granted. If the application is accepted, the FDA will assign a Prescription Drug User Fee Act (PDUFA) target action date. The NDA includes a request for a rare pediatric disease priority review voucher.
This Phase 3 study also includes an open-label sub-study which would include newborn patients to less than three years of age primarily for safety, but also to provide outcome data on global severity and improvement in response to Trappsol® Cyclo™ from both the investigator and patient/family perspective (CGI-S, CGI-C, CaGI-S, CaGI-C, and CaGI-C24). The study fully enrolled in May 2024 and enrolled 10 patients, and 2 patients discontinued after 48 weeks (caregiver decision). Provided below is a summary of the data from this sub-study:
| ● | At baseline, sub-study patients had a mixture of very mild to severe disease based on the Clinical Global Impression – Severity (CGI-S) scale; |
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| ● | Out of the 10 patients, based on each patient’s last available assessment compared to baseline, three patients showed sustained improvement in CGI-S score, four patients remained stable, two patients showed sustained worsening, and one patient showed transient improvement at earlier visits that was not sustained, returning to baseline; |
| ● | Adverse Event (AE) profile appears to be consistent with prior findings from earlier studies, and from the larger Phase 3 TransportNPC™ study that is irrespective of age and disease severity; |
| ● | As of May 2025, there were 122 AEs: 94 reported as mild, 27 reported as moderate, and 1 event as severe; and |
| ● | No SAEs were considered by the principal investigators as related to or possibly related to study drug. |
In summary, this open-label sub-study suggests that long-term treatment with Trappsol® Cyclo™ in patients with NPC is considered well tolerated, with treatment emergent adverse events that are monitorable and manageable, and only hearing loss and acute infusion reactions continue to be identified as Adverse Events of Special Interest (AESI). The benefit-risk profile of Trappsol® Cyclo™ is considered to continue to be acceptable based upon a consistent safety and tolerability profile across clinical studies and age groups, thus in Cyclo’s view supporting the continued investigation of Trappsol® Cyclo™ in NPC.
European and Israeli Phase I/II Clinical Study
A multicenter, Phase I/II, randomized, blinded, parallel-group study has been conducted to compare the pharmacokinetics, or PK, of 3 different single IV doses of Trappsol® Cyclo™ in patients with NPC and to evaluate the efficacy and tolerability of the 3 different dosages of Trappsol® Cyclo™ in patients with NPC after 48 weeks of treatment. Patients received IV infusions of Trappsol® Cyclo™ at doses of 1500 mg/kg, 2000 mg/kg, or 2500 mg/kg body weight over 8–9 hours every 2 weeks for a 48-week period, with a follow-up evaluation 28 days after their last study visit.
A total of 12 patients were enrolled, randomized, and received study treatment. Nine (9) of the 12 patients completed the study (2 of 5 patients in the 1500 mg/kg group; all 4 patients in the 2000 mg/kg group; and all 3 patients in the 2500 mg/kg group completed the study). Three patients, all in the 1500 mg/kg group, discontinued the study for non-safety-related reasons.
The objective of this study was to assess the effectiveness of Trappsol® Cyclo™ in the management of NPC by evaluation of the number of individual domains of the overall score in which an improvement was observed over 48 weeks of treatment. Outcome measures included at least a 1-point reduction (improvement) in 2 or more of the 17D-NPC-CSS domains and improvements in Caregiver Global Impressions – Severity (CGI-S) ratings. Provided below is a summary of the data:
| ● | 8 of 9 completers (89%) met the 1-point reduction in 2 or more of the 17D-NPC-CSS domains; one patient worsened overall using the 17D-NPC-CSS measure, and 8 patients met the primary measure. |
| ● | Of the 8 who met the 1-point reduction in 2 or more of the 17D-NPC-CSS domains, 6 (75%) improved in at least one of the 5 domains judged by patients and their caregivers to be the most important for their quality of life (Ambulation, Fine Motor, Speech, Swallow, and Cognition). |
| ● | 7 of 9 (78%) showed improvements in Caregiver Global Impressions – Severity (CGI-S) ratings. |
In summary, this study indicated that treatment with Trappsol® Cyclo™ crosses the blood brain barrier, showed improvements in neurological features of NPC, and was well-tolerated.
US Phase 1 Clinical Study
A Phase 1 study was conducted to evaluate the single and multiple-dose pharmacokinetics of IV Trappsol Cyclo (HPβCD) in patients with Niemann-Pick disease Type C (NPC) and the effects of dosing upon biomarkers of NPC disease.
This study was a 14-week study assessing 2 dose levels administered IV every 2 weeks:
| ● | low-dose: 1500mg/kg | |
| ● | high-dose: 2500mg/kg |
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Endpoints included safety, pharmacokinetics (PK) and pharmacodynamics (PD) of Trappsol® Cyclo™ in peripheral tissues and the CNS in adult patients with NPC. Specifically, these parameters were assessed via serum, plasma and Cerebrospinal Fluid (CSF) biomarkers and liver assessments after 7 IV infusions (14 weeks).
In total, 13 subjects were enrolled and 10 completed all study visits (6 patients at the 1500 mg/kg dose and 4 at the 2500 mg/kg dose completed the study) and 3 patients discontinued for non-safety-related reasons. Overall, both dose groups were well-tolerated, with no significant laboratory findings and very few TEAEs being reported in either dose group.
The observed PK profile of Trappsol® Cyclo™ was similar following the first and seventh infusions, with a plasma half-life of 2 hours (h), a maximum plasma concentration reached at 6 to 8 h, and no evidence of accumulation. Based on Cmax values, systemic exposure was predicted to increase on average 1.2- to 1.5-fold for a doubling in dose. The geometric mean clearance (76.9 – 112 mL/h/kg) was similar to the glomerular filtration rate. Trappsol® Cyclo™ was first detected in the CSF 4 h following the start of the infusion (first timepoint measured) for both dose groups. The highest CSF concentrations measured were 48.3 μg/mL (mean at 12 h, 33 μM) for the 1500 mg/kg group and 37.8 μg/mL (mean at 12 h, 25 μM) for the 2500 mg/kg group. CSF samples were not collected after this time point, precluding the ability to calculate a half-life (t1/2) for the drug in CSF. Trappsol® Cyclo™ persisted in the CSF for several hours after the IV infusion had ended.
The PD effect of storage of unesterified cholesterol in liver, the prime organ of cholesterol production and metabolism, was significantly increased at baseline and was down to normal levels at 14 weeks of treatment, depending on dose, indicating a significant mobilization of lysosomal liver cholesterol over 14 weeks. Serum levels of lathosterol, a marker of whole-body cholesterol synthesis, decreased transiently over several days after the first Trappsol® Cyclo™ infusion indicating increased availability of cholesterol to intracellular sites. The level of reduction post-infusion was reduced after 7 treatment cycles in line with a normalization of hepatic cholesterol metabolism and storage. Serum levels of 4β-hydroxycholesterol, a marker of cholesterol catabolism, increased significantly after the first infusion, a pattern that reduced after 7 treatment cycles, again indicating a normalization of visceral cholesterol metabolism.
24(S)-hydroxycholesterol (24(S)-HC) is a cholesterol metabolite produced by neurons in the CNS. While cholesterol does not cross the blood brain barrier (BBB), 24(S)-HC is transported across the BBB into the circulation and accounts for more than 50% of cholesterol export from the CNS. It increased significantly during the week following the first infusion with Trappsol® Cyclo™, with a peak in the mean serum concentration at 128.02% of the baseline value. This indicates increased availability of neuronal cholesterol for degradation in the neuronal endoplasmic reticulum (ER) in the days post-treatment. Again, this effect was reduced at Week 13, indicating a reduction in lysosomal cholesterol storage in neurons. Importantly, the quantity exported corresponds only to a few milligrams per treatment cycle, a minor fraction of cholesterol stored and mis-localized in the brain of NPC patients. The magnitude of this effect can be interpreted as a sign of primary redistribution of cholesterol in the CNS to cellular locations downstream of the E/L compartment, while only a small fraction is excreted as 24(S)-HC.
Finally, the level of tau-protein, a marker indicating neuro-inflammatory and neuro-degenerative processes in the brain, showed a tendency to a post-treatment transient increase after the first infusion and an overall reduction at the end of the study in 8 out of 10 patients.
The results from the completed Phase I study support the anticipated mechanism of action of systemically (IV) administered Trappsol® Cyclo™ in mobilizing intracellular cholesterol stores in the liver and the CNS in subjects with NPC as shown previously by nonclinical studies and indicate that it was well-tolerated.
An OLE study was open to patients in the US who have completed the Phase I study and collects important longer term safety and efficacy data. All patients are currently receiving 1500 mg/kg Trappsol® Cyclo™ in-home infusions every 2 weeks. Three patients remain on this study with the longest having reached over 5 years of treatment. This study continues to be well-tolerated.
LipoMedix
LipoMedix is a clinical stage company, based in Israel, focused on the development of a product candidate, Promitil®, that holds the potential to be an innovative, safe, and effective cancer therapy based on liposome delivery. As of July 31, 2026, the Company’s ownership interest in LipoMedix was approximately 95%. As needed, the Company provides funding to LipoMedix through intercompany promissory notes which are used to support research and development activities. LipoMedix is currently conducting an Investigator Initiated Study at Assuta Ashdod Medical Center in Israel while additionally exploring strategic options for the Promitil® program, including potential licensing opportunities, collaborations with industry partners, and investigator-initiated studies.
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About Promitil®:
LipoMedix was established to advance the pharmaceutical and clinical development of a patented prodrug of mitomycin-C (MMC) and its efficient delivery in liposomes to cancer cells. This proprietary molecule, known as Promitil – pegylated liposomal mitomycin-C lipidic prodrug (PL-MLP) – is designed with the goal of overcoming the toxicity associated with the clinical use of mitomycin-C and turns it into a targeted, anticancer therapeutic that could potentially become a treatment in a variety of cancers with high unmet medical need. The inventor and scientific founder, of LipoMedix is Alberto Gabizon, M.D., Ph.D., of the Hebrew University – Shaare Zedek Medical Center, Israel. He is 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 designed with the goal of providing targeted delivery of MMC in a proprietary prodrug form. Based upon data available to date, Promitil® appears to have the potential to confer tumor targeting advantage due to the enhanced permeability and retention effect (EPR) of liposomes. Once in the tumor cells, the prodrug is converted to the active drug (MMC) by thiolytic agents abundantly present in tumor tissues, and MMC induces DNA cross-linking leading to tumor cell death. In preclinical studies, Promitil® appeared to inhibit cancer cells growth in animal models (pancreatic, colorectal, stomach, breast, ovarian, melanoma, bladder), including multidrug resistant tumors, as monotherapy as well as in combination with radiotherapy and/or approved cancer drugs.
LipoMedix has completed 4 clinical studies with Promitil® including:
| ● | Phase 1A, a dose escalation study of Promitil in patients with advanced cancers. (Golan T, Grenader T, Ohana P, Amitay Y, Shmeeda H, La-Beck NM, Tahover E, Berger R, Gabizon A. Pegylated liposomal mitomycin C prodrug enhances tolerance of mitomycin C: a phase 1 study in advanced solid tumor patients. Cancer Medicine. 2015;4(10):1472-83.) |
| ● | Phase IB in advanced colorectal cancer patients with Promitil as single agent and in combination with capecitabine and/or bevacizumab. (Gabizon A, Tahover E, Golan T, Geva R, Perets R, Amitay Y, Shmeeda H, Ohana P. Pharmacokinetics of mitomycin-c lipidic prodrug entrapped in liposomes and clinical correlations in metastatic colorectal cancer patients. Invest New Drugs. 2020;38(5):1411-1420.) |
| ● | Phase 1B of Promitil-based chemo-radiotherapy in patients with advanced cancers. (Sapir E, Pffefer R, Wygoda M, Purim O, Levy A, Corn B, Amitay Y, Ohana P, Gabizon A. Pegylated Liposomal Mitomycin C Lipidic Prodrug in Combination with External Beam Radiation Therapy in Patients with Advanced Cancer: A Phase 1 Study. Int J Radiat Oncol. 2023; Volume 2023.) |
| ● | Phase 2A of Promitil Treatment of Patients With Solid Tumors Associated With Deleterious Mutations Who Have Progressed After Therapy (CSR yet to be finalized) |
In these four clinical studies, over 140 patients were treated with Promitil® as a single agent or in combination with other anticancer drugs or radiotherapy under a United States IND to assess the safety, PK profile, and preliminary efficacy, in addition to 40 patients who were treated under a compassionate use program. Promitil® was given by intravenous infusion once every 3 or 4 weeks and appeared to be well-tolerated at a dose up to 2 mg/kg. Except for mild myelosuppression, no other toxicities such as skin irritation, mouth ulcers, neuropathic pain, diarrhea, or hair loss were reported in these studies. Promitil® was stable in plasma with a half-life of approximately 20 hours (vs 40-50 minutes for naked MMC).
Next Steps:
The standard of care for locally advanced head and neck squamous cell carcinoma relies heavily on combining definitive radiotherapy with cisplatin, a powerful chemotherapy agent that acts as a radiosensitizer to make tumors more vulnerable to radiation. However, cisplatin is notoriously harsh and is frequently associated with severe kidney damage, permanent hearing loss, and debilitating neuropathy. Because many patients facing this diagnosis are older, frail, or have pre-existing health conditions, a significant portion of them are deemed entirely ineligible for cisplatin. Unfortunately, the current alternative treatments for this vulnerable population often yield inferior survival outcomes or introduce their own severe side effects, creating a significant clinical need for a safe and highly effective radiosensitizer.
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To address this major clinical dilemma, a new investigator-initiated study was launched in June 2026 at Assuta Ashdod Medical Center in Israel to evaluate LipoMedix’s targeted therapy, Promitil, in this specific cisplatin-ineligible population. The trial is designed to unfold over a 24-month duration with a focused cohort of 20 patients, and researchers are currently exploring the opening of an additional clinical site in Israel to support the study. The underlying scientific rationale for this trial centers on Mitomycin C, a well-established chemotherapy agent and potent radiosensitizer. Historically, the widespread use of Mitomycin C has been severely limited by its own systemic toxicities, particularly severe bone marrow suppression. Promitil was engineered specifically to harness the tumor-destroying power of Mitomycin C while neutralizing its systemic dangers by acting as a pegylated liposomal prodrug, meaning an inactive form of the medication is encapsulated securely inside a microscopic lipid envelope.
This delivery system is designed to allow Promitil to circulate safely in the bloodstream, shielding the patient’s healthy tissues from toxicity. Because tumors develop rapidly, they possess notoriously “leaky” blood vessels. The Promitil liposomes naturally slip through these vascular gaps and accumulate heavily within the tumor tissue itself. Once inside this specific microenvironment, the prodrug is exposed to high levels of reducing agents that are naturally secreted by cancer cells. These agents cleave a specific chemical bond on the drug - a thio-benzyl bridge - releasing the active, toxic Mitomycin C directly into the tumor precisely where the radiotherapy is being aimed.
The strategy for this ongoing investigator-initiated trial is supported by earlier clinical data, including previous early-phase studies where the data indicate Promitil combined with radiotherapy seemed to be safe, well-tolerated, and effective at controlling tumor growth without compounding the toxicity of the radiation. By launching this highly focused study, the clinical team at Assuta Ashdod is strategically positioning Promitil to fill a gap in modern oncology. The ultimate goal over the next 24 months is to show that this innovative delivery system can provide the crucial, localized radiosensitizing boost these vulnerable patients require to eradicate their tumors, bypassing the toxicities of standard chemotherapies.
Farber
Farber, a majority owned subsidiary of Barer, was formed around an agreement with Princeton University’s Office of Technology Licensing for technology from the laboratory of Dr. Joshua Rabinowitz, in the Department of Chemistry, Princeton University, for an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. In November 2022, we resolved to curtail our early-stage development efforts, including pre-clinical research at Barer Institute. Since then, we have sought partners for Farber programs and have entered into a license agreement for one of its technologies that is in the pre-clinical research stage with the Ludwig Institute of Cancer Research and have transferred majority ownership of another one of its technologies, SHMT, to a new company, Forme Therapeutics, that is being managed by Dr. Joshua Rabinowitz with the goal of developing SHMT. Going forward, we expect that Barer, through its Farber subsidiary, will primarily operate as an entity holding interest in these cancer-focused opportunities.
Cornerstone
We own our interest in Cornerstone through a 90% equity ownership interest in, and consolidate, Pharma Holdings, LLC (“Pharma Holdings”). Pharma Holdings holds 50% of the equity interests in, and consolidates, CS Pharma Holdings, LLC. 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. Based on our ownership interest in Pharma Holdings, and Pharma Holdings’ ownership interest in CS Pharma Holdings, we have an effective 45% equity ownership interest in CS Pharma Holdings, LLC.
In March of 2024, Cornerstone completed a comprehensive restructuring transaction including, the conversion of the debt under a line of credit agreement and the promissory note held by the Company, the conversion and modification of other Cornerstone debt obligations, the extension of the Cornerstone debt held by RP Finance, a reverse stock split, the conversion of all outstanding preferred stock of Cornerstone into common stock and the adoption of certain governance measures. Subsequent to the restructuring, the Company owns 67% of Cornerstone.
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Science and Preclinical:
Cornerstone’s development candidate is CPI-613® (devimistat), a stable analog of normally transient, acylated catalytic intermediates of lipoate. CPI-613® is designed to disrupt mitochondrial function and thereby decrease the TCA cycle function; thus, CPI-613® (devimistat) misinforms these tumor systems, triggering mitochondrial stress and turning off the cancer cell TCA cycle. CPI-613® is designed to broadly affect tumor metabolism, including disrupting mitochondria and potentially intercalating in cancer cell membranes. The metabolic and mitochondrial stress have been found to trigger apoptotic and necrotic cell death pathways 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). These data suggest that CPI-613® may hold the potential to have anti-cancer activity. CPI-613 is a lipoic acid analog with a fatty acid tail that may be able to utilize fatty acid transporters. Cancer cells have been shown to up-regulate fatty acid metabolism to support tumorigenesis.
Clinical Highlights:
Overall, one thousand thirty-three (1033) patients have been exposed to CPI-613® (devimistat) throughout the various trials (25) in the proposed indications.
CPI-613® (devimistat) has been tested in 3 randomized controlled trials that have not demonstrated a benefit of the experimental arm containing devimistat versus the control arm. Currently, Cornerstone is exploring strategic alternatives to further its clinical development.
In March 2023, Cornerstone purchased all assets and rights of telaglenastat (CB-839), a glutaminase inhibitor, from Calithera Biosciences, Inc. In February of 2025, Cornerstone sold the rights to telaglenastat to Synhale for a modest upfront payment and potential future milestones based on development achievements. Synhale plans to develop the drug candidate for patients with pulmonary hypertension.
Rafael Medical Devices
Rafael Medical Devices is a medical device company currently concentrating on developing surgical and procedural devices designed to provide meaningful advantages to patients and healthcare providers in the orthopedic market following receipt of the requisite regulatory clearance, approval or marketing authorization. Its current lead product is an orthopedic arthroscopy instrument for carpal and cubital tunnel syndrome.
Rafael Medical Devices has assembled an in-house team with expertise in engineering, device development, quality control, and design who have been part of teams that have created successful commercial medical devices in the past. It has begun to expand its expert network of experienced device creators, and key opinion leaders.
Orthopedics comprise a large addressable market. Rafael Medical Devices is seeking to assemble a portfolio of Class I, II and III devices to mitigate risk across a portfolio of devices with overlapping needs and markets. This strategy is designed to minimize supply chain requirements while maximizing market potential.
On December 11, 2024, Rafael Medical Devices received a substantial equivalence determination for the VECTR System from the United States Food and Drug Administration, or FDA, in response to Rafael Medical Devices’ 510(k) premarket notification. FDA’s clearance of the VECTR System is for use in minimally invasive ligament or fascia release surgeries, such as carpal tunnel release in the wrist and cubital tunnel release in the elbow. The VECTR System has been classified as a Class II device. Rafael Medical Devices has initiated a sales effort in the United States and is establishing a network of distributors as it builds out its commercial presence for the VECTR System. Rafael Medical Devices is actively expanding its manufacturing volume and engaging with regional orthopedic distributors in the field of hand surgery.
The Company has initiated design of its second product, a device candidate which is designed to be a follow on to the VECTR system that utilizes a retrograde release system. The development of future device candidates, if any, will depend upon the success of the VECTR System and the Company’s ability to identify attractive opportunities in the marketplace.
Day Three Labs
Day Three Labs is a technology company focused on creating solutions for increased bioavailability of other third-party manufacturers’ products, with a specific focus on compounds used as active ingredients in pharmaceutical and food supplement products. Day Three Labs’ majority-owned subsidiary, Day Three Labs Manufacturing, is dedicated to the commercialization of technology for the cannabis and hemp industries and has developed technological solutions specifically engineered for increased bioavailability of cannabinoids. On March 14, 2025, Day Three Labs Manufacturing entered into an Asset Purchase Agreement and Licensing Agreement (the “DTLM Sale Agreement”), pursuant to which Day Three Labs Manufacturing sold certain assets and licensed certain applications of their Unlokt™ technology used in their cannabinoid ingredient manufacturing business to a third party in exchange for a $500,000 convertible note in the acquiring company and milestone payments.
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OUR STRATEGY
We are a biotechnology company that develops pharmaceuticals and holds interests in clinical and early-stage Portfolio Companies, including our wholly-owned Cyclo, Barer, and our majority interest in LipoMedix, Rafael Medical Devices, Day Three and Cornerstone. Historically, our focus was on investing in and funding entities to discover and develop novel cancer therapies. Our primary focus has been the continued development of Trappsol® Cyclo™ and we have recently completed a pivotal Phase 3 clinical trial and, on October 28, 2026, submitted a New Drug Application for regulatory approval and ultimately, if approved, commercialization of the product. We also evaluate opportunities to expand our investment portfolio through strategic investments, including in therapeutics, that address high unmet medical needs. We continuously evaluate our other holdings to ensure the future focus of our resources is on core assets and specifically the Trappsol® Cyclo™ clinical development and commercialization efforts.
The focus of our efforts is subject to change with market conditions, results of our internal development efforts, the availability of investment opportunities on acceptable terms, the investment and acquisition opportunities we may pursue, and developments at those targets.
Our goal within biopharma is to develop and bring to market therapeutics which address high unmet medical needs, opportunistic investments, acquisitions and in-licensing of assets.
We may selectively invest in pre-clinical and clinical stage healthcare opportunities, including those in which we already own interests, when determined to be consistent with our goals, and move toward clinical stage programs as research and development results warrant, while being ready to exploit other opportunities that may arise.
Our internal and external investment decisions will be based on the progress and results of our clinical development and pre-clinical activities and other operational developments, and the availability of targets for investment, acquisition or licensing.
GOVERNMENT REGULATION AND COMPLIANCE
Our operations, products, services, and potential future customers and those of our Portfolio Companies are subject to extensive government regulation by FDA and other federal and state authorities in the United States, as well as comparable authorities in foreign jurisdictions. The global regulatory environment is increasingly stringent, unpredictable, and complex. There is a global trend toward increased regulatory and enforcement activity related to all medical products.
In the U.S., our product candidates and device candidates are regulated as either drugs or biological products under the Federal Food, Drug and Cosmetic Act, or FFDCA, and the Public Health Service Act, or PHSA, and their implementing regulations, or as medical devices under the FFDCA and its implementing regulations, each as amended and enforced by FDA. These laws govern the processes by which our product candidates and device candidates would be brought to market. FDA has enacted extensive regulations and implemented numerous guidance documents that control all aspects of the development, design, performance, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, postmarket surveillance, and import and export of drugs, biological products, and medical devices. In addition, FDA controls the access of products to market through processes designed to ensure that only products that are safe and effective for their intended use(s) and otherwise meet the applicable requirements of the FFDCA and/or PHSA are made available to the public.
Review And Approval Of Drugs In The United States
In the United States, FDA approves and regulates drugs under the FFDCA, and its implementing regulations. The failure to comply with requirements under the FFDCA 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 FDA to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of compliance 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 FDA and the Department of Justice or other governmental entities.
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Each of Cyclo’s, LipoMedix’s, Barer’s, and Cornerstone’s (collectively referred to as the “Pharmaceutical Companies”) current product candidates must be approved by 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:
| ● | completion of preclinical laboratory tests, animal studies and formulation studies in compliance with FDA’s good laboratory practice, or GLP, regulations; |
| ● | submission to FDA of an Investigational New Drug, or IND, application, which must take effect before human clinical trials may begin; |
| ● | approval by an independent institutional review board, or IRB, representing each clinical site before each clinical trial may be initiated at each site; |
| ● | performance of adequate and well-controlled human clinical trials in accordance with current good clinical practices, or cGCPs, requirements to establish the safety and efficacy of the proposed drug product for each proposed indication; |
| ● | submission of pediatric study plans and generation of data, unless inapplicable or otherwise deferred or waived, that are adequate to assess the safety and effectiveness of the drug candidate for the proposed indication(s) in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is determined to be safe and effective; |
| ● | preparation and submission to FDA of an NDA requesting approval for marketing for one or more proposed indications; |
| ● | review by an FDA advisory committee, where appropriate if applicable; |
| ● | satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the product, or components thereof, are produced and packaged to assess compliance with current Good Manufacturing Practices, or cGMP, requirements and to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity; |
| ● | satisfactory completion of FDA audits of clinical trial sites to assure compliance with cGCPs and the integrity of the clinical data; |
| ● | payment of user fees and securing FDA approval of the NDA; and |
| ● | compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and the potential requirement to conduct post-approval studies. |
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, or GLP, requirements. On September 22, 2026, FDA issued a Direct Final Rule that reflects advances in science and technology that have expanded the range of testing options available in human drug development, including methods using human cells, organs-on-chips, computer models, and other advanced technologies, and which is intended to provide regulatory flexibility for sponsors by updating the Agency’s regulations to replace terms like “animal tests” and “animal studies” with the terms “nonclinical tests” and “nonclinical studies” in order to clarify that non-animal methods can be used where appropriate for testing the safety of drugs and biological products intended for human use before they are evaluated in humans. Whichever approach is used, the sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to FDA as part of the IND. An IND is an exemption from the FFDCA 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 FDA, unless FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and FDA must resolve any outstanding concerns before the clinical trial can begin. 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.
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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 to use the study as support for an IND or subsequent application for regulatory approval. Such studies must be conducted in accordance with cGCPs, including review and approval by an independent ethics committee, or IEC, and include informed consent from subjects. The cGCP requirements encompass both ethical and data integrity standards for clinical studies. 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 cGCP 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 FDA as part of the IND before a clinical trial can begin in the US. In addition, an IRB representing each study site participating in the clinical trial must review and approve the plan for any clinical trial before it commences at each site, 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 under certain limited circumstances when authorized in advance by FDA:
Phase 1. The drug candidate 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 potential effectiveness and to determine optimal dosage.
Phase 2. The drug candidate is administered to a limited number of patients in the target patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the potential efficacy of the product for a specific targeted disease, and to determine dosage tolerance and optimal dosage.
Phase 3. These clinical trials are commonly referred to as “pivotal” studies, which denotes a study or studies that present the pivotal data (but not the only data) that FDA or other relevant regulatory agency will use to determine whether or not to approve a drug candidate. The investigational drug is administered to an expanded number of patients in the target 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 required to be conducted, or a sponsor may decide on its own to conduct them, in order to collect additional data after initial regulatory approval. These studies are used to gain additional experience and additional safety and/or efficacy data from the treatment of patients in the approved therapeutic indication. Following review by FDA, data from Phase 4 studies can result in the suspension of marketing and/or the withdrawal of approval of the drug for safety or effectiveness reasons.
Progress reports detailing the results of all clinical trials must be submitted at least annually to FDA and more frequently if serious adverse events occur. In addition, IND safety reports must be submitted to 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.
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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 and packaging 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, the sponsor 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 in the selected packaging to demonstrate that the drug candidate does not undergo unacceptable deterioration in that packaging over its shelf life.
If clinical trials are successful, the next step in the drug development process is the preparation and submission to FDA of an NDA or BLA, Biologics License Application, following payment of applicable user fees, if any, under PDUFA, the Prescription Drug User Fee Act. The NDA or BLA is the vehicle through which applicants formally propose that 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 detailed descriptions of the manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling, and other relevant information are submitted to FDA as part of an NDA or BLA 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.
FDA initially reviews all NDAs and BLAs submitted to identify if there are any deficiencies before it can officially accept the applications for in-depth review, also known as “filing” of the NDA or BLA. FDA may request additional information before deciding whether to accept an NDA or BLA for filing, and the applicant generally must submit the requested information before FDA proceeds. Subject to any additional information requests by FDA, this is generally a 60-day filing period. Once the submission is accepted for filing, FDA begins an in-depth review of the NDA or BLA.
After the NDA or BLA submission is accepted for filing, the FDA reviews the NDA or BLA 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 whether the product has appropriate labeling for its proposed intended use. There generally is a two-tiered system of review times – standard review and priority review – under FDA’s regulations and PDUFA performance goals and procedures. A priority review designation means FDA’s current PDUFA goal is to review and take action on 90% of such applications within six months (compared to 10 months under standard review) in addition to the 60-day filing period. During the approval process, 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 following its approval. If FDA concludes that a REMS is needed, the sponsor of the NDA must submit a proposed REMS; FDA will not approve the NDA without a REMS, if a REMS is deemed to be required.
Before approving an NDA or BLA, 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 or BLA submission, including drug component manufacturing (e.g., active pharmaceutical ingredients), finished drug product manufacturing, labeling and packaging operations, and control testing laboratories. FDA will not approve an application unless it determines that the manufacturing processes and all facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA or BLA, FDA will typically inspect one or more clinical trial sites to assure compliance with cGCPs.
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. 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.
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On the basis of FDA’s evaluation of the NDA or BLA and accompanying information, including the results of the inspection of the manufacturing facilities and clinical trial sites, 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 a specific indication or indications in accordance with approved labeling. A complete response letter generally outlines the deficiencies in the application and may require the sponsor to undertake substantial additional testing or gather significant additional data and information in order for FDA to reconsider the application. Historically, the text of complete response letters generally was not released by the sponsor or FDA, and any disclosures associated with such complete response letters was limited to a sponsor’s determination of as to what portion of such letters were material or otherwise should be disclosed. In June 2025, FDA adopted a policy of “radical transparency” and, after completing redactions for trade secrets and confidential commercial information and personal private information, published more than 200 complete response letters that had been issued to sponsors in response to applications submitted to FDA for approval of drugs or biological products between 2020 and 2024. In September 2025, FDA released 89 additional, previously-unpublished complete response letters issued from 2024 to the present associated with pending or withdrawn applications. The Agency also announced that, going forward, FDA would promptly release newly-issued complete response letters, and, when approving applications, would release all complete response letters associated with that application, and that FDA also would publish batches of previously-issued CRLs associated with withdrawn or abandoned applications. If a complete response letter is issued, the applicant may either resubmit the application, addressing all of the deficiencies identified in the complete response letter, or withdraw the application. If and when those deficiencies have been addressed to FDA’s satisfaction in a resubmission of the NDA or BLA, the FDA will issue an approval letter. In its current PDUFA performance goals and procedures, FDA has committed to reviewing and acting on 90% of such resubmissions in two or six months depending on the type of information included and FDA’s classification of the resubmission. Even with submission of this additional information, 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 a specific disease(s) and dosage(s) or the indication(s) for use or other product labeling may otherwise be limited, which could restrict the commercial value of the product. Further, FDA may require that certain contraindications, warnings (including potential “black box” warnings) or precautions be included in the product labeling. In addition, FDA may require phase 4 testing, which involves post-approval clinical trials designed to further assess a product’s safety and/or effectiveness, and also may require testing and surveillance programs to monitor the safety of approved products that have been commercialized. If a REMS drug safety program is a condition of the approval, FDA can impose significant additional requirements affecting the marketing, distribution, and/or availability of the product in order to reinforce medication use behaviors and actions that support the safe use of that product as part of the safety strategy.
Fast track, breakthrough therapy, and priority review designations
FDA is authorized to designate certain product candidates 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. Receipt of such a designation does not necessarily mean that a product candidate will receive an expedited approval or even approval at all.
Accelerated approval pathway
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. 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 non-accelerated approval. If post-marketing clinical studies fail to verify the anticipated clinical benefit, FDA may withdraw approval.
Post-Approval Requirements
Any drug that receives FDA approval is subject to continuing regulation by FDA, including, among other things, requirements relating to recordkeeping, continued adherence to cGMP, 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 containing clinical data.
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In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with FDA and state agencies, and are subject to periodic unannounced inspections by FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing and packaging process are strictly regulated and often require prior FDA review and 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, packagers or distributors 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, 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 manufacturing or distribution or other restrictions. Other potential consequences include, among other things:
| ● | restrictions on the marketing or manufacturing of the product, shutdown of one or more manufacturing site, suspension of the approval, product recalls, or complete withdrawal of the product from the market, and imposition of corrective and preventative actions, or CAPAs; |
| ● | fines, warning letters or holds on post-approval clinical trials; |
| ● | refusal of FDA to approve pending NDAs or BLAs or supplements to approved NDAs or BLAs, or suspension or revocation of product approvals; |
| ● | product seizure or detention, or refusal to permit the import or export of products; and/or |
| ● | injunctions or the imposition of civil or criminal penalties. |
FDA strictly regulates the marketing, labeling, advertising, and promotion of products that are placed on the market. Drugs may be promoted only for the approved indication(s) and in accordance with the provisions of the approved labeling. FDA and other agencies actively enforce the laws and regulations prohibiting false or misleading promotion and the promotion of off-label uses, which require that promotion is truthful, not misleading, fairly balanced and provides adequate directions for use, and that all claims are substantiated, and which also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling, in accordance with FDA guidance on off-label dissemination of information and responding to unsolicited requests for information. A company that is found to have improperly promoted off-label uses or engaged in any other false or misleading promotion may be subject to significant liability and enforcement actions. FDA has implemented and is now operating under its final guidance, “Communications From Firms to Health Care Providers Regarding Scientific Information on Unapproved Uses of Approved/Cleared Medical Products: Questions and Answers”, which describes FDA’s enforcement policy regarding certain firm-initiated communications of scientific information on unapproved use(s) of the firm’s approved/cleared medical products to health care providers engaged in prescribing or administering medical products to individual patients.
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, and its implementing regulations, which together regulate, among other things, the distribution and tracking 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 and its implementing regulations impose requirements to ensure accountability in distribution and to identify, trace and remove counterfeit and other illegitimate or harmful drugs from the market. In 2025, FDA generally ended most of its DSCA exemptions and began enforcing electronic, interoperable product tracing to meet the Act’s enhanced drug distribution security requirements. In addition, the BIOSECURE Act which Congress enacted on December 18, 2025, as part of the Fiscal Year 2026 National Defense Authorization Act, could impact active pharmaceutical ingredient, or API, supply chains, as the new law prohibits federal agencies from procuring or funding biotechnology equipment or services from designated “biotechnology companies of concern”, and it blocks entities that receive federal funds or government contracts from utilizing equipment or contract research/manufacturing services from these designated foreign companies.
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Abbreviated new drug applications for generic drugs
In 1984, with passage of the Hatch-Waxman Amendments to the FFDCA, Congress established an abbreviated regulatory scheme authorizing FDA to approve generic drugs that are shown to contain the same active ingredients as, and to be bioequivalent to, drugs previously approved by 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 FDA’s prior determination of safety and effectiveness based upon 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 FDA pursuant to an NDA, an applicant may submit an NDA under Section 505(b)(2) of the FFDCA. 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 in part on data in the public domain and/or on FDA’s previous finding of safety and effectiveness of the RLD is scientifically and legally appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. FDA may also require companies to perform additional studies or measurements, including clinical trials, to support the change from the previously approved RLD. FDA may then approve the new product candidate for all, or some, of the label indication(s) for which the RLD has been approved, and/or for any new indication(s) for which approval is 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 candidate for the proposed indication(s) in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is determined to be safe and effective. With enactment in 2012 of the Food and Drug Administration Safety and Innovation Act, or FDASIA, 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, FDA, and FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. FDA or the applicant may request an amendment to the plan at any time. 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 generally do not apply to products with orphan designation. However, in accordance with FDA Reauthorization Act of 2017, or FDARA, certain orphan designated cancer 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 the subject of the application is intended for the treatment of an adult cancer and directed at a molecular target that FDA determines to be substantially relevant to the growth or progression of a pediatric cancer.
Orphan drug designation and exclusivity
Under the Orphan Drug Act, 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 or BLA for the drug for the rare disease or condition. If the request is granted, FDA will disclose the identity of the therapeutic agent and its potential use(s). 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 user fee. The first applicant to obtain approval of an orphan drug is eligible for seven years of exclusivity, during which FDA may not approve the same drug for the same approved use or indication within such rare disease or condition unless the subsequent product is shown to be clinically superior or if FDA withdraws exclusive approval or revokes orphan drug designation, or if the marketing application (NDA or BLA) for the orphan drug is withdrawn for any reason, or if the holder of the orphan exclusive approval fails to assure a sufficient quantity of the orphan drug.
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Patent term restoration and extension
A patent claiming a new drug product or its method of use or its method of manufacturing 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 FDA regulatory review process. Patent term extension is generally available only for drug products whose active ingredient has not previously been approved by 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 or BLA, plus the time between the submission date of an NDA or BLA and the ultimate approval date, up to a maximum of five years. 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, or PTO, reviews and approves the application for any patent term extension in consultation with FDA upon PTO’s determination that the requirements for an extension have been met.
FDA approval and regulation of companion diagnostics
If safe and effective use of a therapeutic depends on a diagnostic, a medical device that is often an in vitro diagnostic or IVD, then FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the same time that FDA approves the therapeutic product. In August 2014, 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 candidate IVD companion diagnostic and its corresponding therapeutic should be co-developed and approved or cleared contemporaneously by FDA for the use indicated in the therapeutic product’s labeling. In July 2016, FDA issued a draft guidance detailing general principles to guide co-development of an in vitro companion diagnostic device with a therapeutic product. In April 2020, FDA issued final guidance intended to facilitate class labeling on diagnostic tests for oncology therapeutic products, where scientifically appropriate. In a related action, in June 2023, FDA issued a final guidance announcing and describing FDA’s voluntary pilot program for certain oncology drug products used with certain in vitro diagnostic tests.
FDA’s Rare Pediatric Disease Designation and Priority Review Voucher Program
Section 529 of the FFDCA grants FDA authority to award priority review vouchers, or PRVs, to sponsors of certain rare pediatric disease product applications that meet the criteria specified in section 529. Under its Rare Pediatric Disease Priority Review Voucher program, a PRV may be awarded only for an approved rare pediatric disease product application for a product that treats or prevents a “rare pediatric disease.” A rare pediatric disease product application is an NDA or BLA for a product that treats or prevents a serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years; in general, the disease must affect fewer than 200,000 such individuals in the U.S.; the NDA or BLA must be deemed eligible for priority review; the NDA or BLA must not seek approval for a different adult indication (i.e., for a different disease/condition); the product must not contain an active ingredient that has been previously approved by FDA in any other application; and the NDA or BLA must rely on clinical data derived from studies examining a pediatric population such that the approved product can be adequately labeled for the pediatric population. Before NDA or BLA approval, FDA may designate a product in development as a product for a rare pediatric disease, and such designation is required to receive a PRV. To receive a rare pediatric disease PRV, a sponsor must, among other requirements, notify FDA, upon submission of the NDA or BLA, of its intent to request a voucher. If FDA determines that the NDA or BLA is a rare pediatric disease product application and grants priority review, and if the NDA is approved, FDA will award the sponsor of the NDA or BLA a PRV upon approval of the application. FDA may revoke any PRV if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within 1 year following the date of approval. On February 3, 2026, Congress extended the rare pediatric disease PRV program until September 30, 2029.
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If a PRV is received, it can be used by the Company and is transferable to another sponsor and can be redeemed to receive a priority review of a subsequent marketing application for a different product, and it is not limited to drugs for rare pediatric diseases. Once a PRV is issued, it may be sold or transferred an unlimited number of times as long as the sponsor making the transfer has not yet submitted the application. The PRV entitles the holder of the PRV to priority review of the accompanying NDA or BLA. The sponsor submitting the PRV must notify FDA of its intent to submit the voucher with the NDA or BLA at least 90 days prior to submission of the NDA or BLA and must pay a priority review user fee in addition to any other required user fee. The February 2026 extension of the rare pediatric disease PRV program clarifies that the priority review voucher user fee is due upon submission of the marketing application that redeems the voucher, while other applicable user fees continue to follow standard FDA timing. FDA generally has a goal to take action on an NDA or BLA under priority review within the applicable six-month window after an NDA or BLA submission. However, neither a rare pediatric disease designation nor a PRV changes the standards for approval, may not ultimately expedite the development or approval process for a product candidate that has received designation or to which a PRV is applied, and it does not assure ultimate approval by FDA. Further, there may be changes to the regulatory scheme surrounding these designations, which render them obsolete.
Under the February 2026 sunset provisions, after September 30, 2029, FDA may not award any rare pediatric disease PRVs unless the program is extended. In other words, even if a product candidate has received rare pediatric disease designation, if the NDA for that product candidate is not approved by FDA by September 30, 2029, no PRV will be awarded under the current sunset provisions even if all of the other requirements for a PRV had been met. Although legislation to extend and/or make permanent the rare pediatric disease priority review voucher program has been proposed, the U.S. Congress has not yet, and may never, pass a bill to further extend the sunset dates, or otherwise amend the current statutory provisions governing the awarding of PRVs after September 30, 2029. Consequently, the future of the program and its potential applicability to our product candidates after that date remains unknown at this time.
Review And Approval, Clearance Or Marketing Authorization Of Medical Devices In The United States
Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a Premarket Notification, or 510(k), FDA approval of a Premarket Approval, or PMA, application, or FDA marketing authorization in response to a De Novo request. Under the FFDCA, medical devices are classified into one of three classes – Class I, Class II or Class III – depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure the device’s safety and effectiveness. Devices deemed by FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended use, or that use advanced technology which is not substantially equivalent to that of a legally marketed device, are generally placed into Class III.
While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to FDA a premarket notification under Section 510(k) of the FFDCA requesting permission to commercially distribute the proposed device. FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. Class III devices require approval of a PMA evidencing safety and effectiveness of the device. Certain novel devices of low to moderate risk, for which FDA can make a risk-based classification of the device into Class I or II, can receive marketing authorization in response to a De Novo request.
To obtain 510(k) clearance, a manufacturer must pay the appropriate device user fee, unless eligible for a waiver or exemption, and submit a 510(k) premarket notification demonstrating to FDA’s satisfaction that the proposed device is at least as safe and effective as, that is, “substantially equivalent” to, another legally marketed device that itself does not require PMA approval, or a predicate device. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendment device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. The sponsor must submit data and information that supports its substantial equivalency claims. FDA’s 510(k) clearance process usually takes from three to twelve months, but often takes longer. FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence. In addition, FDA collects user fees for certain medical device submissions and annual fees for medical device establishments.
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Before the sponsor can market a proposed device that is the subject of a 510(k) premarket notification, the sponsor must receive an order from the FDA finding substantial equivalence and clearing the new device for commercial distribution in the US. If FDA agrees that the device is substantially equivalent to a lawfully marketed predicate device, it will grant 510(k) clearance to authorize the device for commercialization. If FDA determines that the device is “not substantially equivalent,” the device is automatically designated as a Class III device. The device sponsor then must either fulfill the more rigorous PMA requirements, or the sponsor can submit a De Novo request seeking a risk-based classification determination for the device in accordance with FDA’s De Novo classification process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device. A sponsor also can submit a De Novo classification request directly, without first submitting a 510(k), if the sponsor determines that there is no legally marketed predicate device upon which to base a determination of substantial equivalence.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA approval or De Novo classification. FDA requires each manufacturer to determine in the first instance whether the proposed change requires submission of a 510(k), a De Novo classification request or a PMA, but FDA can review any such decision and disagree with a sponsor’s determination. If FDA disagrees with a manufacturer’s determination not to seek a new 510(k) or other form of marketing authorization for a modification to a 510(k)-cleared product, FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) clearance or PMA approval is obtained or a De Novo classification is granted.
The PMA process is more demanding than either the 510(k) premarket notification process or the De Novo classification process and includes stringent clinical investigation and other requirements. In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials. All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with FDA’s investigational device exemption, or IDE, regulations, which govern investigational device labeling, prohibit promotion of investigational devices, and specify an array of recordkeeping, reporting, and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk” to human health, as defined by FDA, FDA requires the device sponsor to submit an IDE application to FDA, which must become effective prior to commencing human clinical trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. In addition, the study must be approved in advance by, and conducted under the oversight of, an Institutional Review Board, or IRB, for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and the IRB may impose additional requirements for the conduct of the clinical trial. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate authorization from FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and adhering to labeling and recordkeeping requirements.
In addition to clinical and preclinical data, the PMA must contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. Following receipt of a PMA, FDA determines whether the application is sufficiently complete to permit a substantive review. If FDA accepts the PMA for review, FDA has 180 days under the FFDCA to complete its review of a PMA, although in practice, FDA’s review often takes significantly longer, and can take up to several years. An advisory panel of experts from outside FDA may be convened to review and evaluate the application and provide recommendations to FDA as to the approvability of the device. FDA may or may not accept the panel’s recommendation. In addition, FDA generally will conduct a pre-approval inspection of the applicant and/or its third-party manufacturers’ or suppliers’ facilities to ensure compliance with what previously has been known as FDA’s Quality System Regulation codified in 21 CFR Part 820, or QSR. On February 2, 2026, the Quality Management System Regulation, or QMSR, became effective and amended the device cGMP requirements of 21 CFR Part 820 by, among other steps, incorporating by reference the international standard specific for medical device quality management systems set by the International Organization for Standardization, or ISO, namely ISO 13485:2016 Medical devices – Quality management systems – Requirements for regulatory purposes. This action harmonized FDA’s CGMP regulatory framework with that used by other regulatory authorities. Also on February 2, 2026, FDA began utilizing the modernized inspection process described in the updated Inspection of Medical Device Manufacturers Compliance Program: 7382.850, and the Agency retired its prior Quality System Inspection Technique documents.
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FDA will approve the new device for commercial distribution if FDA determines that the data and information in the PMA constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients in the clinical study that supported PMA approval or requirements to conduct additional clinical studies post-approval. FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval. Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement, or in some cases a new PMA.
Regardless of whether a sponsor submits a 510(k), PMA, or De Novo request, if the proposed device that is the subject of the application has cybersecurity considerations, including but not limited to devices that include a device software function or that contain software (including firmware) or programmable logic, the application must include the cybersecurity information recommended by FDA in the guidance it issued February 3, 2026, “Cybersecurity in Medical Devices: Quality Management System Considerations and Content of Premarket Submissions”.
Both before and after a medical device is commercially released, the sponsor has ongoing responsibilities under the FFDCA and FDA regulations. FDA reviews design and manufacturing practices, labeling and recordkeeping, and manufacturers’ required reports of adverse experiences and other information to identify potential problems with marketed medical devices. Sponsors are also subject to periodic inspection by FDA for compliance with FDA’s QMSR, among other FDA requirements, such as requirements for advertising and promotion of medical devices. The sponsor’s manufacturing operations, and those of any third-party manufacturers, are required to comply with the QMSR, which require manufacturers, including third-party manufacturers and suppliers, to follow stringent design, testing, control, maintenance of records and documentation, and other quality assurance procedures during all aspects of the design and manufacturing process both before and after receiving device clearance or approval. The QMSR requires that each manufacturer establish a quality system by which the manufacturer monitors the manufacturing process and maintains records that show compliance with FDA regulations and the manufacturer’s written specifications and procedures relating to each device. QMSR compliance is necessary to receive and maintain FDA clearance, approval, or marketing authorization to market new and existing medical devices, and it is also necessary for distributing in the United States certain devices exempt from FDA clearance and approval requirements. FDA conducts announced and unannounced periodic and ongoing inspections of medical device manufacturers, including third-party manufacturers and suppliers, to determine compliance with the QMSR. If in connection with these inspections FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures, the FDA may issue inspectional observations on Form FDA-483, or Form 483, that would necessitate prompt corrective action. If FDA inspectional observations are not addressed and/or corrective action is not taken in a timely manner and to FDA’s satisfaction, FDA may issue a warning letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of enforcement action, including the imposition of operating restrictions, including a ceasing of operations, on one or more facilities, enjoining and restraining certain violations of applicable law pertaining to products, mandating recall of products, seizure of products, and assessing civil or criminal penalties against the manufacturer and its officers and employees. FDA could also issue a corporate warning letter or a recidivist warning letter or negotiate the entry of a consent decree of permanent injunction with the manufacturer. FDA may also recommend prosecution to the U.S. Department of Justice, or DOJ. Any adverse regulatory action, depending on its magnitude, may restrict a manufacturer from effectively manufacturing, marketing, and selling any medical device(s) and could have a material adverse effect on the manufacturer’s business, financial condition, and results of operations.
After a device is cleared, receives marketing authorization, or is approved for marketing, numerous pervasive regulatory requirements continue to apply unless a device is explicitly exempt from them. These include, among other things:
| ● | establishment registration and device listing with FDA; |
| ● | continued adherence to the QMSR requirements; |
| ● | marketing, labeling, advertising, and promotion regulations, which require that promotion is truthful, not misleading, fairly balanced and provides adequate directions for use, and that all claims are substantiated and in accordance with the provisions of the approved label, and which also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling, in accordance with FDA’s final guidance, “Communications From Firms to Health Care Providers Regarding Scientific Information on Unapproved Uses of Approved/Cleared Medical Products: Questions and Answers”; |
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| ● | clearance or approval of product modifications to 510(k)-cleared, De Novo classified or PMA-approved devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of a cleared device; |
| ● | medical device reporting regulations, which require that a manufacturer report to FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury if the malfunction were to occur; |
| ● | correction, removal, and recall reporting regulations, which require that manufacturers report to FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FFDCA that may present a risk to health; |
| ● | complying with requirements governing Unique Device Identifiers on devices and also requiring the submission of certain information about each device to FDA’s Global Unique Device Identification Database; |
| ● | the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and/or regulations; and |
| ● | post-market surveillance activities and regulations, which apply when deemed by FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device. |
Review And Approval Of Drugs In Europe And Other Foreign Jurisdictions
In addition to regulations in the US, a manufacturer of drugs 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, or the EU, a manufacturer must submit a marketing authorization application, or MAA, to the European Medicines Agency or EMA. For other countries outside of the EU, 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 cGCPs and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki. The time required to obtain approval by a foreign country may be longer or shorter than that required for FDA approval, and the requirements may differ significantly.
Review And Approval Of Medical Devices In Europe And Other Foreign Jurisdictions
In addition to regulations in the US, a manufacturer of medical devices is subject to a variety of regulations in foreign jurisdictions, which vary substantially from country to country, to the extent a manufacturer chooses to sell any medical devices in those foreign countries. In those countries, a manufacturer can be subject to supranational, national, regional, and local regulations affecting, among other things, the development, design, manufacturing, product standards, packaging, advertising, promotion, labeling, marketing, and postmarket surveillance of medical devices. In order to market a medical device in other countries, the sponsor must obtain regulatory approvals or certifications and comply with extensive safety and quality regulations enforced in those countries. The time required to obtain approval or certification by a foreign country may be longer or shorter than that required for FDA approval or clearance, and the requirements may differ significantly.
The EU has adopted specific directives and regulations regulating the design, manufacture, clinical investigation, conformity assessment, labeling, and adverse event reporting for medical devices. Until May 25, 2021, medical devices were regulated by Council Directive 93/42/EEC, the EU Medical Devices Directive, or MDD, which had created a single set of medical device regulations for devices marketed in all EU member countries. Compliance with the MDD and certification to a quality system (e.g., ISO 13485 certification) enabled a manufacturer to place a CE mark on its products. To obtain authorization to affix the CE mark to a product, a recognized European Notified Body had to assess a manufacturer’s quality system and the product’s conformity to the requirements of the MDD.
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The MDD has been repealed and replaced by Regulation (EU) No 2017/745, the EU Medical Devices Regulation, or MDR, which imposes significant additional premarket and postmarket requirements on medical devices. The MDR entered into application on May 26, 2021. Under a corrigendum to the MDR finalized in December 2019, some low-risk medical devices being up-classified as a result of the MDR, including low-risk instruments, were potentially eligible to receive a transitional period to comply by May 2024 under certain conditions. In 2023, the European Commission extended the implementation period to the end of 2027 for high-risk devices and to the end of 2028 for medium- and low-risk devices.
The MDR establishes a uniform, transparent, predictable, and sustainable regulatory framework across the EU for medical devices and ensures a high level of safety and health while supporting innovation. Unlike the MDD, the MDR is directly applicable in EU member states without the need for member states to implement the MDR into national law, with the aim of increasing harmonization across the EU. The MDR, among other things:
| ● | strengthens the rules on placing devices on the market (e.g., reclassification of certain devices and wider scope than the MDD) and reinforces surveillance once the devices are commercially available; |
| ● | establishes explicit provisions on manufacturers’ responsibilities for follow-up on the quality, performance, and safety of devices placed on the market; |
| ● | establishes explicit provisions on importers’ and distributors’ obligations and responsibilities; |
| ● | imposes an obligation to identify a responsible person who is ultimately responsible for all aspects of compliance with the requirements of the MDR; |
| ● | improves the traceability of medical devices throughout the supply chain to the end-user or patient through the introduction of a unique identification number, to increase the ability of manufacturers and regulatory authorities to trace specific devices through the supply chain and to facilitate the prompt and efficient recall of medical devices that have been found to present a safety risk; |
| ● | sets up a central database (MDR EUDAMED or EUDAMED), which is collaborative and interoperable and functions as a registration system, and a collaborative and a dissemination system (partially open to the public) that can, among other things, provide patients, healthcare professionals, and the public with information on medical devices available in the EU; and |
| ● | strengthens rules for the assessment of certain high-risk devices, such as implants, which may have to undergo a clinical evaluation consultation procedure by experts before they are placed on the market. |
Devices lawfully placed on the market pursuant to the MDD prior to May 26, 2021, or thereafter if eligible under the MDR transition provisions, may generally continue to be made available on the market or put into service through the applicable extended transition period, provided that the requirements of the MDR’s transitional provisions are fulfilled. Among other requirements, depending on the class of device, the certificate in question must still be valid and not withdrawn, an MDR-compliant quality management system must be implemented and an application for a conformity assessment must be submitted by May 26, 2024, and an agreement for a conformity assessment must be executed with a Notified Body by September 26, 2024. However, even in these cases, manufacturers must comply with a number of new or reinforced requirements set forth in the MDR, in particular the obligations described below.
The MDR requires that before placing a device, other than a custom-made device, on the market, manufacturers (as well as other economic operators such as authorized representatives and importers) must register by submitting identification information to the electronic system (EUDAMED), unless they have already registered. The information to be submitted by manufacturers (and authorized representatives) also includes the name, address, and contact details of the person or persons responsible for regulatory compliance. The MDR also requires that, before placing a device, other than a custom-made device, on the market, manufacturers must assign a unique identifier to the device and provide it along with other core data to the unique device identifier, or UDI, database. These new requirements aim at ensuring better identification and traceability of medical devices. Each device – and, as applicable, each package – will have a UDI composed of two parts: a device identifier, or UDI-DI, specific to a device, and a production identifier, or UDI-PI, to identify the unit producing the device. Manufacturers are also responsible for entering the necessary data on EUDAMED, which includes the UDI database, and for keeping it up to date. The obligations for registration in EUDAMED and other mandatory uses of the system had originally been planned to start six months after the entire EUDAMED system (including all six modules) had been declared fully functional following an independent audit and an EU Commission notice to be published in the Official Journal and in accordance with the transitional provisions set out in the MDR. Following EU Commission Decision (EU) 2025/2371 of November 26, 2025, and the conclusion of its six-month transition period, the following first four EUDAMED modules are legally required across the EU as of May 28, 2026 for compliance under the MDR and IVDR: Actor registration; UDI/Device registration; Notified Bodies & Certificates; and Market Surveillance. The two remaining EUDAMED modules, Post-Market surveillance and Vigilance, and Clinical Investigation & Performance Studies, are under development and will be released when they are mandatory to use. There will be no time for voluntary use for these two modules before they become mandatory.
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All manufacturers placing medical devices into the market in the EU must comply with the EU medical device vigilance system. Under this system, serious incidents and Field Safety Corrective Actions, or FSCAs, must be reported to the relevant authorities of the EU member states. Manufacturers are required to take FSCAs, which are defined as any corrective action for technical or medical reasons to prevent or reduce a risk of a serious incident associated with the use of a medical device that is made available on the market. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device.
The advertising and promotion of medical devices in the EU is subject to some general principles set forth in EU legislation. Under the MDR, only devices that are CE marked may be marketed and advertised in the EU in accordance with their intended purpose. Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while not specific to the advertising of medical devices, also apply to the advertising of medical devices and contain general rules, for example, requiring that advertisements are evidenced, balanced, and not misleading. Specific requirements are defined at a national level. EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.
Many EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular with respect to healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of payments and transfers of value provided to healthcare professionals or entities, and many EU member states have adopted national “Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the US, on medical device manufacturers. Certain countries also mandate implementation of commercial compliance programs.
The aforementioned EU requirements are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member states plus Norway, Liechtenstein, and Iceland.
Many other countries have specific requirements for classification, registration, and post-marketing surveillance that are independent of the countries discussed above. This landscape is constantly evolving and compliance with the regulatory requirements may require modifications to various systems, additional resources in certain functions, and updates to technical parameters, among other changes. Rafael Medical Devices could be found in violation if it interprets the laws incorrectly or fails to keep pace with changes in laws and regulations. In the event of either of these occurrences, Rafael Medical Devices could be instructed to recall any products that it is marketing, cease manufacturing and/or distribution, and/or be subject to civil or criminal penalties.
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 FDA and other government authorities. Even if one of the Pharmaceutical Companies’ product candidates is approved, sales of the Pharmaceutical Companies’ 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.
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On May 12, 2025, President Trump signed an Executive Order titled: “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients”. Among other steps, the Executive Order directs multiple federal agencies, including the U.S. Department of Health and Human Services, or HHS, to take specific actions aimed at compelling drug manufacturers to lower drug prices in the United States in a manner comparable with other “developed nations.” HHS subsequently announced that the Department “expects each [drug] manufacturer to commit to aligning [United States] pricing for all brand products across all markets that do not currently have generic or biosimilar competition with the lowest price of a set of economic peer countries.” HHS indicated that it will calculate the most-favored-nation, or MFN, price as the lowest price in a country that is part of the Organization for Economic Co-operation and Development and that has a per capita gross domestic product (GDP) of at least 60% of the U.S. per capita GDP. In July 2025, President Trump sent letters to leading pharmaceutical manufacturers outlining the steps they must take to bring down the prices of prescription drugs in the US to match the lowest price offered in other developed nations. As of September 2026, the Trump Administration has secured agreements with 26 pharmaceutical manufacturers covering 89% of the branded drug market. On September 18, 2026, President Trump announced that all 50 States’ Medicaid programs would benefit from lower prescription drug prices under the Trump Administration’s agreements with pharmaceutical manufacturers to match the lowest prices paid by other developed nations. Should any of the Pharmaceutical Companies’ products be successfully developed and secure regulatory approval in the US and foreign countries, and if such MFN policies remain in effect at that time or are reintroduced at a later date or enacted into law and are applied to any of the Pharmaceutical Companies’ products that do secure regulatory approval, if any, such MFN policies could have a material adverse effect on their and our business, results of operations, financial condition and cash flows.
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 or Rafael Medical Devices may successfully develop and for which they may obtain regulatory 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 and medical devices, other supranational, national, regional, federal, state, and local laws concerning healthcare fraud and abuse, including false claims and anti-kickback laws, healthcare professional payment transparency laws, and privacy laws restrict business practices in the pharmaceutical and medical device industries. These laws have been subject to increased enforcement activities with respect to medical product manufacturers and distributors in recent years. Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, fines, imprisonment and, within the US, exclusion from participation in government healthcare programs, including Medicare, Medicaid, Department of Defense, and Veterans Administration health programs. Restrictions under applicable federal and state and analogous foreign healthcare laws and regulations include the following:
| ● | the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs; |
| ● | the federal False Claims Act, which prohibits any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal laws that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, which impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security, and transmission of individually identifiable protected health information, including breach notification regulations; |
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| ● | regulations adopted by the Securities and Exchange Commission, or SEC, effective December 18, 2023, that require greater disclosure regarding cybersecurity risk management, strategy and governance, as well as disclosure of material cybersecurity incidents, which may require reporting of a cybersecurity incident before its impact has been fully assessed or the underlying issue has been remediated, which could divert management’s attention from incident response and could potentially reveal system vulnerabilities to threat actors, and for which failure to timely report such incidents under these or other similar rules could also result in monetary fines, sanctions or other forms of liability; |
| ● | analogous state data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal information, such as social security numbers, medical and financial information, and other information, including data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or acquisition of personal information, as well as the California Consumer Privacy Act or CCPA, which, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and affords those individuals numerous rights relating to their personal information that may affect companies’ ability to use personal information or share it with business partners, and which has been expanded by comprehensive new regulations approved by the California Office of Administrative Law that became effective on January 1, 2026, and the California Privacy Rights Act, or CPRA, which expands the scope of the CCPA, imposes new restrictions on behavioral advertising, and establishes a new California Privacy Protection Agency that enforces the law and has been actively issuing implementing regulations, after the CPRA became “operative” on January 1, 2023, with a 12-month “lookback provision” applicable to personal data collected on or after January 1, 2022, and the various state laws and regulations may be more restrictive than and not preempted by United States federal laws; |
| ● | analogous foreign data protection laws, including among others the EU General Data Protection Regulation, or the GDPR, and EU member states’ implementing legislation, which imposes data protection requirements that include strict obligations and restrictions on the ability to collect, analyze, and transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual turnover of the preceding financial year), as further updated by the GDPR procedural regulation, which entered into force on January 1, 2026, and which will apply to new cross-border cases as of April 2, 2027, which primarily affects how supervisory authorities process data protection-related complaints and cooperate with one another and is expected to result in stricter and more structured enforcement timelines and greater efficiencies and harmonization in cross-border regulatory investigations, with legal requirements in foreign countries relating to the collection, storage, processing, and transfer of personal data continuing to evolve and varying widely across jurisdictions; |
| ● | the United States civil monetary penalties statute, which imposes penalties against any person who is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent; |
| ● | the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value made by that entity to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members; |
| ● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to healthcare items or services that are reimbursed by non-governmental third-party payors, including private insurers; and |
| ● | state laws requiring pharmaceutical companies and medical device companies to comply with the pharmaceutical industry’s or the medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. |
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In addition, our operations in foreign countries are subject to the extraterritorial application of the United States Foreign Corrupt Practices Act, or FCPA. Our global operations are also subject to foreign anti-corruption laws, such as the United Kingdom Bribery Act, among others. As part of our global compliance program, we seek to address anti-corruption risks proactively.
COMPETITION
We and the Portfolio Companies operate in highly competitive segments. We and the Portfolio Companies face competition from many different sources, including commercial pharmaceutical and biotechnology and medical device enterprises, academic institutions, government agencies, and private and public research institutions. Many of our and the Portfolio Companies’ competitors have significantly greater financial, product development, manufacturing and marketing resources than we and the Portfolio Companies possess. Large pharmaceutical companies and medical device companies have extensive experience in development, clinical testing and obtaining regulatory approval for drugs and devices. In addition, many universities and private and public research institutes are active in research in direct competition with us and the Portfolio Companies. We and the Portfolio Companies also may compete with these organizations to recruit scientists and clinical development personnel. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
Our and the Portfolio Companies’ competitors are pursuing the development and/or acquisition of pharmaceuticals, medical devices and over-the-counter (“OTC”) products that target the same diseases, conditions and unmet medical needs that we and the Portfolio Companies are targeting. If competitors introduce new products, delivery systems or processes with therapeutic or cost advantages, our and the Portfolio Companies’ products can be subject to progressive price reductions or decreased volume of sales, or both. Most new products that we and the Portfolio Companies would introduce must compete with other products already on the market or products that are later developed by competitors. The principal methods of competition for our and the Portfolio Companies’ products include quality, efficacy, market acceptance, price, and marketing and promotional efforts, patient access assistant programs and product insurance coverage and reimbursement.
We face competition from other entities, including pharmaceutical and biotechnology companies and governmental institutions that are working on supporting orphan drug designations and clinical trials for the neurological manifestations of NPC. Some of these entities are well-funded, with more financial, technical and personnel resources than we have, and have more experience than we do in designing and implementing clinical trials. Two of our competitors were granted FDA approval, one a combination therapy for NPC on September 20, 2024 and the second a monotherapy on September 24, 2024, and both products became commercially available in the US in 2025. If we are unable to compete effectively against our current or future competitors, sales of our Trappsol® Cyclo™ product may not grow and our financial condition may suffer.
Zevra Therapeutics’ MIPLYFFA™ is positioned as a disease-modifying therapy that enhances lysosomal function and proteostasis pathways. Its primary focus is slowing neurological progression in NPC patients and is used in combination with miglustat. While orally administered and approved for patients aged two years and older, its labeled indication is directed to the neurological manifestations of NPC.
IntraBio’s AQNEURSA® is positioned as a therapy designed to improve neurological function and symptoms. Its mechanism is focused on neurological modulation. AQNEURSA is administered orally and may serve either as monotherapy or as an adjunct treatment.
We are also aware of adrabetadex (Beren) which is currently in clinical development.
Trappsol® Cyclo is differentiated by its potential to provide both systemic and central nervous system (CNS) disease modification through direct cholesterol clearance, which management believes addresses the root cause of NPC pathology. The company positions Trappsol® Cyclo as a potential foundational therapy designed to be suitable for a broad patient population, including early-stage and pediatric patients. In addition, its mechanism may offer significant combination-therapy potential with other NPC treatments due to complementary modes of action. Trappsol® Cyclo is administered intravenously every two weeks.
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INTELLECTUAL PROPERTY
Licenses
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 intellectual property developed at SZMC relating to the mitomycin lipophilic prodrug and its liposomal formulation (Promitil®) with the right to grant sublicenses.
Cornerstone maintains (i) an exclusive license agreement with the Research Foundation of the State University of New York at Stony Brook, or RF, granting Cornerstone 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 amended in 2004, 2007 and 2017 and (ii) Cornerstone maintains a low single-digit royalty agreement with Altira Capital and Consulting, LLC (“Altira”), pursuant to which Cornerstone is granted sole ownership of certain patents directed to lipoic acid derivatives and other technology. Rafael possesses a two-thirds ownership interest in Altira.
Cyclo maintains an exclusive, worldwide, royalty-bearing license agreement, effective April 16, 2026, with the Massachusetts Institute of Technology (“MIT”) granting Cyclo the exclusive right to develop, make, use and sell products covered under U.S. Patent No. 12,285,440, which expires in March 2042, and related patent applications relating to hydroxypropyl-beta-cyclodextrin for the treatment, prevention and diagnosis of Alzheimer’s disease, with the right to grant sublicenses. The licensed field excludes NPC.
Patents
The designation of Trappsol® Cyclo™ as an orphan drug for the treatment of NPC by FDA and European regulators would provide Cyclo with seven years in the US, and currently 10 to 12 years in the EU subject to potential reforms under consideration in the EU, of market exclusivity, respectively, if it were to receive regulatory approval for its designated orphan indication and was not considered to be the same drug for the same approved use or indication within such rare disease or condition as a previously-approved drug. Cyclo also protected its Trappsol® and Aquaplex® trademarks by registering them with the USPTO. In July 2024, Cyclo received a notice of decision from the European Patent Office to grant a patent application regarding the methods to treat Alzheimer’s Disease, with an effective date of August 21, 2024.
Trappsol® Cyclo™ is not covered by any issued patent or pending patent application for the treatment of NPC. If approved, its market protection in the United States would depend primarily on regulatory exclusivity, including seven years of orphan drug exclusivity, which would not prevent approval of a different drug for NPC or of the same drug for different non-orphan indications, or even for different subindications and subpopulations, such as adult and pediatric patients or multiple variations of the same disease that are caused by different genetic variants and, once on the market, could be prescribed off-label for the exclusive orphan indication(s).
LipoMedix owns or in-licenses several families of U.S. patents. Additional patent applications may 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 2040. These dates do not include potential patent term extensions.
Four patent applications covering the use of Promitil®, in combination with other chemotherapies and with radiotherapy, targeting of Promitil® with a folate ligand, and a reformulation of Promitil® with co-encapsulated mitomycin prodrug and doxorubicin have been approved by the USPTO or EPO in 2018-2020. The patent portfolio is currently comprised of four granted families of patents and two applications under review.
Barer has filed patents for its novel inventions, and has entered into licensing agreements for other intellectual property. Patent applications have been filed in the name of Farber Partners, LLC (Barer’s subsidiary) in the areas of T-cell nutrients to enhance checkpoint inhibition and one-carbon metabolism, and serine hydroxymethyltransferase (SHMT) inhibitors for therapies directed to treatment of cancer, autoimmune disease and fibrotic disease. In the area of T-cell nutrients, a Patent Cooperation Treaty Application (PCT) was filed on July 15, 2022, claiming priority to two US provisional applications that were filed in July and December of 2021. The PCT application entered the US national phase and the European regional phase in January of 2024. In the area of SHMT inhibitors, a US provisional application was filed on May 26, 2026. Pursuant to a Collaboration and Assignment Agreement between Farber and Ludwig Institute for Cancer Research Ltd. (“Ludwig”), Farber assigned its rights to these patents relating to T-cell nutrients to Ludwig. Farber and Ludwig also entered into a license agreement for its T-Cell Nutrient technology, and Farber will receive a royalty upon the achievement of certain milestones and sales related to the product.
Cornerstone patents its technology, inventions, and improvements that it considers important to the development of its business. Cornerstone also has obtained U.S. orphan drug designation (ODD) for CPI-613® (devimistat) in the treatment of Pancreatic cancer, AML, MDS, Burkitt’s Lymphoma, Peripheral T-cell Lymphoma (PTCL), Soft tissue sarcoma, and Biliary cancer, and EMA ODD for Pancreatic cancer, AML, Burkitt’s Lymphoma, and Biliary cancer.
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Cornerstone maintains US. and international trademarks covering its lead development compound (CPI-613® (devimistat)) and for potential brand names of devimistat that could be used for commercialization.
Rafael Medical Devices patents its technology, inventions, and improvements that it considers important to the development of its business and seeks to expand its intellectual property portfolio. As of October 19, 2026, Rafael Medical Devices had filed the following patent applications related to its devices with the USPTO, each of which remains pending: patent application entitled Compression Anchor Systems, Devices, Instruments, Implants and Methods of Assembly and Use; patent application entitled Videoscopic Arthroscopic Instruments, Devices, and Systems and Methods of Use and Assembly; and patent application entitled Release Instruments, Devices, Systems, and Methods of Use and Assembly. In addition, Rafael Medical Devices has filed international patents under the Patent Cooperation Treaty (PCT) for: Compression Anchor Systems, Devices, Instruments, Implants and Methods of Assembly and Use; and Videoscopic Arthroscopic Instruments, Devices, and Systems and Methods of Use and Assembly.
Day Three Labs Manufacturing, a majority-owned subsidiary of Day Three Labs, owns several families of US and international patents and patent applications related to increasing the bioavailability of cannabinoids.
Additional patent and trademark applications may be filed as development progresses across the Portfolio Companies as deemed to be in its best interest.
MANUFACTURING
Neither we nor the Portfolio Companies own or operate, and currently have no plans to establish, any manufacturing facilities or fill-and-finish facilities, or labeling or packaging facilities. The Pharmaceutical Companies currently rely, and we expect us and them to continue to rely, on third parties for the manufacture, labeling, and packaging of their product candidates for preclinical and clinical testing, as well as for commercial manufacture of any products that they may commercialize should they receive regulatory approval. The Pharmaceutical Companies obtain supplies from these established contract manufacturers on a purchase-order basis and do not have long-term supply arrangements in place. The Pharmaceutical Companies do not currently have arrangements in place for a redundant supply of bulk drug substance or drug product, however, they may seek to add that capability if they move toward regulatory approval and potential commercialization of specific candidates. For all of the product candidates, the Pharmaceutical Companies intend to identify and qualify additional manufacturers to provide the active pharmaceutical ingredient and the formulation, fill-and-finish, and labeling and packaging.
We are developing our lead product candidate, Trappsol® Cyclo™, for the proposed treatment of NPC. We own all manufacturing and commercial rights to the product and have manufactured using a validated, commercial-scale process using a team of contract manufacturing service providers.
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. LipoMedix obtains bulk drug substance and drug product supplies from established contract manufacturers on a purchase order basis and does not have long-term supply arrangements in place. LipoMedix does not currently have arrangements in place for commercial supply or redundant supply for bulk drug substance or drug product.
Rafael Medical Devices optimizes supply chains and manufacturing on a device per device basis focusing on quality, time, and cost. At present, Rafael Medical Devices does not own or operate manufacturing, labeling, or packaging facilities. Rafael Medical Devices’ management has relationships with top tier manufacturers that it leverages on an as-needed basis.
Cornerstone owns all manufacturing rights to its lead development compound CPI-613® (devimistat) and has it manufactured using a validated, commercial-scale process using a team of contract manufacturing service providers.
Real Estate
Historically, we owned real estate assets. As of July 31, 2026, we hold a portion of a commercial building in Jerusalem, Israel as our sole remaining real estate asset.
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Our 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 comprising approximately 12,400 gross square feet including 24 indoor parking spaces. 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, 2026, the space is fully leased to two tenants; one of which is an IDT subsidiary.
COMPETITION
With respect to our real estate business, we compete for commercial (office and retail) tenants in Jerusalem, Israel. 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.
OUR STRATEGY
Our strategy related to our real estate business is to continue to operate and maximize the value of our real estate holding in Israel.
HUMAN CAPITAL
Attracting and retaining qualified personnel familiar with our businesses who head our different businesses units is critical to our success. As of October 15, 2026, Rafael Holdings and its subsidiaries had 15 full-time and 2 part-time employees. Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants. To accomplish that, our compensation practices are designed to attract and retain qualified and motivated personnel and align their interests with the goals of the Company and with the best interests of our stockholders. Our compensation philosophy is to provide compensation to attract the individuals necessary for our current needs and growth initiatives, and provide them with the proper incentives to motivate those individuals to achieve our long-term plans, which includes among other things, equity and cash incentive plans that attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards.
We believe that talent attraction and retention are critical to our ability to achieve our strategy and that a trained, diverse and inspired workforce is integral to delivering on our objectives. Our recruiting process reaches a wide array of potential employees, and we employ a rigorous screening process to ensure that we identify and hire quality professionals. We work to ensure that compensation and benefits offered to employees are fair and reflects industry standards and best practices.
We are committed to diversity and inclusion in the workforce including a policy of non-discriminatory treatment and respect of human rights for all current and prospective employees. Discrimination on the basis of an individual’s race, religion, creed, color, sex, sexual orientation, age, marital status, disability, national origin or veteran’s status is not permitted by us and is illegal in many jurisdictions. We respect the human rights of all employees and strive to treat them with dignity consistent with standards and practices recognized by the international community.
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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. 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.
Risks Related to Our Financial Condition and Capital Needs
Substantial doubt exists regarding our ability to continue as a going concern, and we will require additional financing to fund our operations.
We are a clinical-stage biotechnology company with no approved products and no revenue from product sales. We have incurred recurring losses and expect to continue to incur significant expenses, for a period of at least 12 months from the date of issuance, to support FDA’s review of our New Drug Application for Trappsol® Cyclo™ (remibetadex), submitted on October 28, 2026, and, if approved, to commercialize the product. As a result, management has concluded that substantial doubt exists regarding our ability to continue as a going concern.
Our ability to continue operations depends on our ability to raise additional capital through equity financings, debt financings, strategic collaborations, or other sources. While we are actively pursuing additional financing, there can be no assurance that such funding will be available on acceptable terms, or at all. If we are unable to obtain sufficient capital, we may be required to delay, reduce, or discontinue our clinical development programs or other operations, which could materially adversely affect our business and the value of our common stock.
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 our business and prospects can be evaluated. 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 large-scale, pivotal clinical trials, obtain regulatory approvals, manufacture any medicine on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization of any product that might receive regulatory approval. 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, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors and risks frequently experienced by clinical stage biopharmaceutical companies in rapidly evolving fields. We will also need to transition from a company with a research focus to a company capable of supporting commercial activities should any regulatory approval be secured, if any. If we do not adequately address these risks and difficulties or successfully make such a transition, our business will suffer, our future revenue potential may be impacted, and our ability to pursue our growth strategy and attain profitability could be compromised.
We hold cash, cash equivalents, convertible notes receivable and investments that are subject to various market risks.
As of July 31, 2026, we held approximately $22.1 million in cash and cash equivalents, $2.0 million in convertible notes receivable classified as available for sale and $0.8 million in investments. Our passive interests in other entities are not currently liquid, and we cannot assure that 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.
We may not be able to consummate any investment, business combination or other transaction.
While we seek corporate development opportunities, we may not be able to find any suitable target businesses and consummate an investment, business combination or other transaction. Our ability to complete any such transactions may be negatively impacted by general market conditions, volatility in the debt and equity markets, decreased market liquidity, and third-party financing being unavailable on terms acceptable to us or at all.
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Risks Related to our Pharmaceuticals Business
Our future success will likely depend on our ability to obtain regulatory approval and successfully commercialize Trappsol® Cyclo™ (remibetadex). If we are unable to do so, or we experience significant delays in doing so, our business will be materially harmed.
We have invested a significant amount of capital in Cyclo and the development and clinical activity for Trappsol® Cyclo™. Our dependence on the success of Trappsol® Cyclo™ and the possible need for additional capital has increased following completion of the Phase 3 trial for Trappsol® Cyclo™ and the submission of our NDA on October 28, 2026. Initial top-line data were reported on September 30, 2026 from this pivotal 96-week, double-blind, placebo-controlled Phase 3 study (CTD-TCNPC-301) evaluating Trappsol® Cyclo™ (hydroxypropyl-β-cyclodextrin, IV) in 94 patients diagnosed with Niemann-Pick Disease Type C (NPC). Data from the 94-patient trial, with patients ranging in age from 3 to 70 years, indicated that Trappsol® Cyclo™ (2000 mg/kg administered intravenously every two weeks) was well-tolerated and indicated a directionally favorable treatment effect. The complete dataset has been submitted to FDA as part of the NDA and remains subject to FDA review. The Phase 3 study did not meet the primary endpoint in the overall population; a prespecified analysis in patients receiving background miglustat and/or leucine therapy demonstrated a statistically significant and, subject to FDA review of the complete data set, a potential clinically meaningful treatment benefit.
Primary endpoint: Trappsol® Cyclo™ demonstrated a directionally favorable treatment effect compared with placebo, indicating slowing of disease progression by 64% on change in 4DNPCSS at Week 96 (LS mean change from baseline of 0.46 vs 1.28 points; difference −0.81 points [95% CI −2.04, 0.41]; p=0.19); however, the result did not achieve statistical significance.
Prespecified analysis: Among patients receiving background miglustat and/or leucine therapy (n=78), Trappsol® Cyclo™ showed slowing of disease progression of 71% compared with placebo at Week 96 (LS mean change from baseline of 0.46 vs 1.57 points; difference −1.11 points [95% CI −2.19, −0.02]; p=0.046).
Over the 96-week treatment period, Trappsol® Cyclo™ was generally well tolerated. Adverse events were largely consistent with the underlying disease. Treatment-emergent adverse events (TEAEs) were reported as follows: Trappsol® Cyclo™, 93.8%; placebo, 100.0%. Serious TEAEs occurred more frequently with Trappsol® Cyclo™, 35.9%, than with placebo, 16.7%; however, serious TEAEs considered related to treatment were reported at similar rates, 3.1% vs 3.3%. Hearing-related TEAEs were reported by 15.6% of participants receiving Trappsol® Cyclo™ and 13.3% receiving placebo, and most were mild or moderate in severity. One treatment-related event of bilateral deafness in the Trappsol® Cyclo™ group was severe. No TEAEs resulted in death, and one participant in the Trappsol® Cyclo™ group discontinued the study early because of a TEAE.
Separate Overall Survival Analysis
In an Overall Survival Analysis separate from the Phase 3 study, patients with infantile-onset NPC across the Company’s clinical trial program who were treated with Trappsol® Cyclo™ were compared with well-matched, external controls from the International Niemann-Pick Disease Registry (INPDR) that included patients with similar baseline characteristics and disease progression. Results from the analysis provide supportive indications of a treatment-associated survival benefit with Trappsol® Cyclo™. Specifically, these data indicated:
| ● | Treatment with Trappsol® Cyclo™ was associated with an 85% reduction in the risk of mortality compared with matched INPDR controls (n=93), with a Hazard Ratio (HR) of 0.154 (95% CI: 0.025-0.950; p=0.044). |
| ● | In a secondary analysis that expanded the control group to include additional matched historical cohorts from published natural history studies (N=133) indicated a 94% reduction in the risk of mortality, generating a Hazard Ratio of 0.057 (95% CI: 0.011-0.306; p=0.0008). |
Again, these data and the complete dataset remain subject to full analysis and final FDA regulatory review.
The success of Trappsol® Cyclo™ is beyond our control, and the drug development and regulatory approval processes could cause significant delay or prevent us from obtaining regulatory approval or commercializing Trappsol® Cyclo™ or any other product candidates. If we are unable to develop, obtain regulatory approval for, or, if approved, successfully commercialize our product candidates, we may not be able to generate sufficient revenue to continue our business.
We submitted our NDA for Trappsol® Cyclo™ (remibetadex) on October 28, 2026 based on a Phase 3 trial that did not meet its primary endpoint, and FDA may not accept the NDA for filing or approve it.
On October 28, 2026, Cyclo submitted an NDA to FDA for Trappsol® Cyclo™ (remibetadex). The TransportNPC™ Phase 3 trial did not meet its primary endpoint in the overall study population, and the NDA relies in part on a prespecified analysis of patients receiving background miglustat and/or leucine therapy and on a separate overall survival analysis that compared treated patients with external, non-randomized registry controls. FDA may determine during its 60-day filing review that the NDA is not sufficiently complete to permit a substantive review and refuse to file it. If the NDA is filed, FDA may not grant priority review, may refer the application to an advisory committee, may conclude that the data do not provide substantial evidence of effectiveness, or may issue a complete response letter requiring one or more additional clinical or nonclinical trials. Any of these outcomes would delay or prevent commercialization, could prevent us from receiving a priority review voucher, and would materially harm our business, financial condition and prospects. Even if FDA approves Trappsol® Cyclo™, it may limit the indication to patients receiving background therapy, which consists of products marketed by other companies, or impose other labeling restrictions that limit market acceptance.
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If Cyclo does not dose the first patient in a U.S. Phase II clinical trial in Alzheimer’s disease by March 31, 2027, MIT may terminate our license to develop hydroxypropyl-β-cyclodextrin for Alzheimer’s disease.
Under its Patent License Agreement with MIT, effective April 16, 2026, Cyclo must use diligent efforts to develop licensed products and must meet specified diligence requirements, including dosing the first patient in a U.S. Phase II clinical trial in Alzheimer’s disease by March 31, 2027. Meeting this deadline will require, among other things, regulatory clearance to begin the trial, enrollment of clinical trial sites, production of investigational drug supply, and additional funding. Given our limited resources, the substantial doubt about our ability to continue as a going concern, and our focus on FDA’s review of our NDA for Trappsol® Cyclo™ in NPC, we may not meet this deadline. Although the agreement permits Cyclo to propose an extended or amended diligence plan, MIT is not obligated to agree to it. If Cyclo fails to meet a diligence requirement and does not obtain an amendment or cure the failure within the applicable cure period, MIT may terminate the license, and we would lose our rights under the licensed patent rights to develop and commercialize hydroxypropyl-β-cyclodextrin for Alzheimer’s disease.
Even if we were to obtain FDA approval for Trappsol® Cyclo™ for treatment of the designated Rare Pediatric Disease NPC, the Rare Pediatric Disease Priority Review Voucher Program may no longer be in effect or may have been revised at the time of any such approval, or we might not be able to capture the value of the Rare Pediatric Disease Priority Review Voucher Program even if the program is still in effect.
Rare pediatric disease designation by FDA is granted in the case of serious or life-threatening diseases affecting fewer than 200,000 people in the United States in which the serious or life-threatening manifestations are primarily in individuals 18 years of age and younger. The designation provides regulatory incentives for companies to develop and market therapies that treat these conditions. The sponsor of a drug for a rare pediatric disease may be eligible for a PRV upon approval of the drug that can be used to obtain a priority review of a subsequent marketing application for a different product. The PRV may be sold or transferred an unlimited number of times. A Rare Pediatric Disease designation does not lead to faster development or regulatory review of the product, or increase the likelihood that it will receive marketing approval.
Even if Trappsol® Cyclo™ were to be approved, it is not certain that we would be awarded a PRV as we may no longer meet the conditions for such an award at the time of such approval, if any. Designation of a drug as a drug for a rare pediatric disease does not guarantee that an NDA or BLA for such drug will meet the eligibility criteria for a rare pediatric disease PRV at the time the application is approved. Under the FFDCA, Cyclo requested a rare pediatric disease priority review voucher in its NDA for Trappsol® Cyclo™ submitted on October 28, 2026. FDA may determine that an NDA for Trappsol® Cyclo™, if approved, does not meet the eligibility criteria for a PRV at the time of any approval, including for the following reasons:
| ● | NPC no longer meets the definition of a rare pediatric disease; |
| ● | the NDA contains an active ingredient that has been previously approved by FDA; |
| ● | the NDA does not rely on clinical data derived from studies examining a pediatric population and dosages of the drug intended for that population (that is, if the NDA does not contain sufficient clinical data to allow for adequate labeling for use by the full range of affected pediatric patients); or |
| ● | the NDA is approved for a different adult indication than the rare pediatric disease NPC for which Trappsol® Cyclo™ is designated. |
In addition, FDA may revoke any PRV if the rare pediatric disease drug for which the voucher was awarded is not marketed in the U.S. within one year following the date of approval.
On February 3, 2026, Congress extended the rare pediatric disease PRV program until September 30, 2029. Under the February 2026 sunset provisions, after September 30, 2029, FDA may not award any rare pediatric disease PRVs unless the program is extended. In other words, even if a product candidate has received rare pediatric disease designation, if the NDA for that product candidate is not approved by FDA by September 30, 2029, no PRV will be awarded under the current sunset provisions even if all of the other requirements for a PRV had been met. Although legislation to extend and/or make permanent the rare pediatric disease priority review voucher program has been proposed, the U.S. Congress has not yet, and may never, pass a bill to further extend the sunset dates, or otherwise amend the current statutory provisions governing the awarding of PRVs after September 30, 2029. In addition, this program has been subject to criticism, including by FDA, and it is possible that, even if we were to obtain approval for Trappsol® Cyclo™ and otherwise qualify for such a PRV, the program may no longer be in effect at the time of approval. Absent a reauthorization or other extension of the program, if an NDA for Trappsol® Cyclo™ is not approved prior to September 30, 2029 for any reason, regardless of whether it meets the criteria for a rare pediatric disease PRV, it will not be awarded a PRV because the FDA currently may not award any rare pediatric disease PRVs after that date under current law. Even if legislation is enacted that extends the date by which approval of the rare pediatric disease-designated drug must obtain approval to receive a PRV, we may not obtain approval by that date, and even if we do, we may not obtain a PRV. Moreover, any Congressional reauthorization of this program may include new or different terms or eligibility requirements, and FDA may determine that any marketing application for Trappsol® Cyclo™, if approved, does not meet the reauthorized eligibility criteria for awarding a PRV.
PRVs may be sold or transferred to third parties, and, in some instances, recipients of PRVs have transferred them to other drug developers in exchange for substantial financial consideration. Even if we were to receive a PRV, there can be no assurance that we will be able to apply it to review of one of our other drug candidates or to transfer it for substantial financial consideration, if at all, or otherwise realize any value from it.
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We rely upon third parties for the manufacture, packaging, and labeling of Trappsol® Cyclo™ and are dependent on their quality and effectiveness.
Trappsol® Cyclo™ requires precise, high-quality manufacturing. The failure to achieve and maintain high manufacturing, including labeling and packaging, standards, including the failure to conform to cGMPs (current Good Manufacturing Practices), or to detect or control anticipated or unanticipated manufacturing errors or the frequent occurrence of such errors, could result in discontinuance or delay of ongoing or planned clinical trials, delays or failures in product testing or delivery, cost overruns, product recalls or withdrawals, patient injury or death, and other problems that could seriously hurt our business. Contract drug manufacturers often encounter difficulties involving production yields, quality control and quality assurance and shortages of qualified personnel. These manufacturers are subject to stringent regulatory requirements, including FDA’s cGMP regulations and similar foreign laws and standards. If our contract manufacturers fail to maintain ongoing compliance at any time, the production of our product candidates could be interrupted, resulting in delays or discontinuance of our clinical trials, additional costs and loss of potential revenues.
We are dependent on the Cyclo management team, and our ability to advance the development, clinical testing, and regulatory approval of our lead candidate, Trappsol® Cyclo™ may be materially and adversely affected if we lose them.
The success of Cyclo to date has largely depended on the efforts and abilities of the Cyclo management team and our ability to advance our efforts of our Cyclo subsidiary could be materially and adversely affected if, for any reason, members of the management team leave.
A small number of our customers account for a substantial portion of our revenue, and the loss of any of these customers would materially decrease our revenues.
Following consummation of the Cyclo Merger, sales of cyclodextrin products for research purposes generates a significant portion of our revenues. During the year ended July 31, 2026, one major customer from this revenue stream accounted for 34% of total revenues. Accounts receivable balances for this major customer represent 14% of total accounts receivable at July 31, 2026. We have a contract with this customer, but not with any other customers for sales of cyclodextrin. The loss of this customer would materially decrease our revenues if we were unable to replace such customer.
We are dependent on certain third-party suppliers.
Cyclo purchases the cyclodextrin products it sells as part of its legacy fine chemical business from third-party suppliers and depends on those suppliers for the cyclodextrins it uses in its Aquaplex® fine chemical business products. Cyclo is also dependent on outside manufacturers that use lyophilization techniques for its Aquaplex® fine chemical business products. Cyclo purchases substantially all of its Trappsol® fine chemical business products from bulk manufacturers and distributors in the U.S., Japan, China, and Europe. Under the newly-enacted BIOSECURE Act, Cyclo’s API supply chains potentially could be affected if one or more of the manufacturers or distributors from which Cyclo purchases its Trappsol® fine chemical business products were in the future to be designated one of the “biotechnology companies of concern” under the law. Separately, although products are available from multiple sources, an unexpected interruption of supply, or material increases in the price of products, for any reason, such as regulatory requirements, tariffs, import restrictions, loss of certifications, power interruptions, fires, hurricanes, war or other events could have a material adverse effect on our business, results of operations, financial condition and cash flows.
We may be negatively affected by currency exchange rate fluctuations.
Our cost of product revenues and cash flows are influenced by currency fluctuations due to the geographic diversity of our suppliers, which may have a significant impact on our financial results. As we buy inventory from foreign suppliers, the change in the value of the U.S. dollar in relation to the Euro, Yen and Yuan has an effect on our cost of inventory, and will continue to do so. We buy most of our products from outside the U.S. using U.S. dollars. Our main supplier of specialty cyclodextrins and complexes, Cyclodextrin Research & Development Laboratory, is located in Hungary and its prices are set in Euros. The cost of our bulk inventory often changes due to fluctuations in the U.S. dollar. These products currently represent a significant portion of our revenues. When we experience short-term increases in currency fluctuation or supplier price increases, we are often not able to raise our prices sufficiently to maintain our historical margins and therefore, our margins on these sales may decline. If the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated transactions may adversely affect our results of operations and financial condition.
We may be negatively affected by tariffs imposed on imported and/or exported products.
The current U.S. presidential administration has announced a wide range of tariffs on certain ingredients, inputs and imports from many countries, including Canada, Mexico, members of the European Union, the United Kingdom, and China. The imposition of such tariffs potentially may result in increased costs to raw materials sourced outside the US. For example, glass sourced from the EU and Cyclodextrins from China. We are continuing to monitor the rapidly evolving tariff and global trade policies and are working with our suppliers to mitigate potential impacts on our business. The extent and duration of the tariffs and the resulting impact on general economic conditions and on our business are uncertain and depend on various factors, such as recent legal challenges to the U.S.’s imposition of tariffs, negotiations between the U.S. and affected countries, the responses of other countries or regions, relief that may be granted, availability and cost of alternative sources of supply and demand for our products in affected markets. The uncertainty of the tariffs could impact our financial condition or results of operations. Furthermore, our competitors may be less exposed to tariff impacts or in a better position to mitigate the increased costs of tariffs.
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We may not be successful in our efforts to identify or discover potential product candidates.
Our business strategy includes elements for us and entities in which we invest to identify, create and test compounds, and where regulatory requirements are met, to advance clinical testing of those and other compounds. A significant portion of the research that the Pharmaceutical Companies are conducting involves new compounds and drug discovery methods and suitable drug delivery systems, including the Pharmaceutical Companies’ proprietary technology. The drug discovery that the Pharmaceutical Companies are conducting using the Pharmaceutical Companies’ proprietary technologies may not be successful in identifying compounds that are useful in treating cancer or other ailments. The Pharmaceutical Companies’ research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates that, subject to meeting regulatory requirements, have the potential for initiating clinical development for a number of reasons, including:
| ● | the research methodology used may not be successful in identifying appropriate biomarkers, potential product candidates or effective carrier systems to confer a safe and effective drug delivery mechanism or a drug delivery advantage; |
| ● | potential product candidates may, on further study, be shown to not be effective, have harmful side effects or other characteristics that indicate that they are unlikely to be medicines that will receive regulatory approval, or, even if regulatory approval were to be received, achieve market acceptance. |
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, and/or are unable to successfully meet regulatory requirements or initiate clinical trials and secure regulatory approval for any such compounds, 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 and our business.
We and the Portfolio Companies may expend our and their limited resources to pursue a particular product candidate or an 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 may not be exhaustive. 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, or outright product relinquishment in cases in which it would have been more advantageous for them to retain sole development and commercialization rights to such product candidate.
Preclinical and clinical drug development is a lengthy and expensive process, with an uncertain outcome. Our and the Pharmaceutical Companies’ preclinical and clinical programs may experience delays or may never advance, which would adversely affect the ability to obtain regulatory approvals for product candidates, or commercialize any product candidates for which regulatory approval is obtained, on a timely basis or at all, which could have an adverse effect on our business.
In order to obtain FDA approval to market a new drug, the product sponsor must demonstrate the safety and efficacy of the new drug in humans to the satisfaction of FDA. To meet these requirements, the Pharmaceutical Companies will have to conduct extensive studies, including preclinical studies and adequate and well-controlled clinical trials. Clinical testing is very expensive, time-consuming, and subject to uncertainty.
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Before the Pharmaceutical Companies can commence clinical trials for a product candidate, they must complete extensive nonclinical and preclinical studies that support their planned and future INDs in the United States. We cannot be certain of the timely completion or outcome of the Pharmaceutical Companies’ nonclinical and preclinical studies and cannot predict if FDA will allow their proposed clinical programs to proceed or if the outcome of their nonclinical and preclinical studies will ultimately support further development of their programs. We also cannot be sure that the Pharmaceutical Companies will be able to submit INDs or similar foreign applications with respect to their product candidates on the timelines we expect, if at all, and we cannot be sure that submission of IND or similar foreign applications will result in FDA or comparable foreign regulatory authorities allowing clinical trials to begin.
Conducting nonclinical and preclinical testing and clinical trials represents a lengthy, time-consuming, and expensive process. The length of time may vary substantially according to the type, complexity, and novelty of the program, and often can be several years or more per development program. Delays associated with programs for which the Pharmaceutical Companies are conducting nonclinical and preclinical studies may cause them to incur additional operating expenses. The commencement and rate of completion of nonclinical and preclinical studies and clinical trials for a product candidate may be delayed by many factors, including, for example:
| ● | inability to generate sufficient nonclinical and preclinical or other in vivo or in vitro data to support the initiation of clinical studies; |
| ● | timely completion of nonclinical and preclinical laboratory tests, animal studies, and formulation studies in accordance with FDA’s good laboratory practice requirements and other applicable regulations; |
| ● | inability to secure approval by an independent Institutional Review Board, or IRB, or ethics committee at each clinical site before each trial may be initiated; |
| ● | delays in reaching a consensus with regulatory agencies on study design and obtaining regulatory authorization to commence clinical trials; |
| ● | delays in reaching agreement on acceptable contractual terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites and across different jurisdictions; |
| ● | delays in identifying, recruiting and training suitable clinical investigators; |
| ● | delays in recruiting eligible patients to participate in clinical trials; |
| ● | delays in manufacturing, testing, releasing, validating, labeling, packaging, or importing/exporting sufficient stable, cGMP-compliant quantities of product candidates for use in clinical trials; |
| ● | insufficient or inadequate supply or quality of product candidates or other materials necessary for use in clinical trials, or delays in sufficiently developing, characterizing or controlling a cGMP-compliant manufacturing process suitable for clinical trials; |
| ● | imposition of a temporary or permanent clinical hold by regulatory authorities; |
| ● | developments on trials conducted by competitors for related technology or medical products that raise FDA or foreign regulatory authority concerns about risk to patients of the technology broadly, or if FDA or a foreign regulatory authority finds that the investigational protocol or plan is clearly deficient to meet its stated objectives; |
| ● | delays in recruiting, screening and enrolling patients and delays caused by patients withdrawing from clinical trials or failing to return for post-treatment follow-up; |
| ● | challenges in collaborating with patient groups and investigators; |
| ● | failure by CROs, investigators, other third parties or the Pharmaceutical Companies to adhere to clinical trial protocols; |
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| ● | failure by CROs, investigators, other third parties or the Pharmaceutical Companies to perform in accordance with FDA’s or any other regulatory authority’s good laboratory practices, or GLPs, good clinical practice requirements, or GCPs, or other applicable regulatory guidelines in the US or other countries; |
| ● | occurrence of adverse events associated with the product candidate that are viewed to outweigh its potential benefits, or occurrence of adverse events in a clinical trial of the same class of agents and/or targeting the same proposed indication(s) conducted by other companies; |
| ● | changes to the clinical trial protocols; |
| ● | clinical sites deviating from trial protocols or dropping out of a trial; |
| ● | changes in regulatory requirements and guidance, or data from an ongoing or other studies, that require amending or submitting new clinical protocols; |
| ● | changes in the standard of care on which a clinical development plan was based, which may require new or additional trials; |
| ● | selection of inclusion and/or exclusion criteria that significantly inhibit the ability to recruit patients into clinical trials; |
| ● | selection of clinical endpoints that require prolonged periods of observation or analyses of resulting data; |
| ● | the length and/or cost of clinical trials of the Pharmaceutical Companies’ product candidates being greater than anticipated; |
| ● | interruptions of and/or delays in the clinical trials of the Pharmaceutical Companies’ product candidates and the potential impact of such interruptions or delays on a product candidate’s development program and the validity of clinical data resulting from a product candidate’s development program; |
| ● | clinical trials of the Pharmaceutical Companies’ product candidates producing negative or inconclusive results, which may result in our or their deciding, or regulators requiring us, to amend clinical trial protocols, conduct additional clinical trials or abandon development of such product candidates; |
| ● | transfer of manufacturing processes to larger-scale facilities operated by a contract manufacturing organization, or CMO, and delays or failure by CMOs or the Pharmaceutical Companies to conduct the requisite technology transfer or to properly implement such manufacturing processes or make any necessary changes to those processes and secure the requisite regulatory approvals in advance; and |
| ● | third parties being unwilling or unable to satisfy their contractual obligations to us or the Pharmaceutical Companies. |
In addition, disruptions caused by public health emergencies may increase the likelihood that the Pharmaceutical Companies encounter difficulties or delays in initiating, enrolling, conducting or completing any planned and ongoing nonclinical and preclinical studies and clinical trials. Any inability by the Pharmaceutical Companies to successfully initiate or complete nonclinical and preclinical studies or clinical trials could result in additional costs or impair our ability to generate revenue from future product sales of any product candidates that were thought to be on track to receive regulatory approval. In addition, if the Pharmaceutical Companies make manufacturing or formulation changes to their product candidates that already have undergone or are undergoing clinical evaluation, they may be required to or may elect to conduct additional studies to bridge modified product candidates to earlier versions. Clinical trial delays could also shorten any periods during which any marketed products have patent protection and may allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize the Pharmaceutical Companies’ product candidates and may seriously harm our business.
Further, conducting clinical trials in foreign countries, as the Pharmaceutical Companies may do for their product candidates, presents additional risks that may delay completion of clinical trials. These risks include the failure of patients enrolled in clinical trials in foreign countries to adhere to clinical protocols as a result of differences in healthcare services or cultural customs, the utilization of alternative standards of care in foreign countries and the failure to conduct foreign clinical trials according to standards of care that FDA considers comparable to the standards of care in the US, failure of the Pharmaceutical Companies to persuade FDA as to the scientific robustness and clinical acceptability of the data from any such foreign clinical trials, managing additional administrative burdens associated with foreign regulatory schemes, as well as political, economic, and public health risks relevant to such foreign countries.
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Moreover, principal investigators for the Pharmaceutical Companies’ clinical trials may serve as scientific advisors or consultants to the Pharmaceutical Companies from time to time and receive compensation in connection with such services. Under certain circumstances, the Pharmaceutical Companies may be required to report some of these relationships to FDA or state authorities or comparable foreign regulatory authorities. FDA or state authorities or comparable foreign regulatory authorities may conclude that a financial relationship between the Pharmaceutical Companies and a principal investigator has created a conflict of interest or otherwise affected conduct of the study or interpretation of the study results. FDA or comparable foreign regulatory authority may therefore question the integrity of the data generated at the applicable clinical trial site, and the utility of the clinical trial itself may be jeopardized. This could result in a delay in approval, or rejection, of marketing applications by FDA or comparable foreign regulatory authority, as the case may be, and may ultimately lead to the denial of regulatory approval of one or more product candidates.
Delays in the completion of any preclinical studies or clinical trials of the Pharmaceutical Companies’ product candidates will increase our costs, slow down product candidate development and approval processes, and delay or potentially jeopardize our ability to commence product sales and generate product revenue from any product candidate that might receive regulatory approval, if any. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Any delays to the Pharmaceutical Companies’ preclinical studies or clinical trials that occur as a result could shorten any period during which they may have the exclusive right to commercialize such product candidates if they were to be approved, and their competitors may be able to bring products to market before they do, and the commercial viability of any product candidates could be significantly reduced. Any of these occurrences may harm our business, financial condition, and prospects significantly.
If the Pharmaceutical Companies experience delays or difficulties in the enrollment of patients in clinical trials, the Pharmaceutical Companies’ receipt of necessary regulatory approvals could be delayed or prevented.
The Pharmaceutical Companies or their collaborators may not be able to initiate or continue clinical trials for the Pharmaceutical Companies’ product candidates if the Pharmaceutical Companies or such collaborators are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by FDA or comparable regulatory authorities outside the United States.
Enrollment may be particularly challenging for some of the orphan diseases the Pharmaceutical Companies target in the Pharmaceutical Companies’ programs. In addition, there may be limited patient pools from which to draw for clinical studies. In addition to the rarity of some diseases, the eligibility (inclusion and exclusion) criteria of the Pharmaceutical Companies’ clinical studies will further limit the pool of available study participants as they may require that patients have specific characteristics that they can measure or to assure their disease is either severe enough or not too advanced to include them in a study. In addition, some of the Pharmaceutical Companies’ competitors may have approved competing products or ongoing clinical trials for product candidates that are in development to treat the same indications as the Pharmaceutical Companies’ product candidates, and patients who would otherwise be eligible for the Pharmaceutical Companies’ clinical trials may instead be prescribed a competitor’s approved product or advised to enroll in clinical trials of the Pharmaceutical Companies’ competitors’ product candidates and therefore be ineligible or otherwise unwilling to enroll in the Pharmaceutical Companies’ clinical trials.
Patient enrollment is also affected by other factors including:
| ● | size and nature of the patient population; |
| ● | severity of the disease under investigation; |
| ● | availability and efficacy of approved drugs for the disease under investigation; |
| ● | patient eligibility (inclusion and exclusion) criteria for the trial in question as defined in the protocol; |
| ● | perceived risks and benefits of the product candidate under study; |
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| ● | clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new products that may be approved or future product candidates being investigated for the indications the Pharmaceutical Companies are investigating; |
| ● | delays in or temporary suspension of the enrollment of patients in planned clinical trials due to public health emergencies; |
| ● | ability to obtain and maintain patient consents and clinical trial enrollment; |
| ● | patient referral practices of physicians; |
| ● | the ability to monitor patients adequately during and after treatment; |
| ● | proximity and availability of clinical trial sites for prospective patients; and |
| ● | the risk that patients enrolled in clinical trials will drop out of the trials before completion, including as a result of other health conditions or because they may be late-stage cancer patients or have other conditions and will not survive the full durations of the clinical trials. |
These factors may make it difficult for the Pharmaceutical Companies to enroll enough patients to complete their clinical trials in a timely and cost-effective manner. The Pharmaceutical Companies’ inability to enroll a sufficient number of patients for their clinical trials would result in significant delays or may require them to abandon one or more clinical trials altogether. Enrollment delays in clinical trials may result in increased development costs for the Pharmaceutical Companies’ product candidates and jeopardize their ability to obtain regulatory approval. Furthermore, even if the Pharmaceutical Companies are able to enroll a sufficient number of patients for their clinical trials, they may have difficulty maintaining participation in their clinical trials through the treatment and any follow-up periods.
Our or the Pharmaceutical Companies’ product candidates may cause significant adverse events, toxicities or other undesirable side effects when used alone or in combination with other approved products or investigational new drugs that may result in a safety profile that could preclude further development, prevent regulatory approval, prevent market acceptance or limit their commercial potential if regulatory approval were to be received or result in other significant negative consequences.
If our or the Pharmaceutical Companies’ product candidates are associated with undesirable side effects or have unexpected characteristics in preclinical studies or clinical trials when used alone or in combination with other approved products or investigational new drugs, we or the Pharmaceutical Companies may need to interrupt, delay or abandon their development or limit development to more narrow 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. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may prevent us or the Pharmaceutical Companies from securing regulatory approval or achieving or maintaining market acceptance of the affected product candidate if it were to receive regulatory approval, and may adversely affect our business, financial condition, and prospects significantly.
In addition, many compounds that initially showed promise in early-stage testing have later been found to cause side effects that prevented further development of the compound. Further, we expect that certain product candidates will be used in patients that have weakened immune systems, which may exacerbate any potential side effects associated with their use. Patients treated with product candidates may also be undergoing surgical, radiation and/or chemotherapy treatments, which can cause side effects or adverse events that are unrelated to the product candidate but may still impact the risk-benefit profile of the product candidate and the success of clinical trials. The inclusion of critically ill patients in clinical trials may result in deaths or other adverse medical events due to other therapies or medications that such patients may be using or due to the gravity of such patients’ illnesses. It may be very challenging, or even impossible, for us or the Pharmaceutical Companies to demonstrate that any such deaths or other adverse events are traceable to other therapies or medications that such patients may be using or to the gravity of such patients’ illnesses, in which case FDA or comparable regulatory authorities may attribute any such deaths or other adverse events to our or the Pharmaceutical Companies’ product candidate being studied in the clinical trial.
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If significant adverse events or other side effects are observed in any of our or the Pharmaceutical Companies’ current or future clinical trials, we or the Pharmaceutical Companies may have difficulty recruiting patients to the clinical trials, patients may drop out of such trials, or they may be required to amend or abandon the trials or their development efforts of a product candidate altogether. We, the Pharmaceutical Companies, FDA, other comparable regulatory authorities or an IRB may suspend or halt clinical trials of a product candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to inadequate clinical benefit and/or unacceptable health risks or adverse side effects.
Further, if any of our or the Pharmaceutical Companies’ product candidates obtains regulatory approval, toxicities associated with such product candidates previously not seen during clinical testing may also develop after any such approval and lead to a number of potentially significant negative consequences, including, but not limited to:
| ● | regulatory authorities may suspend, limit or withdraw approvals of such product, or seek an injunction against its manufacture or distribution; |
| ● | regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product; |
| ● | we or the Pharmaceutical Companies may be required to change the way the product is administered or conduct additional clinical trials or post-approval studies; |
| ● | we or the Pharmaceutical Companies may be required to develop and implement a risk evaluation and mitigation strategy, or REMS, which could include, among other things, a medication guide outlining the risks of such side effects for distribution to patients, and potentially limitations or even restrictions on prescribing, dispensing, and/or distribution; |
| ● | we and/or the Pharmaceutical Companies may be subject to fines, injunctions or the imposition of criminal penalties; |
| ● | we and/or the Pharmaceutical Companies could be sued and held liable for harm caused to patients; and |
| ● | our reputation may suffer. |
Any of these events could prevent us or the Pharmaceutical Companies from achieving or maintaining market acceptance of the particular product candidate, if approved, could significantly harm the standing and reputation of the Pharmaceutical Companies among health-care providers and patients, and could seriously harm our business.
Interim, “top-line,” and preliminary data from clinical trials that we announce or publish from time to time may have limited clinical significance, if any, and may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we and/or the Pharmaceutical Companies may publicly disclose preliminary or top-line data from preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following study completion and a more comprehensive review of the data related to the particular study or trial. We and/or the Pharmaceutical Companies may also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we or they may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results reported may differ significantly from future results of the same studies, or different conclusions or considerations may qualify such results and/or limit the clinical significance and clinical conclusions that can be drawn from them, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. Even complete data from an individual study or clinical trial may be evaluated differently and result in different conclusions based upon subsequent data from a subsequently completed study. In addition, the full study results from all clinical trials are subject to FDA review, and FDA may draw materially different conclusions than those reached by us or the Pharmaceutical Companies. As a result, top-line data should be viewed with caution until the final data are available, and then, until the full study results have been completely evaluated and acted upon by FDA.
In particular, FDA will conduct its own analyses of the TransportNPC™ data included in our NDA submitted on October 28, 2026 and may reach conclusions that differ from ours.
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From time to time, we and/or the Pharmaceutical Companies may also disclose interim data from preclinical studies and clinical trials. Interim data from preclinical and clinical trials are subject to the risk that one or more of the preclinical or clinical outcomes may not be clinically relevant and may materially change as patient enrollment continues and more patient data become available or as patients from such clinical trials continue other treatments for their disease. Adverse differences between preliminary or interim data and final data could materially adversely affect our business prospects.
Further, others, including regulatory agencies, may not accept or agree with our or the Pharmaceutical Companies’ assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information we or they choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim, top-line, or preliminary data that we or the Pharmaceutical Companies report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, the Pharmaceutical Companies’ ability to obtain approval for, and commercialize, their product candidates may be adversely affected, which could materially adversely affect our business, financial condition and results of operations.
Results of preclinical studies and early clinical trials may not be predictive of results of future preclinical studies or clinical trials.
The outcome of preclinical studies and early clinical trials may not be predictive of the success or failure of later preclinical studies or clinical trials, and interim or even complete results of preclinical studies or clinical trials do not necessarily predict success in future clinical trials. Many companies in the biopharmaceutical industry, including Cornerstone, 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 or even completed. We and the Pharmaceutical Companies have limited experience in designing clinical trials and may be unable to design and execute clinical trials to support regulatory 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 regulatory approval for the product candidates. Even if we or the Pharmaceutical Companies, or future collaborators, believe that the results of clinical trials for the Pharmaceutical Companies’ product candidates warrant regulatory approval, FDA or comparable foreign regulatory authorities may disagree and may not grant regulatory 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, proper implementation of inclusion and exclusion criteria, differences in standards of care in different geographical locations, differences in the size and type of the patient populations, changes in and adherence to the dosing regimen and other elements of the 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, our or the Pharmaceutical Companies’ business and financial prospects, would be negatively impacted.
The regulatory approval processes of FDA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable, and if the Pharmaceutical Companies are ultimately unable to obtain regulatory approval for their product candidates, our and their business will be substantially harmed.
The time required to obtain approval by FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We and the Pharmaceutical Companies have not obtained regulatory approval for any product candidate, and it is possible that any product candidates they may seek to develop in the future will never obtain regulatory approval. Neither we nor the Pharmaceutical Companies nor any future collaborator is permitted to market any new drug in the United States or abroad until they receive regulatory approval of an NDA, or other comparable submission, from FDA or foreign regulatory agencies.
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Prior to obtaining approval to commercialize a product candidate in the United States or abroad, the Pharmaceutical Companies or their collaborators must demonstrate with substantial evidence from, among other things, well-controlled clinical trials, and to the satisfaction of FDA or comparable foreign regulatory agencies, that such product candidates are safe and effective for their intended use(s). Results from nonclinical and preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the nonclinical and preclinical or clinical data for the Pharmaceutical Companies’ product candidates are promising, such data may not be sufficient to support approval by FDA and other regulatory authorities. FDA or comparable foreign regulatory agencies may also require the Pharmaceutical Companies to conduct additional preclinical studies or clinical trials for their product candidates either prior to or post-approval, or they may object to elements of a proposed clinical development program.
FDA or any foreign regulatory authorities can delay, limit or deny approval of the Pharmaceutical Companies’ product candidates or require them to conduct additional nonclinical and preclinical or clinical testing or abandon a program for multiple reasons in their sole discretion, including the following:
| ● | FDA or comparable foreign regulatory authorities may disagree with the design or implementation of clinical trials; |
| ● | the Pharmaceutical Companies may be unable to demonstrate to the satisfaction of FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication(s); |
| ● | the results of clinical trials may not meet the level of statistical significance required by FDA or comparable foreign regulatory authorities for approval; |
| ● | serious and unexpected drug-related side effects experienced by participants in clinical trials or by individuals using drugs similar to the Pharmaceutical Companies’ product candidates may result in negative regulatory conclusions regarding a product candidate’s safety profile; |
| ● | the Pharmaceutical Companies may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; |
| ● | FDA or comparable foreign regulatory authorities may disagree with the Pharmaceutical Companies’ interpretation of data from preclinical studies or clinical trials; |
| ● | the data collected from clinical trials of the Pharmaceutical Companies’ product candidates may not be acceptable or sufficient to support the submission of a NDA or other comparable submission or to obtain regulatory approval in the United States or elsewhere, and the Pharmaceutical Companies may be required to conduct additional clinical studies; |
| ● | FDA or the applicable foreign regulatory authority may disagree regarding the formulation, labeling, manufacturing, packaging, and/or the specifications of the Pharmaceutical Companies’ product candidates; |
| ● | FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers, labelers, or packagers with which the Pharmaceutical Companies contract for clinical and commercial supplies; and |
| ● | the approval policies or regulations of FDA or comparable foreign regulatory authorities may significantly change in a manner rendering clinical data insufficient for approval. |
Of the large number of drugs in development, only a small percentage successfully complete FDA or foreign regulatory approval processes and are commercialized. The lengthy approval process as well as the unpredictability of future clinical trial results may result in the Pharmaceutical Companies failing to obtain regulatory approval to market their product candidates, which would significantly harm our business, results of operations and prospects. In addition, even if the Pharmaceutical Companies were to obtain approval, regulatory authorities may approve any of their product candidates for fewer or more limited indications or less advantageous labeling than requested, may grant approval contingent on the performance of costly post-marketing clinical trials, including Phase 4 clinical trials, and/or the implementation of a REMS, which may be required to assure safe use of the drug after approval. FDA or the applicable foreign regulatory authority also may approve a product candidate for a more limited indication or patient population than originally requested, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Even if regulatory approval were to be secured, payors in the US responsible for coverage and reimbursement determinations and foreign authorities responsible for drug pricing determinations may not provide adequate coverage or reimbursement or approve the prices the Pharmaceutical Companies intend to charge for any approved products or those prices could be reduced based upon most-favored-nation pricing policies. Any of the foregoing scenarios could materially harm the commercial prospects for the Pharmaceutical Companies’ product candidates.
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If FDA does not conclude that certain of the Pharmaceutical Companies’ product candidates, if any, satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as they expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.
The Pharmaceutical Companies may develop product candidates for which they plan to seek approval under the 505(b)(2) regulatory pathway in the United States. For example, LipoMedix may ultimately seek FDA approval of Promitil through the 505(b)(2) pathway.
The Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, added Section 505(b)(2) to the FFDCA. Section 505(b)(2) of the FFDCA permits the submission of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2), when applicable under the FFDCA, would allow an NDA submitted to FDA to rely in part on data in the public domain and/or FDA’s prior conclusions regarding the safety and effectiveness of a previously-approved product, which could expedite the development program for certain of the Pharmaceutical Companies’ product candidates by potentially decreasing the amount of nonclinical and preclinical and/or clinical data that they would need to generate in order to obtain FDA approval.
If FDA does not allow any of the Pharmaceutical Companies’ product candidates to pursue approval under the Section 505(b)(2) regulatory pathway as anticipated, the Pharmaceutical Companies may need to conduct additional nonclinical and preclinical studies and/or clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for such product candidates, and complications and risks associated with such product candidates, would likely substantially increase. Moreover, inability to pursue approval under the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than any product candidates the Pharmaceutical Companies are developing, which could adversely impact our and their competitive position and prospects. Even if the Pharmaceutical Companies are allowed to pursue approval under the Section 505(b)(2) regulatory pathway, we cannot assure you that any product candidates the Pharmaceutical Companies develop will receive the requisite approval for commercialization.
In addition, notwithstanding the approval of a number of products by FDA under Section 505(b)(2), certain pharmaceutical companies and others have objected to FDA’s interpretation of Section 505(b)(2). If FDA’s interpretation of Section 505(b)(2) is successfully challenged, either generally or in connection with a Section 505(b)(2) submission by the Pharmaceutical Companies, FDA may change its 505(b)(2) policies and practices, which could delay or even prevent FDA from approving any NDA that the Pharmaceutical Companies submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to certain requirements designed to protect the patent rights of sponsors of previously approved drugs if they are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of the Pharmaceutical Companies NDAs for up to 30 months or longer depending on the outcome of any litigation. It also is not uncommon for a manufacturer of a previously approved product to file a citizen petition with FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of a new product. Even if FDA ultimately denies such a petition, FDA may substantially delay approval while it considers and responds to the petition. In addition, even if the Pharmaceutical Companies are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to streamlined product development or earlier approval.
We and the Pharmaceutical Companies may not be able to obtain orphan drug designation or obtain or maintain the benefits associated with orphan drug designation, such as orphan drug exclusivity and, even if they do, that exclusivity may not prevent FDA or other comparable foreign regulatory authorities from approving competing products.
As part of our business strategy, we and the Pharmaceutical Companies may seek orphan drug designation, or ODD, for any eligible product candidates, but we may be unsuccessful in obtaining or maintaining the benefits of such designations.
Regulatory authorities in some jurisdictions, including the United States, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing and making available the drug will be recovered from sales in the United States. Cornerstone has received ODD for CPI-613 (devimistat) for the treatment of pancreatic cancer, acute myeloid leukemia, myelodysplastic syndrome, Burkitt’s lymphoma, peripheral T-cell lymphoma, soft tissue sarcoma, and biliary cancer. Cyclo received ODD for the treatment of NPC by FDA for Trappsol® Cyclo™.
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In the United States, ODD entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has ODD subsequently receives the first FDA approval for a particular active ingredient for the rare disease for which it has such designation, the product is entitled to orphan drug exclusivity for that active ingredient for that rare disease. Orphan drug exclusivity in the United States provides that FDA may not approve any other applications, including a full NDA or other comparable submission, to market the same drug for the same approved use or indication within such rare disease or condition for seven years, except in limited circumstances such as a showing of clinical superiority to the product with orphan product exclusivity, or if FDA withdraws exclusive approval or revokes orphan drug designation, or if the marketing application (NDA or BLA) for the orphan drug is withdrawn for any reason, or if FDA finds that the holder of the orphan exclusivity has not shown that it can ensure the availability of sufficient quantities of the orphan product to meet the needs of patients with the disease or condition for which the product was designated.
Even if we or the Pharmaceutical Companies obtain ODD for a product candidate, we may not be able to obtain or maintain orphan drug exclusivity for that product candidate. We or the Pharmaceutical Companies may not be the first to obtain regulatory approval of any product candidate for which we have obtained ODD for the orphan-designated indication due to the uncertainties associated with developing pharmaceutical products. If one or more third-party sponsor is the first to receive approval for an alternative product(s) for the same orphan-designated indication as our or the Pharmaceutical Companies’ product candidate, FDA could conclude that our or the Pharmaceutical Companies’ product candidate is the “same drug” as the previously-approved orphan drug, thereby blocking approval during the previously-approved drug’s seven-year orphan exclusivity period. Even if FDA were to conclude that the Pharmaceutical Companies’ product candidate is not the “same drug” as the alternative product(s), the prior approval(s) of such alternative product(s) could result in a delay in the regulatory review of our or the Pharmaceutical Companies’ product candidate and/or requests for the conduct of additional clinical trials that may further delay the prospects for any approval of our or the Pharmaceutical Companies’ product candidate. In addition, exclusive marketing rights in the United States may be limited if we or the Pharmaceutical Companies seek approval for an indication broader than the orphan-designated indication or may be lost if FDA later determines that the request for designation was materially defective or if they are unable to ensure that we will be able to manufacture sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Further, even if we or the Pharmaceutical Companies obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs with different active ingredients may be approved for the same condition, and competitors also potentially could secure approval of the same drug for different non-orphan conditions or even for different subindications and subpopulations, such as adult and pediatric patients or multiple variations of the same disease that are caused by different genetic variants and, once on the market, could be prescribed off-label for the exclusive orphan indication(s). Even after an orphan drug is approved, FDA can subsequently approve another sponsor’s application for the same drug for the same condition if FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care or the manufacturer of the product with orphan exclusivity is unable to maintain sufficient product quantity. Orphan drug designation neither shortens the development time or regulatory review time of a drug nor gives the product candidate any advantage in the regulatory review or approval process.
Disruptions at FDA and other government agencies caused by funding or staffing shortages, government shutdowns or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect FDA’s ability to perform routine functions, including a shutdown of the federal government. Average review times at FDA have fluctuated in recent years. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at FDA and other agencies may also slow the time necessary for new drugs or modifications to approved drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 43 days beginning on October 1, 2025, the U.S. federal government has shut down several times and certain regulatory agencies, such as FDA, have had to furlough critical FDA employees and stop critical activities. In addition, in 2025 the U.S. Department of Health and Human Services implemented significant reductions in force, including at FDA, which may affect FDA’s ability to review regulatory submissions, including our NDA, in a timely manner. If the occasional U.S. government shutdowns become more frequent or are prolonged or other events or conditions occur that prevent FDA or other regulatory agencies from hiring and retaining personnel and conducting their regular activities, it could significantly impact the ability of these agencies to timely review and process our regulatory submissions, which could have a material adverse effect on our business.
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Even if we or the Pharmaceutical Companies receive regulatory approval for any product candidate, they will be subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense.
Any regulatory approvals that we or the Pharmaceutical Companies may receive for their product candidates will require the regular submission of reports to regulatory authorities and surveillance to monitor the safety and efficacy of the product, may contain significant limitations related to use restrictions for specified age groups or patient populations, warnings, precautions or contraindications, and may include burdensome post-approval study or risk management requirements. For example, FDA may require a REMS as a condition of approval of a product candidate, which could include requirements for a medication guide, physician communication plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. In addition, if FDA or a comparable foreign regulatory authority approves a product candidate, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, and recordkeeping for us or the Pharmaceutical Companies’ products will be subject to extensive and ongoing regulatory requirements and associated personnel and financial commitments. These requirements include submissions of safety and other post-marketing information and reports, maintenance of cGMP compliance at and registrations for all manufacturing, labeling, and packaging facilities, as well as continued compliance with cGCP requirements for any clinical trials that are ongoing or conducted post-approval. Manufacturers of approved products and their facilities are subject to continual review and periodic, unannounced inspections by FDA and other regulatory authorities for compliance with cGMP regulations and standards. Later discovery of previously unknown problems with marketed products, including adverse events of unanticipated severity or frequency, or with third-party manufacturers or manufacturing, labeling, or packaging processes, or failure to comply with regulatory requirements, may result in, among other things:
| ● | restrictions on the marketing or manufacturing of our products, withdrawal of the product from the market or voluntary or mandatory product recalls; |
| ● | restrictions on product distribution or use, or requirements to conduct post-marketing studies or clinical trials; |
| ● | fines, restitutions, disgorgement of profits or revenue, warning letters, untitled letters or holds on clinical trials or reviews of pending applications; |
| ● | refusal by FDA to approve pending applications or supplements to approved applications filed by us or the Pharmaceutical Companies or suspension or revocation of approvals; |
| ● | product seizure or detention, or refusal to permit the import or export of our or the Pharmaceutical Companies’ products; and |
| ● | injunctions or the imposition of civil or criminal penalties. |
The occurrence of any event or penalty described above may inhibit our or the Pharmaceutical Companies’ ability to commercialize our or their product candidates and generate revenue and could require us or the Pharmaceutical Companies to divert resources and expend significant time and resources in response and could generate negative publicity.
FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our or the Pharmaceutical Companies’ product candidates. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. For example, the results of the 2024 United States Presidential Election impacted our business and industry. Namely, the Trump Administration took several Executive Actions, including the issuance of a number of Executive Orders, that imposed significant burdens on, or otherwise materially delayed, FDA’s ability to engage in routine oversight activities, such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. It is difficult to predict whether or how these orders will be rescinded and replaced under the current or future Administrations. The policies and priorities of any Administration and the U.S. Congress are unknown and could materially impact the regulations governing our or the Pharmaceutical Companies’ product candidates. If we or the Pharmaceutical Companies are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or they are not able to maintain regulatory compliance, we or they may be subject to enforcement action and we or they may not achieve or sustain profitability.
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FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If any of the Pharmaceutical Companies’ product candidates are approved and if they are found to have been improperly promoted for unapproved uses of those products, we and/or the Pharmaceutical Companies may become subject to significant liability. FDA and other federal and state regulatory agencies in the US and abroad strictly regulate the promotional claims that may be made about prescription products, such as the Pharmaceutical Companies’ product candidates, if approved. In particular, a product may not be promoted for uses or other conditions of labeling that are not approved by FDA or such other regulatory agencies as reflected in the product’s approved labeling. If the Pharmaceutical Companies receive regulatory approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we or the Pharmaceutical Companies are found to have directly or indirectly promoted or otherwise caused such unapproved, or off-label, uses, we or they may become subject to significant liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined several companies from engaging in off-label promotion. FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we or the Pharmaceutical Companies cannot successfully manage the promotion of their product candidates, if approved, we and/or they could become subject to significant liability, which would materially adversely affect our business and financial condition.
Even if any of our or the Pharmaceutical Companies’ product candidates receive regulatory 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 our or the Pharmaceutical Companies’ product candidates receive regulatory approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, healthcare payors, and others in the medical community. If any of our or the Pharmaceutical Companies’ product candidates were to receive regulatory approval but do not achieve an adequate level of acceptance, we or the Pharmaceutical Companies may not generate significant product revenue and may not become profitable. The degree of market acceptance of our or the Pharmaceutical Companies’ product candidates, if approved for commercial sale, will depend on a number of factors, including:
| ● | the efficacy, safety profile, and any potential clinical advantages compared to alternative treatments reflected in approved labeling; |
| ● | the approval, availability, market acceptance, and reimbursement for any companion diagnostic; |
| ● | the ability to offer our or the Pharmaceutical Companies’ medicines for sale at competitive prices; |
| ● | convenience and ease of administration compared to alternative treatments; |
| ● | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
| ● | ensuring uninterrupted product supply; |
| ● | the strength of marketing and distribution support; |
| ● | sufficient third-party coverage and reimbursement; and |
| ● | the prevalence and severity of any side effects. |
If any of our or the Pharmaceutical Companies’ product candidates are approved but do not achieve an adequate level of acceptance by physicians, hospitals, healthcare payors and patients, they may not generate or derive sufficient revenue from that product candidate and our and their financial results could be negatively impacted.
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We and the Pharmaceutical Companies are dependent upon third parties for a variety of functions. These arrangements may not provide us with the benefits we expect.
We and the Pharmaceutical Companies rely on third parties to perform a variety of functions. We are party to numerous agreements that place substantial responsibility on clinical research organizations, or CROs, contract manufacturing organizations, or CMOs, consultants, and other service providers for the development of the Pharmaceutical Companies’ product candidates. We also rely on medical and academic institutions to perform aspects of the Pharmaceutical Companies’ clinical trials of product candidates. In addition, an element of our research and development strategy has been to in-license technology and product candidates from academic and government institutions in order to minimize or eliminate investments in early research. We may not be able to enter new arrangements without undue delays or expenditures or on favorable terms, if at all, and these arrangements may not allow us to compete successfully. Moreover, if third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct clinical trials in accordance with regulatory requirements or applicable protocols, the Pharmaceutical Companies’ product candidates may not be approved for marketing or such approval and commercialization may be delayed. If that occurs, we and our collaborators will not be able, or may be delayed in their efforts, to seek regulatory approval for or commercialize the Pharmaceutical Companies’ product candidates.
If, in the future, we or the Pharmaceutical Companies are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our or the Pharmaceutical Companies’ product candidates that receive regulatory approval, if any, we or the Pharmaceutical Companies may not be successful in commercializing the product candidates if and when they are approved.
We and 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 we or 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, we or the Pharmaceutical Companies may choose to build a focused sales and marketing infrastructure to sell, or participate in sales activities with our or their collaborators for, some of our or their product candidates if and when they are approved.
There are risks involved with both establishing one’s 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 that has received regulatory approval for which we or the Pharmaceutical Companies recruit a sales force and establish 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 we or the Pharmaceutical Companies cannot retain or reposition their sales and marketing personnel.
Factors that may inhibit us or the Pharmaceutical Companies’ efforts to commercialize their medicines on our or their own include:
| ● | our or the Pharmaceutical Companies’ inability to recruit and retain adequate numbers of effective sales and marketing personnel; |
| ● | the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe any future medicines in accordance with approved labeling; |
| ● | the lack of complementary medicines to be offered by sales personnel, which may put them at a competitive disadvantage relative to companies with more extensive product lines; |
| ● | our or the Pharmaceutical Companies’ inability to equip medical and sales personnel with compliant and effective materials, including medical and sales literature, to help them educate physicians and other healthcare providers regarding applicable diseases and any products that receive regulatory approval; |
| ● | the failure of us or the Pharmaceutical Companies, and/or any other third parties to whom sales, marketing, reimbursement and distribution services are outsourced, to develop and distribute compliant medical and sales literature in accordance with any labeling that is approved or to adhere to the scope of such literature when communicating with physicians and other health care professionals regarding any products that receive regulatory approval; |
| ● | our or the Pharmaceutical Companies’ inability to develop or obtain sufficient operational functions to support our commercial activities; and |
| ● | unforeseen costs and expenses associated with creating an independent sales and marketing organization. |
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If we or the Pharmaceutical Companies enter into arrangements with third parties to perform sales, marketing, reimbursement and distribution services, their product revenue or the profitability of product revenue to them are likely to be lower than if we or the Pharmaceutical Companies were to directly market and sell any medicines that we or they develop. In addition, we or the Pharmaceutical Companies may not be successful in entering into arrangements with third parties to sell and market our or their product candidates or may be unable to do so on terms that are favorable. We and the Pharmaceutical Companies likely will have little control over such third parties’ allocation of resources, and any of them may fail to devote the necessary resources and attention to sell and market our or the Pharmaceutical Companies’ medicines effectively. If we or the Pharmaceutical Companies do not establish sales and marketing capabilities successfully, either on their own or in collaboration with third parties, we or the Pharmaceutical Companies will not be successful in commercializing our or their product candidates if and when they are approved.
We and Portfolio Companies face substantial competition, and if competitors develop and market technologies or products more rapidly than those companies do or that are more effective, safer or less expensive than the product candidates that those companies develop, our commercial opportunities will be negatively impacted.
The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition, a strong emphasis on proprietary and novel products and product candidates, and an increasing emphasis on value-based pricing integrating price competitiveness and therapeutic value tied to patient health outcomes. The development and commercialization of new drug products is highly competitive. We and the Pharmaceutical Companies face competition with respect to current product candidates, and we and the Pharmaceutical Companies and our 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 and specialty biopharmaceutical companies worldwide. There are a number of large biopharmaceutical 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. Some of these competitive products and therapies are based on scientific approaches that are similar to our or 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 that are developing their product candidates for the treatment of cancer may compete against 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 based upon their independent medical judgement and expertise. Some of the currently approved drug therapies are branded and subject to patent protection, and others are available on a generic or biosimilar 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 or biosimilar products. This may make it difficult for the Pharmaceutical Companies to achieve their business strategy of using their product candidates in combination with existing therapies or replacing existing therapies with their product candidates following any regulatory approvals.
We are focused on a treatment for NPC and face competition from Actelion, a subsidiary of Johnson & Johnson, Zevra Therapeutics, Inc., Azafaros, Beren Therapeutics, and IntraBio, among others.
Cornerstone 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., Novo Nordisk, 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, Sagiment Biosciences, Eleison Pharmaceuticals, BioMarin Pharmaceutical Inc., and Takeda. In addition, FDA recently approved Revolution Medicines’ Rasonque (daraxonrasib) as a first-in-class targeted therapy for adults with advanced metastatic pancreatic cancer.
LipoMedix faces competition from, among others, (i) other liposome and nanomedicine products in solid tumors (for example, Doxil (Janssen), Onivyde (Ipsen), and Abraxane (Bristol Myers Squibb)); (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 companies such as Roche and Revolution Medicines’ Rasonque (daraxonrasib).
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We and the Pharmaceutical Companies’ competitors may develop products that are more effective, safer, more convenient or less costly than any that the Pharmaceutical Companies are developing or that would render their product candidates obsolete or non-competitive. In addition, our or the Pharmaceutical Companies’ competitors may discover biomarkers that more efficiently and/or effectively 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 regulatory approval from 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 biopharmaceutical industry 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 and research institutes. These third parties compete with us and 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 we or the Pharmaceutical Companies or our collaborators are able to commercialize any product candidates, such products may become subject to unfavorable pricing regulations, third-party coverage or reimbursement practices or healthcare reform initiatives, which would harm our and the Pharmaceutical Companies’ business.
The commercial success of our or the Pharmaceutical Companies’ product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of our or the Pharmaceutical Companies’ product candidates will be covered and paid for, following regulatory approval, if any, 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, we or the Pharmaceutical Companies, or any future collaborators, may not be able to successfully commercialize our or the Pharmaceutical Companies’ product candidates in the event they receive regulatory approval. Even if coverage is provided, the approved reimbursement amount or any mandated most-favored-nation pricing may not be high enough to allow us, the Pharmaceutical Companies, or any future collaborators, to establish or maintain pricing sufficient to realize a sufficient return on our or the Pharmaceutical Companies’ investments. In the United States, no uniform policy of coverage and reimbursement for products currently 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 us or 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. Regulatory 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 regulatory approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted, and in the US, may subject us and the Pharmaceutical Companies or any future collaborators to most-favored-nation pricing. As a result, we, the Pharmaceutical Companies, or any future collaborators, might obtain regulatory 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, or subject to pricing determinations or mandates which may negatively impact the revenue we or the Pharmaceutical Companies are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our or the Pharmaceutical Companies’ ability or the ability of any future collaborators to recoup our or the Pharmaceutical Companies’ or their investment in one or more product candidates, even if the Pharmaceutical Companies’ product candidates obtain regulatory approval.
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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, our or the Pharmaceutical Companies’ ability, and the ability of any future collaborators, to commercialize any of our or 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, and by introducing most-favored-nation and other pricing mandates, any one of which could affect our or the Pharmaceutical Companies’ ability or that of any future collaborators to sell our or the Pharmaceutical Companies’ product candidates profitably following regulatory approval. These payors may not view our or the Pharmaceutical Companies’ products, if any, as cost-effective, and coverage and reimbursement may not be available to our or the Pharmaceutical Companies’ customers, or those of any future collaborators, or may not be sufficient to allow our or the Pharmaceutical Companies’ products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us or require us, or any future collaborators, to decrease the price that we or 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 or mandate lower prices, our and 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 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 our or 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 as are governments in the US and abroad. We and 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 federal and/or state laws that govern imports of drugs from countries such as Canada where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate reimbursement rates from both government-funded and private payors for our or any of the Pharmaceutical Companies’ product candidates for which they, or any future collaborator, obtain regulatory approval could significantly harm our and the Pharmaceutical Companies’ operating results, our and the Pharmaceutical Companies’ ability to raise capital needed to commercialize products, and our and the Pharmaceutical Companies’ overall financial condition.
Product liability lawsuits against us or the Pharmaceutical Companies or our or their collaborators could cause substantial liabilities and could limit commercialization of any medicines that the Pharmaceutical Companies or our or their collaborators may develop.
We and 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 commercially sell any medicines that the Pharmaceutical Companies may develop that secure regulatory approval. If the Pharmaceutical Companies or us or their or our collaborators cannot successfully defend ourselves or themselves against claims that the Pharmaceutical Companies’ product candidates or medicines caused injuries, the Pharmaceutical Companies and we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
| ● | decreased demand for any product candidates or medicines that the Pharmaceutical Companies may develop; |
| ● | injury to the Pharmaceutical Companies’ reputation and significant negative media attention; |
| ● | withdrawal of clinical trial participants; |
| ● | significant costs to defend the related litigation; |
| ● | substantial monetary awards to trial participants or patients; |
| ● | loss of revenue; |
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| ● | reduced resources of the Pharmaceutical Companies’ management to pursue the Pharmaceutical Companies’ business strategy, and diverted time and attention from executing on that strategy; and |
| ● | the inability to commercialize any medicines that the Pharmaceutical Companies may develop. |
Although we and the Pharmaceutical Companies plan to maintain product liability insurance coverage, it may not be adequate to cover all liabilities that the Pharmaceutical Companies and we may incur. We anticipate that we and the Pharmaceutical Companies will need to increase our and their insurance coverage as they continue to run clinical trials and if they successfully commercialize any medicine that receives regulatory approval. Insurance coverage in this setting is increasingly expensive. We and/or 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 our or the Pharmaceutical Companies’ 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 could potentially seek indemnification from us and/or the Pharmaceutical Companies, and therefore substantially limit the commercial potential of our and/or the Pharmaceutical Companies’ products.
If we or the Pharmaceutical Companies fail to comply with environmental, health and safety laws and regulations, we or they could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our or their businesses.
We and 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 other 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 may not maintain adequate 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.
Current and future legislation may increase the difficulty and cost for us and the Pharmaceutical Companies and any future collaborators to obtain regulatory approval of the Pharmaceutical Companies’ 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 development and/or regulatory approval of the Pharmaceutical Companies’ 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 regulatory approval. We and the Pharmaceutical Companies expect that current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage and reimbursement criteria and additional downward pressure on the price that the Pharmaceutical Companies, or any future collaborators, may receive for any approved products.
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For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the ACA, was signed into law. Among the provisions of the ACA of potential importance to the Pharmaceutical Companies’ business and the Pharmaceutical Companies’ product candidates are the following:
| ● | an annual, non-deductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents; |
| ● | an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program, or MDRP; |
| ● | a new methodology by which rebates owed by manufacturers under the MDRP are calculated for drugs that are inhaled, infused, instilled, implanted or injected; |
| ● | expansion of healthcare fraud and abuse laws, including the civil False Claims Act and the federal Anti-Kickback Statute, new government investigative powers and enhanced penalties for noncompliance; |
| ● | a Medicare Part D coverage gap discount program, under which manufacturers were required to offer 70% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, which program was replaced effective January 1, 2025 by the Medicare Part D Manufacturer Discount Program established under the Inflation Reduction Act, or IRA, (described below), under which participating manufacturers that have a Manufacturer Discount Program agreement in place generally must provide discounts of 10% in the Initial Coverage phase and 20% in the Catastrophic Coverage phase on applicable drugs as Medicare Part D coverage is available only for applicable drugs covered by a Manufacturer Discount Program agreement with CMS; |
| ● | extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations; |
| ● | expansion of eligibility criteria for Medicaid programs; |
| ● | expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program; |
| ● | new requirements to report certain financial arrangements with physicians and teaching hospitals for eventual publication; |
| ● | a new requirement to annually report drug samples that manufacturers and distributors provide to physicians for eventual publication; |
| ● | a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; and |
| ● | a Center for Medicare and Medicaid Innovation within CMS to test innovative payment and service delivery models. |
Since enactment of the ACA, there have been numerous executive and legal challenges and Congressional actions to repeal and replace provisions of the law. On June 17, 2021, the U.S. Supreme Court dismissed a judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an Executive Order to initiate a special enrollment period from February 15, 2021 through August 15, 2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The Executive Order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including, among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare reform measures of the current or future Administrations or other efforts, if any, to challenge, repeal or replace the ACA, will impact the Pharmaceutical Companies’ businesses. Nor is it clear whether other legislative changes will be adopted, if any, or how such changes would affect the demand for the Pharmaceutical Companies’ products if they were to receive regulatory approval.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. On August 2, 2011, the U.S. Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers of 2% per fiscal year. These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect for Medicare through the first half of fiscal year 2032, with the exception of a temporary suspension from May 1, 2020 through December 31, 2021, unless additional Congressional action is taken. Additionally, there has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, 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 assistance programs, and reform government program reimbursement methodologies for drug products. Among other things, such scrutiny has led to enactment of a budget reconciliation measure known as the Inflation Reduction Act of 2022, or IRA, signed into law by President Biden on August 16, 2022, which makes wide-reaching changes to Medicare prescription drug coverage and more targeted changes to Medicaid, the State Children’s Health Insurance Coverage Program, or CHIP, and private health insurance, and which includes several provisions to lower prescription drug costs for people with Medicare and reduce drug spending by the federal government. The prescription drug provisions included in the IRA will, among other things:
| ● | require the federal government to negotiate prices for certain drugs covered under Medicare Part B (physician-administered drugs) and Part D (retail prescription drugs), starting with 10 high-spending, single-source drugs for 2026 and increasing to 20 by 2029; |
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| ● | require manufacturers that sell drugs used by Medicare beneficiaries through Parts B and D to pay rebates to Medicare if they increase drug prices faster than consumer inflation, beginning in 2023; |
| ● | Sunsetting the historical Medicare Part D Coverage Gap Discount Program on December 31, 2024, replacing it with the Medicare Part D Manufacturer Discount Program, under which the traditional “donut hole” (coverage gap phase) was eliminated, and enrollees’ annual out-of-pocket spending for Part D drugs was capped at $2,000 in 2025 ($2,100 in 2026, indexed annually thereafter based on the annual percentage increase in average expenditures for covered Part D drugs in the U.S. for Part D eligible individuals in the previous year); |
| ● | expand eligibility for full benefits under the Medicare Part D Low-Income Subsidy Program, beginning in 2024; and |
| ● | further delay implementation of the Trump Administration’s drug rebate rule, beginning in 2027. |
Pursuant to the IRA, the Centers for Medicare & Medicaid Services (CMS) selected ten drugs covered under Medicare Part D for the first cycle of negotiations for initial price applicability year 2026 and engaged in voluntary negotiations with the drug companies for the selected drugs. CMS negotiated prices for 10 drugs covered under Medicare Part D that will go into effect beginning January 1, 2026, based on negotiations and agreements reached between CMS and participating drug companies. In August 2024, CMS announced discounts ranging from 38% to 79% based upon negotiated price differences from the drugs’ 2023 list price. On January 17, 2025, CMS announced the selection of 15 drugs covered under Medicare Part D for the second cycle of negotiations (initial price applicability year 2027), based on total gross covered prescription drug costs under Medicare Part D and other criteria as required by the law. On September 30, 2025, CMS issued final guidance for the third cycle of negotiations for the Medicare Drug Price Negotiation Program which is occurring in 2026 for initial price applicability year 2028, along with additional information on CMS’ support for manufacturer effectuation of negotiated maximum fair prices (MFPs) in initial price applicability years 2026, 2027, and 2028. Among other policy refinements, this final CMS guidance also implements expanded protections for orphan drugs enacted in the Working Families Tax Cuts Act (Public Law 119-21) by implementing changes to the Orphan Drug Exclusion in section 71203 of Public Law 119-21. Specifically, CMS broadened the exclusions from negotiation for products designated by FDA as drugs for one or more rare diseases or conditions if all approved indications are for one or more such rare diseases or conditions (rather than solely products designated by FDA as drugs for one rare disease or condition and for which all approved indications are for such rare disease or condition). These enhanced protections are designed to preserve critical incentives for rare disease research while maintaining negotiation eligibility when appropriate. On January 27, 2026, CMS announced the selection of 15 drugs payable under Medicare Part B and/or covered under Medicare Part D for the third cycle of negotiations (initial price applicability year 2028), based on total expenditures for drugs payable under Part B and/or covered under Part D and other criteria as required by the law. Also, on January 27, 2026, CMS announced the selection of one drug, Tradjenta, for renegotiation during the third cycle of negotiations (initial price applicability year 2028), based on criteria required by the law. CMS announced on March 13, 2026 that the drug companies that manufacture all 15 drugs payable under Medicare Part B and/or covered under Medicare Part D selected for the third cycle of negotiation have chosen to participate in the Negotiation Program, that the drug company that manufacturers the one drug selected for renegotiation for the third cycle of negotiations continues to participate in the Negotiation Program, and that the negotiations with participating drug companies will occur in 2026, and any negotiated prices will become effective beginning in 2028.
It is unclear exactly how the results of the 2024 election or upcoming 2026 “mid-term” elections will impact healthcare reform measures of the current Trump Administration or whether the Trump Administration could impose other reform efforts, including what, if any, impact such changes will have on our business. One step the Trump Administration already has taken is the issuance, on May 12, 2025, of an Executive Order titled: “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients”. Among other steps, the Executive Order directs multiple federal agencies, including the U.S. Department of Health and Human Services, or HHS, to take specific actions aimed at compelling drug manufacturers to lower drug prices in the United States in a manner comparable with other “developed nations.” HHS subsequently announced that the Department “expects each [drug] manufacturer to commit to aligning [United States] pricing for all brand products across all markets that do not currently have generic or biosimilar competition with the lowest price of a set of economic peer countries.” HHS indicated that it will calculate the most-favored-nation, or MFN, price as the lowest price in a country that is part of the Organization for Economic Co-operation and Development and that has a per capita gross domestic product (GDP) of at least 60% of the U.S. per capita GDP. In July 2025, President Trump sent letters to leading pharmaceutical manufacturers outlining the steps they must take to bring down the prices of prescription drugs in the US to match the lowest price offered in other developed nations. As of September 2026, the Trump Administration has secured agreements with 26 pharmaceutical manufacturers covering 89% of the branded drug market. On September 18, 2026, President Trump announced that all 50 States’ Medicaid programs would benefit from lower prescription drug prices under the Trump Administration’s agreements with pharmaceutical manufacturers to match the lowest prices paid by other developed nations. Should any of the Pharmaceutical Companies’ products be successfully developed and secure regulatory approval in the US and foreign countries, and if such MFN policies remain in effect at that time or are reintroduced at a later date and are applied to any of the Pharmaceutical Companies’ products that do secure regulatory approval, if any, such MFN policies could have a material adverse effect on their and our business, results of operations, financial condition and cash flows.
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At the state level, individual states are increasingly aggressive in passing legislation and implementing regulations designed to control pharmaceutical, medical device, and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access, marketing cost disclosure and transparency measures, and, in some cases, encouraging importation of drugs from other countries and bulk purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to determine what pharmaceutical products and which suppliers will be included in their prescription drug and other healthcare programs. These measures could reduce the ultimate demand for the Pharmaceutical Companies’ products, if approved, or put pressure on their product pricing. We expect that additional state, federal and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal, state and foreign governments will pay for healthcare products and services, which could result in reduced demand or lower pricing for the Pharmaceutical Companies’ product candidates, or additional pricing pressures, which could have a material adverse effect on their and our business, results of operations, financial condition and cash flows.
We expect that healthcare reform measures that may be adopted in the future in the US and abroad could have a material adverse effect on our and the Pharmaceutical Companies’ industry generally and on our or their ability to maintain or increase sales of any of the Pharmaceutical Companies’ product candidates that are successfully developed, receive regulatory approval, and are commercialized.
Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We and the Pharmaceutical Companies 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 regulatory approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of FDA’s approval process may significantly delay or prevent regulatory approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
Additional Risks Related to our Medical Device Business
Rafael Medical Devices’ cleared device and device candidates may cause significant adverse events, toxicities or other undesirable side effects when used alone or in combination with other investigational, approved or cleared devices or investigational or approved drugs which may result in a safety profile that could prevent regulatory approval, prevent market acceptance, limit their commercial potential, result in significant negative consequences, or potential product liability claims.
If Rafael Medical Devices’ cleared VECTR™ product or its device candidates are associated with undesirable side effects or have unexpected characteristics in clinical trials, or while on the market following regulatory approval, marketing, authorization, or clearance, when used alone or in combination with other investigational, approved or cleared devices or in combination with investigational or approved drugs, Rafael Medical Devices may need to interrupt, delay or abandon their development or marketing of any cleared device or limit development to more narrow 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. Treatment-related side effects could also affect patient recruitment for clinical trials or the ability of enrolled patients to complete any ongoing clinical trial or result in potential product liability claims. Any of these occurrences may prevent Rafael Medical Devices from achieving or maintaining market acceptance of the affected cleared device or device candidate and may adversely affect Rafael Medical Devices and our business, financial condition, and prospects significantly.
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In addition, many device candidates that may show promise in early-stage testing may later be found to cause side effects that prevents further development of the device candidate. If significant adverse events or other side effects are observed in any of Rafael Medical Devices’ current or future clinical trials or during commercialization of any cleared device, Rafael Medical Devices may have difficulty recruiting patients to the clinical trials, patients may drop out of such trials, or they may be required to abandon the trials or their development efforts of a device candidate altogether. Rafael Medical Devices, FDA, other comparable regulatory authorities or an IRB or ethics committee may suspend clinical trials of a device candidate at any time for various reasons, including a belief that subjects in such trials are being exposed to inadequate clinical benefit and/or unacceptable health risks or adverse side effects.
Further, for any of Rafael Medical Devices’ cleared device or any of its device candidates that in the future obtains regulatory approval, marketing authorization or clearance, toxicities or other serious adverse events associated with such device or device candidates previously not seen during clinical testing may also develop after such approval, marketing authorization, or clearance and lead to a number of potentially significant negative consequences, including, but not limited to:
| ● | Regulatory authorities may suspend, limit or withdraw approvals, marketing authorizations or clearances of such device, if any, or seek an injunction against its manufacture or distribution; |
| ● | regulatory authorities may require additional warnings on the label, including “boxed” warnings, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications containing warnings or other safety information about the product; |
| ● | Rafael Medical Devices may be required to change the way the device is implanted or otherwise used or conduct additional clinical trials or post-approval studies; |
| ● | Rafael Medical Devices may be subject to fines, injunctions or the imposition of criminal penalties; |
| ● | we or Rafael Medical Devices could be sued and held liable for harm caused to patients; and |
| ● | Rafael Medical Devices and our reputation may suffer. |
Any of these events could prevent Rafael Medical Devices from achieving or maintaining market acceptance of the particular device or device candidate, if approved, marketing authorized or cleared, as well as that of future device candidates, and could seriously harm their and our business.
Interim, “top-line” and preliminary data from preclinical studies and clinical trials that Rafael Medical Devices announces or publishes from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
From time to time, we and/or Rafael Medical Devices may publicly disclose preliminary or top-line data from preclinical studies and clinical trials, which is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject to change following study completion and a more comprehensive review of the data related to the particular study or trial. We and/or Rafael Medical Devices may also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we or they may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or preliminary results reported may differ significantly from future results of the same or future studies, or different conclusions or considerations may qualify such results and/or limit the clinical significance and clinical conclusions that can be drawn from them, once additional data have been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we and/or Rafael Medical Devices previously published. Even complete data from an individual study or clinical trial may be evaluated differently and result in different conclusions based upon subsequent data from a subsequently completed study. In addition, the full study results from all clinical trials are subject to FDA review, and FDA may draw materially different conclusions than those reached by us or Rafael Medical Devices. As a result, top-line data should be viewed with caution until the final data are available, and then, until the full study results have been completely evaluated and acted upon by FDA.
From time to time, we and/or Rafael Medical Devices may also disclose interim data from preclinical studies or clinical trials. Interim data from preclinical studies and clinical trials are subject to the risk that one or more of the preclinical or clinical outcomes may materially change as patient enrollment continues and more patient data become available or as patients from such clinical trials continue other treatments for their condition. Adverse differences between preliminary or interim data and final data could materially adversely affect our and Rafael Medical Devices’ business prospects.
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Further, others, including regulatory agencies, may not accept or agree with our or Rafael Medical Devices’ assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular device development program, the approvability or commercialization of the particular device candidate or device, and our and Rafael Medical Devices’ companies in general. In addition, the information we or they choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure. If the interim, top-line, or preliminary data that we or Rafael Medical Devices report differs from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, Rafael Medical Devices’ ability to obtain approval, marketing authorization or clearance for, and commercialize, their cleared device or device candidates may be adversely affected, which could materially adversely affect our and Rafael Medical Devices’ business, financial condition, and results of operations.
Results of preclinical studies and early clinical trials may not be predictive of results of future preclinical studies and clinical trials.
The outcome of preclinical studies and early clinical trials may not be predictive of the success or failure of later preclinical studies and clinical trials, and interim results of preclinical studies and clinical trials do not necessarily predict success in that ongoing or future preclinical studies and clinical trials. Many companies in the medical device industry have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and Rafael Medical Devices could face similar setbacks. The design of a clinical trial can determine whether its results will support approval, marketing authorization or clearance of a device candidate, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or even completed. Rafael Medical Devices has limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support regulatory approval, marketing authorization or clearance. In addition, clinical data are often susceptible to varying interpretations and analyses. Many medical device companies that believed their device candidates performed satisfactorily in clinical trials have nonetheless failed to obtain regulatory approval, marketing authorization or clearance for the device candidates. Even if Rafael Medical Devices, or future collaborators, believe that the results of clinical trials for Rafael Medical Devices’ device candidates warrant regulatory approval, marketing authorization or clearance, FDA or comparable foreign regulatory authorities may disagree and may not grant regulatory approval, marketing authorization or clearance of Rafael Medical Devices’ device candidates.
In some instances, there can be significant variability in safety or efficacy results between different clinical trials of the same device candidate due to numerous factors, including changes in trial procedures set forth in protocols, proper implementation of inclusion and exclusion criteria, differences in standards of care in different geographical locations, differences in the size and type of the patient populations, changes in and adherence to the treatment regimen and other elements of the clinical trial protocol, and the rate of dropout among clinical trial participants. If Rafael Medical Devices fails to receive positive results in clinical trials of Rafael Medical Devices’ device candidates, the development timeline and regulatory approval, marketing authorization or clearance and commercialization prospects for Rafael Medical Devices’ most advanced device candidates, and, correspondingly, our and Rafael Medical Devices’ business and financial prospects, would be negatively impacted.
The regulatory approval, marketing authorization and clearance processes of FDA and comparable foreign regulatory authorities are lengthy, time consuming, and inherently unpredictable, and if Rafael Medical Devices is ultimately unable to obtain regulatory approval or clearance for their device candidates, their business will be substantially harmed.
Before Rafael Medical Devices can market or sell a new medical device or a new use of or a claim for or significant modification to any medical device that has received approval, marketing authorization, or clearance, if any, in the United States, Rafael Medical Devices must obtain either clearance from FDA under the 510(k) pathway, marketing authorization in response to a De Novo request, or approval of a PMA, unless an exemption applies. In the 510(k) clearance process, FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed predicate device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. If FDA determines that the device is “not substantially equivalent,” the device is automatically designated as a Class III device. The device sponsor then must either fulfill the more rigorous PMA requirements, or the sponsor can submit a De Novo request seeking a risk-based classification determination for the device in accordance with FDA’s De Novo classification process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device. A sponsor also can submit a De Novo classification request directly, without first submitting a 510(k), if the sponsor determines that there is no legally marketed predicate device upon which to base a determination of substantial equivalence. In the PMA process, FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, preclinical, clinical trial, manufacturing, and labeling data. The PMA process is typically required for products that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices.
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The PMA approval, the De Novo classification, and the 510(k) clearance process can be expensive, lengthy, and uncertain. FDA’s 510(k) clearance process usually takes from three to twelve months, but can last longer, and the De Novo classification process generally can be comparable. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance and De Novo classification processes and generally takes from six to eighteen months, or even longer, from the time the application is filed with FDA. In addition, a PMA generally requires the performance of one or more clinical trials. Despite the time, effort, and cost, we and Rafael Medical Devices cannot assure you that any particular device candidate will be approved or cleared by FDA. Any delay or failure to obtain necessary regulatory approvals, marketing authorizations, or clearances could harm our and Rafael Medical Devices’ business.
Any modification to any 510(k)-cleared product, if any, that would constitute a major change in its intended use, or any change that could significantly affect the safety or effectiveness of any such device, would require Rafael Medical Devices to obtain a new 510(k) marketing clearance and may even, in some circumstances, require the submission of a De Novo request or a PMA application, if the change raises complex or novel scientific issues or the product has a new intended use. FDA requires every manufacturer to make the determination regarding the need for a new 510(k) submission in the first instance, but FDA may review any manufacturer’s decision. Rafael Medical Devices may make changes to a 510(k)-cleared product, if any, in the future that Rafael Medical Devices may determine does not require a new 510(k) clearance, De Novo marketing authorization, or PMA approval. If FDA disagrees with Rafael Medical Devices’ decision not to seek a new 510(k) clearance, De Novo marketing authorization, or PMA approval for changes or modifications to any existing devices and requires new clearances, marketing authorizations, or approvals, Rafael Medical Devices may be required to recall and stop marketing any products as modified, if any, which could require Rafael Medical Devices to redesign its products, conduct clinical trials to support any modifications, and pay significant regulatory fines or penalties. If there is any delay or failure in obtaining required clearances, marketing authorization or approvals or if FDA requires Rafael Medical Devices to go through a lengthier, more rigorous examination for future device candidates or modifications to existing devices, if any, than Rafael Medical Devices had expected, Rafael Medical Devices’ ability to introduce new or enhanced devices in a timely manner would be adversely affected, which in turn would result in delayed or no realization of revenue from such device enhancements or new devices and could also result in substantial additional costs which could decrease Rafael Medical Devices’ profitability.
FDA can delay, limit or deny approval, marketing authorization or clearance of a device for many reasons, including:
| ● | Rafael Medical Devices may not be able to demonstrate to FDA’s satisfaction that the device or modification is substantially equivalent to the proposed predicate device or safe and effective for its intended use; |
| ● | The data from Rafael Medical Devices’ preclinical studies and clinical trials and other required studies, if any, may be insufficient to support approval, marketing authorization, or clearance, where required; and |
| ● | The manufacturing process or facilities that Rafael Medical Devices uses may not meet applicable requirements. |
In addition, FDA may change its approval, marketing authorization and clearance policies, adopt additional regulations or revise existing regulations, or take other actions, which may prevent or delay approval, marketing authorization, or clearance of Rafael Medical Devices’ future device candidates or impact Rafael Medical Devices’ ability to modify approved, marketing authorized, or cleared devices, if any, on a timely basis. Even after approval, marketing authorization, or clearance for Rafael Medical Devices’ products is obtained, they and their products are subject to extensive post-market regulation by FDA, including with respect to advertising, marketing, labeling, manufacturing, packaging, distribution, import, export, and clinical evaluation.
In addition, if Rafael Medical Devices initiates a correction or removal for a device that receives approval, marketing authorization, or clearance, if any, issues a safety alert, or undertakes a field action or recall to reduce a risk to health posed by any such device, Rafael Medical Devices may be required to submit a report to FDA, and in many cases, to other regulatory agencies. Such reports could lead to increased scrutiny by FDA, other comparable regulatory agencies, and Rafael Medical Devices’ customers regarding the quality and safety of their devices, and to negative publicity, including FDA alerts, press releases, or administrative or judicial actions. Furthermore, the submission of these reports has been and could be used by competitors against Rafael Medical Devices in competitive situations and cause customers to delay purchase decisions or cancel orders, which would harm their and our reputation and business.
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FDA, state, and foreign regulatory authorities have broad enforcement powers. Rafael Medical Devices’ failure to comply with applicable regulatory requirements could result in enforcement action by FDA, state or foreign regulatory agencies, which may include any of the following sanctions:
| ● | adverse publicity, warning letters, untitled letters, fines, injunctions, consent decrees, and civil penalties; |
| ● | repair, replacement, refunds, recalls, termination of manufacturing and/or distribution, administrative detention or seizures of a device(s) that receives approval, marketing authorization or clearance, if any; |
| ● | operating restrictions, partial suspension or total shutdown of production; |
| ● | customer notifications or repair, replacement or refunds; |
| ● | refusing Rafael Medical Devices’ requests for 510(k) clearance, De Novo classification or PMA approvals or foreign regulatory approvals of new device candidates, new intended uses or modifications to existing devices, if any; |
| ● | withdrawals of current 510(k) clearances, De Novo classifications or PMAs or foreign regulatory approvals, resulting in prohibitions on sales of any Rafael Medical Devices’ device(s) that receives approval, marketing authorization or clearance, if any; |
| ● | FDA refusal to issue certificates to foreign governments needed to export products for sale in other countries; and |
| ● | injunctions or the imposition of civil or criminal penalties. |
Any of these sanctions could also result in higher than anticipated costs or lower than anticipated sales of the VECTR System or any other Rafael Medical Devices device that receives approval, marketing authorization, or clearance and adversely affect their and our business, results of operations, and financial condition.
The VECTR System and any future device candidates that receive regulatory approval, marketing authorization, or clearance are subject to ongoing regulatory obligations and continued regulatory review, which may result in significant additional expense.
The 510(k) clearance that Rafael Medical Devices received for the VECTR System in December 2024, and any regulatory approvals, marketing authorizations, or clearances that Rafael Medical Devices may receive for future device candidates, may require the submission of reports to regulatory authorities and surveillance to monitor the safety and effectiveness of the medical device, may contain significant limitations related to use restrictions for specified age groups or patient populations, warnings, precautions or contraindications, and may include burdensome post-market study requirements. The manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export, and recordkeeping for the VECTR System and any future devices are subject to extensive and ongoing regulatory requirements. These requirements include medical device reporting and other post-market submissions, establishment registration and device listing, and compliance with FDA’s Quality Management System Regulation, or QMSR, at all manufacturing facilities, including those of third-party manufacturers, as well as compliance with FDA’s investigational device exemption regulations and other applicable requirements for any clinical studies. Device manufacturers and their facilities are subject to periodic, announced and unannounced inspections by FDA and other regulatory authorities for compliance with the QMSR and other requirements, and clinical study sites are subject to inspection for compliance with applicable clinical study requirements. Later discovery of previously unknown problems with marketed devices, including adverse events of unanticipated severity or frequency, or with third-party manufacturers or manufacturing processes or third-party clinical study sites, or failure to comply with regulatory requirements, may result in, among other things:
| ● | restrictions on the marketing or manufacturing of the VECTR System or any other Rafael Medical Devices device that receives approval, marketing authorization or clearance, withdrawal of the device from the market or voluntary or mandatory device recalls; |
| ● | requirements to conduct post-marketing studies or clinical trials; |
| ● | fines, restitutions, disgorgement of profits or revenue, warning letters, untitled letters or holds on clinical trials; |
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| ● | refusal by FDA to approve or clear pending applications or supplements to approved, marketing authorized or cleared applications filed by Rafael Medical Devices or suspension or revocation of approvals, marketing authorizations or clearances, if any; |
| ● | product seizure or detention, or refusal to permit the import or export of Rafael Medical Devices’ devices; and |
| ● | injunctions or the imposition of civil or criminal penalties. |
The occurrence of any event or penalty described above may inhibit Rafael Medical Devices’ ability to commercialize their device candidates and generate revenue and could require Rafael Medical Devices to expend significant time and resources in response and could generate negative publicity.
In addition, FDA’s and other comparable regulatory authorities’ policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval, marketing authorization, or clearance of Rafael Medical Devices’ device candidates. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, the results of the 2024 United States Presidential Election impacted our business and industry. Namely, the Trump Administration took several Executive Actions, including the issuance of a number of Executive Orders, that imposed significant burdens on, or otherwise materially delayed, FDA’s ability to engage in routine oversight activities, such as implementing statutes through rulemaking, issuance of guidance, and review and approval of applications seeking approval, marketing authorization, or clearance of device candidates. It is difficult to predict whether or how these orders will be rescinded, replaced or expanded under the current or future Administrations. The policies and priorities of any Administration and the U.S. Congress are unknown and could materially impact the regulations governing Rafael Medical Devices’ device candidates. If we or Rafael Medical Devices are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we or they are not able to maintain regulatory compliance as a result of a changing regulatory landscape or otherwise, we or they may be subject to enforcement action, may lose any regulatory approval(s), marketing authorization(s), or clearance(s) that we or they obtain, if any, or fail to obtain new regulatory approvals, marketing authorizations, or clearances, and we and they may not be able to achieve or sustain profitability, which would adversely affect our business, prospects, financial condition, and results of operations.
Rafael Medical Devices is dependent upon third parties for a variety of functions. These arrangements may not provide Rafael Medical Devices with the benefits they expect.
Rafael Medical Devices relies on third parties to perform a variety of functions for its cleared device and device candidates. Rafael Medical Devices is party to numerous agreements that place substantial responsibility on clinical research organizations, contract manufacturing organizations, consultants, and other service providers for the development of Rafael Medical Devices’ device candidates. Rafael Medical Devices also relies on medical and academic institutions to perform aspects of its clinical trials of device candidates. In addition, an element of Rafael Medical Devices’ research and development strategy has been to in-license technology and device candidates from academic and government institutions in order to minimize or eliminate investments in early research. Rafael Medical Devices may not be able to enter new arrangements without undue delays or expenditures or on favorable terms, and these arrangements may not allow Rafael Medical Devices to compete successfully. Moreover, if third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct clinical trials in accordance with regulatory requirements or applicable protocols, Rafael Medical Devices’ device candidates may not be approved, receive marketing authorization, or be cleared for marketing and commercialization or such approval, marketing authorization, or clearance may be delayed. If that occurs, Rafael Medical Devices or its collaborators will not be able, or may be delayed in their efforts, to commercialize Rafael Medical Devices’ device candidates.
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Product liability lawsuits against Rafael Medical Devices or their collaborators or us could cause substantial liabilities and could limit commercialization of any medical devices that Rafael Medical Devices or their collaborators may develop.
Rafael Medical Devices and their collaborators and we face an inherent risk of product liability exposure related to the testing and manufacturing of Rafael Medical Devices’ device candidates in human clinical trials and will face an even greater risk if Rafael Medical Devices or they commercially sell any medical devices that Rafael Medical Devices or they may develop that secure regulatory approval, marketing authorization, or clearance. Rafael Medical Devices’ device and device candidates are designed to affect, and any future devices will be designed to affect, important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with Rafael Medical Devices’ device or device candidates could result in patient injury or death. The medical device industry has historically been subject to extensive litigation over product liability claims, and we cannot assure you that we and Rafael Medical Devices will not face product liability claims. We and Rafael Medical Devices may be subject to product liability claims if Rafael Medical Devices’ device or device candidates cause, or merely appear to have caused, patient injury or death, even if such injury or death was as a result of supplies or components that are produced by third-party suppliers. Product liability claims may be brought against us by consumers, healthcare providers or others selling or otherwise coming into contact with Rafael Medical Devices’ products, among others. If Rafael Medical Devices or their collaborators, or we, cannot successfully defend themselves or ourselves against product liability claims that Rafael Medical Devices’ device candidates or devices caused injuries, Rafael Medical Devices and we could incur substantial liabilities and reputational harm. Regardless of merit or eventual outcome, liability claims may result in:
| ● | decreased demand for any device or device candidates that Rafael Medical Devices may develop; |
| ● | injury to Rafael Medical Devices’ reputation and significant negative media attention; |
| ● | withdrawal of clinical trial participants; |
| ● | significant costs to defend the related litigation; |
| ● | substantial monetary awards to trial participants or patients; |
| ● | loss of revenue; |
| ● | product recalls or withdrawals from the market; |
| ● | reduced resources of Rafael Medical Devices’ management to pursue Rafael Medical Devices’ business strategy, and diverted time and attention from executing on that strategy; and |
| ● | the inability to commercialize any devices that Rafael Medical Devices may successfully develop, if any. |
Although Rafael Medical Devices and we maintain product liability insurance coverage that they and we believe is appropriate, this insurance is subject to deductibles and coverage limitations, and it may not be adequate to cover all liabilities that Rafael Medical Devices may incur. Rafael Medical Devices’ and our current product liability insurance may not continue to be available to them or us on acceptable terms, if at all. If Rafael Medical Devices or we are unable to obtain insurance at an acceptable cost or on acceptable terms or otherwise protect against potential product liability claims, they or we could be exposed to significant liabilities. We anticipate that Rafael Medical Devices will need to increase their insurance coverage as they continue to run clinical trials and if they successfully commercialize any device that receives regulatory approval, marketing authorization, or clearance. Insurance coverage in this setting is increasingly expensive. Rafael Medical Devices or we may not be able to maintain insurance coverage at a reasonable cost, if at all, or in an amount adequate to protect them or us against any product liability claim that may arise. In addition, if one of Rafael Medical Devices’ 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 could potentially seek indemnification from Rafael Medical Devices, and therefore substantially limit the commercial potential of Rafael Medical Devices’ device or device candidates. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could adversely affect our and Rafael Medical Devices’ business, results of operations, and financial condition.
If Rafael Medical Devices fails 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.
Rafael Medical Devices is 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. Rafael Medical Devices’ operations involve the use of hazardous materials, including chemical materials. Rafael Medical Devices’ operations also produce hazardous waste products. Rafael Medical Devices generally contracts with third parties for the disposal of these materials and wastes. Rafael Medical Devices 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, Rafael Medical Devices could be held liable for any resulting damages, and any liability could exceed their resources. Rafael Medical Devices also could incur significant costs associated with civil or criminal fines and penalties.
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Although Rafael Medical Devices maintains 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. Rafael Medical Devices may not maintain adequate insurance for environmental liability or toxic tort claims that may be asserted against them in connection with their storage or disposal of hazardous materials.
In addition, Rafael Medical Devices 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 Rafael Medical Devices’ research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks Related to Reliance on Third Parties
We and the Portfolio Companies currently rely on, and plan to rely in the future on, third parties to conduct and support their nonclinical and preclinical studies and clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, the Portfolio Companies may not be able to obtain regulatory approval of or commercialize their product candidates.
We and the Portfolio Companies have utilized and plan to continue to utilize and depend upon independent investigators and collaborators, such as medical institutions, CROs, CMOs, and strategic partners to conduct and support their nonclinical and preclinical studies and clinical trials under written agreements. We and the Portfolio Companies will generally have to negotiate budgets and contracts with CROs, trial sites, and CMOs, and they may not be able to do so on favorable terms, if at all, which may result in delays to anticipated development timelines and increased costs.
We expect that we and the Portfolio Companies will rely heavily on these third parties over the course of their nonclinical and preclinical studies and clinical trials, and they will control only certain aspects of their activities. As a result, we and the Portfolio Companies will have less direct control over resource allocations and thus the conduct, timing, and completion of these nonclinical and preclinical studies and clinical trials and the management of data developed through nonclinical and preclinical studies and clinical trials than would be the case if they were relying entirely upon their own staff. Nevertheless, we and the Portfolio Companies are responsible for ensuring that each of their studies is conducted in accordance with the applicable protocol, legal and regulatory requirements, and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and the Portfolio Companies and these third parties are required to comply with cGLP and cGCP requirements, which are regulations and guidelines enforced by FDA and comparable foreign regulatory authorities for product candidates in clinical development. Regulatory authorities enforce these cGLP and cGCP requirements through periodic inspections, both announced and unannounced, of trial sponsors, principal investigators, trial sites, and manufacturing sites, and the corresponding books and records of such parties.
If we, the Pharmaceutical Companies or Rafael Medical Devices or any of these third parties fail to comply with applicable cGLP or cGCP regulations, the preclinical data generated in their nonclinical and preclinical studies and/or the clinical data generated in their clinical trials may be deemed unreliable, and FDA or comparable foreign regulatory authorities may require them to repeat clinical trials and/or to perform additional nonclinical and preclinical studies and/or clinical trials before approving any marketing applications. We cannot assure you that, upon inspection, such regulatory authorities will determine that we or any of the Pharmaceutical Companies’ or Rafael Medical Devices’ nonclinical and preclinical studies and/or clinical trials comply with the cGLP or cGCP regulations. In addition, such clinical trials must be conducted with pharmaceutical product or a medical device produced under applicable cGMP and QMSR regulations and will require a large number of test patients. We, the Pharmaceutical Companies’ or Rafael Medical Devices’ failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require them to repeat clinical trials and/or to perform additional clinical studies, which would delay the regulatory approval process. Moreover, their and our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
Any third parties conducting our, the Pharmaceutical Companies’ or Rafael Medical Devices’ nonclinical and preclinical studies and clinical trials will not be their employees and, except for remedies available to them under their agreements with such third parties, we or the Portfolio Companies cannot control whether or not any third-party personnel will devote sufficient time and resources to our or the Pharmaceutical Companies’ product candidates or Rafael Medical Devices’ device candidates. These third parties may also have relationships with other commercial entities, including competitors, for whom they may also be conducting clinical trials or other product development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the nonclinical and preclinical and/or clinical data they obtain is compromised due to the failure to adhere to nonclinical and preclinical or clinical protocols or regulatory requirements or for other reasons, our, the Pharmaceutical Companies’ and Rafael Medical Devices’ nonclinical and preclinical studies and clinical trials may be extended, delayed or terminated, and they may not be able to complete development of, obtain regulatory approval of, or successfully commercialize their product candidates or device candidates. As a result, their and our financial results and commercial prospects would be adversely affected, their and our costs could increase, and their and our ability to generate revenue could be materially and adversely affected.
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We and the Portfolio Companies currently rely and expect to rely in the future on the use of manufacturing suites in third-party facilities or on third parties to manufacture, label, and package our and the Portfolio Companies’ product candidates and device candidates, and they may rely on third parties to produce and process their products, if approved. Our and the Portfolio Companies’ business could be adversely affected if we and they are unable to use third-party manufacturing suites or if the third-party manufacturers fail to provide them with sufficient quantities of our product candidates or device candidates or fail to do so in a cGMP-compliant manner, at acceptable quality levels or at acceptable prices.
We and the Portfolio Companies do not currently own any facility that may be used as a clinical-scale manufacturing and processing facility and must currently rely on outside vendors to manufacture, label, and package our and the Pharmaceutical Companies’ product candidates and Rafael Medical Devices’ device candidates. We and the Portfolio Companies have not yet caused their product candidates or device candidates to be manufactured, labeled, or packaged on a commercial scale and may not be able to do so. We expect that we and the Portfolio Companies will need to negotiate and maintain contractual arrangements with these outside vendors for the supply of their product candidates and device candidates, and they may not be able to do so on favorable terms, if at all.
The facilities used by contract manufacturers to manufacture, label, and package product candidates or approved products must also be approved by FDA or other comparable foreign regulatory authorities following inspections for any such approved products that generally will be conducted after we, the Pharmaceutical Companies or Rafael Medical Devices submit an application to FDA or other comparable foreign regulatory authorities. Such inspections also could occur, for other products being manufactured by contract manufacturers, before we, the Pharmaceutical Companies or Rafael Medical Devices submit an application to FDA or other comparable foreign regulatory authorities, and any adverse regulatory findings from such inspections could adversely impact a contract manufacturer’s ability to be a contract manufacturer for us or the Portfolio Companies. We or the Portfolio Companies may not directly control the manufacturing, labeling, and packaging processes of, and may be completely dependent on, contract manufacturing partners for compliance with cGMP requirements and any other regulatory requirements of FDA or other regulatory authorities for the manufacture of product candidates and device candidates and of any products that receive regulatory approval or clearance. Beyond periodic audits, we and the Portfolio Companies have no direct control over the ability of their contract manufacturers to maintain adequate quality control, quality assurance, and qualified personnel. Nevertheless, we and the Portfolio Companies are responsible for ensuring that all manufacturing is conducted in accordance with the applicable cGMP or QMSR and other legal and regulatory requirements and scientific standards, and our and the Portfolio Companies’ reliance on third parties does not relieve them of their regulatory responsibilities. If FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture, labeling, and packaging of any approved or cleared products or if they withdraw any approval in the future, we or the Portfolio Companies may need to find alternative manufacturing facilities, which would require the incurrence of significant additional time and costs and materially adversely affect the ability to develop, obtain regulatory approval or clearance for or market any product candidates or device candidates, if approved or cleared. Similarly, if any third-party manufacturers on which we, the Pharmaceutical Companies or Rafael Medical Devices rely fail to manufacture, label, and package quantities of their product candidates or device candidates at quality levels necessary to meet regulatory requirements and at a scale sufficient to meet anticipated demand at a cost that allows them to achieve profitability, their and our business, financial condition, and prospects could be materially and adversely affected.
The anticipated reliance on a limited number of third-party manufacturers exposes the Portfolio Companies and us to a number of risks, including the following:
| ● | we, the Pharmaceutical Companies and Rafael Medical Devices may be unable to identify manufacturers on acceptable terms or at all because the number of potential manufacturers is limited, and FDA must inspect any manufacturers for applicable cGMP and QMSR compliance as part of our, the Pharmaceutical Companies’ and Rafael Medical Devices’ marketing applications; |
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| ● | a new manufacturer would have to be educated in, or develop substantially equivalent processes for, the production of our or the Pharmaceutical Companies’ product candidates and Rafael Medical Devices’ device candidates; |
| ● | third-party manufacturers might be unable to timely manufacture, label, and package our or the Pharmaceutical Companies’ product candidates and Rafael Medical Devices’ device candidates or produce the quantity and quality required to meet their clinical and commercial needs, if any; |
| ● | contract manufacturers may not be able to execute the Pharmaceutical Companies’ and Rafael Medical Devices’ manufacturing procedures and other logistical support requirements appropriately; |
| ● | future contract manufacturers may not perform as agreed, may not devote sufficient resources to our or the Pharmaceutical Companies’ product candidates or Rafael Medical Devices’ device candidates, or may not remain in the contract manufacturing business for the time required to supply clinical trials or to successfully produce, store, and distribute approved or cleared products, if any; |
| ● | manufacturers, labelers, and packagers are subject to ongoing periodic unannounced inspection by FDA and corresponding state agencies and foreign regulatory authorities to ensure strict compliance with cGMP and QMSR and other government regulations and corresponding foreign standards, and we and the Portfolio Companies have no direct control over third-party manufacturers’ compliance with these regulations and standards, although our and the Portfolio Companies’ reliance on third parties does not relieve us or them of our or their regulatory responsibilities; |
| ● | we or the Portfolio Companies may not own, or may have to share, the intellectual property rights to any improvements made by any third-party manufacturers in the manufacturing process for our or the Pharmaceutical Companies’ product candidates and Rafael Medical Devices’ device candidates; |
| ● | third-party manufacturers could breach or terminate their agreements with us, the Pharmaceutical Companies or Rafael Medical Devices; |
| ● | raw materials and components used in the manufacturing process, particularly those for which we or the Portfolio Companies have no other source or supplier, may not be available or may not be suitable or acceptable for use due to material or component defects; |
| ● | contract manufacturers and critical reagent suppliers may be subject to public health emergencies, inclement weather, as well as natural or man-made disasters; and |
| ● | contract manufacturers may have unacceptable or inconsistent product quality success rates and yields, and we, the Pharmaceutical Companies and Rafael Medical Devices will have no direct control over contract manufacturers’ ability to maintain adequate quality control, quality assurance, and qualified personnel, although our, the Pharmaceutical Companies’ and Rafael Medical Devices’ reliance on third parties does not relieve us or them of our or their regulatory responsibilities. |
Our and the Portfolio Companies’ business could be materially adversely affected by business disruptions caused by third-party providers that could materially adversely affect their and our potential future revenue and financial condition and increase their and our costs and expenses. Each of these risks could delay or prevent the completion of our or the Pharmaceutical Companies’ and Rafael Medical Devices’ clinical trials or the approval of any of our, the Pharmaceutical Companies’ product candidates or Rafael Medical Devices’ device candidates by FDA or comparable foreign regulatory authorities, result in higher costs, or adversely impact commercialization of any product candidates in the event that they were to receive regulatory approval, marketing authorization or clearance.
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We and the Portfolio Companies may, in the future, form or seek collaborations or strategic alliances or enter into licensing arrangements, and we and/or the Portfolio Companies may not realize the benefits of such collaborations, alliances or licensing arrangements.
We and the Portfolio Companies may, in the future, form or seek strategic alliances, create joint ventures or collaborations, or enter into licensing arrangements with third parties that they believe will complement or augment their development and commercialization efforts with respect to our and the Pharmaceutical Companies’ product candidates, any future product candidates that we or they may develop, Rafael Medical Devices’ device candidates, and any future device candidates that we or they may develop. Any of these relationships may require the Portfolio Companies or us to incur non-recurring and other charges, increase near- and long-term expenditures, trigger royalty payments that reduce revenues and profitability, issue securities that dilute our existing stockholders or disrupt our or their management and business.
In addition, we and the Portfolio Companies face significant competition in seeking appropriate strategic partners, and the negotiation process is time-consuming and complex. Moreover, we and the Portfolio Companies may not be successful in our or their efforts to establish a strategic partnership or other alternative arrangements for any product candidates because they may be deemed to be at too early of a stage of development for collaborative effort, and third parties may not view such product candidates as having the requisite potential to demonstrate safety and efficacy and obtain regulatory approval or clearance.
Further, collaborations involving our and the Portfolio Companies’ product candidates and device candidates are subject to numerous risks, which may include the following:
| ● | collaborators have significant discretion in determining the efforts and resources that they will apply to a collaboration; |
| ● | collaborators may not pursue development and commercialization of our and the Portfolio Companies’ product candidates or device candidates or may elect not to continue or renew development or commercialization of their product candidates or device candidates based on clinical trial results, changes in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such as a business combination that diverts resources or creates competing priorities; |
| ● | collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop a clinical trial, abandon a product candidate or device candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate or device candidate for clinical testing; |
| ● | collaborators could independently develop, or develop with third parties, products that compete directly or indirectly with our or the Pharmaceutical Companies’ product candidates and Rafael Medical Devices’ device candidates; |
| ● | a collaborator with marketing and distribution rights to one or more product candidates or device candidates may not commit sufficient resources to their marketing and distribution in the event that they were to receive regulatory approval or clearance; |
| ● | collaborators may not properly maintain or defend our or the Portfolio Companies’ intellectual property rights or may use our or their intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our or their intellectual property or proprietary information or expose us or them to potential liability; |
| ● | disputes may arise between us and/or the Portfolio Companies and a collaborator that cause the delay or termination of the research, development or commercialization of a product candidate or device candidate, or that result in costly litigation or arbitration that diverts management attention and resources; |
| ● | collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates or device candidates; and |
| ● | collaborators may own or co-own intellectual property covering our or the Portfolio Companies’ products that results from our or their collaborating with them, and in such cases, we and they would not have the exclusive right to commercialize such intellectual property. |
As a result, if we or the Portfolio Companies enter into future collaboration agreements and strategic partnerships or out-license our or the Pharmaceutical Companies’ product candidates or Rafael Medical Devices’ device candidates, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our or their existing operations and company culture, which could delay our or their timelines or otherwise adversely affect our or their business. We and the Portfolio Companies also cannot be certain that, following a strategic transaction or license, we or they will achieve the revenue or specific net income that justifies such transaction. Furthermore, if conflicts arise between our or their future corporate or academic collaborators or strategic partners and us or them, the other party may act in a manner adverse to us or them and could limit our or their ability to implement our or their strategies. Any delays in entering into future collaborations or strategic partnership agreements related to our or their product candidates or device candidates could delay the development and commercialization of our or their product candidates and device candidates in certain geographies for certain indications, which would harm our and their business prospects, financial condition and results of operations.
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Our, the Pharmaceutical Companies’ and Rafael Medical Devices’ relationships with customers, physicians and third-party payors may be subject, directly or indirectly, to federal, state, and foreign healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we, the Pharmaceutical Companies or Rafael Medical Devices or their respective employees, collaborators, independent contractors, consultants, commercial partners, or vendors violate these laws, we and they could face substantial penalties.
Our, the Pharmaceutical Companies’ and Rafael Medical Devices’ relationships with customers, physicians, and third-party payors may be subject, directly or indirectly, to federal, state, and foreign healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. These laws may impact, among other things, their clinical research program, as well as their proposed and future sales, marketing, and education programs. In particular, the promotion, sales, and marketing of healthcare items and services is subject to extensive laws and regulations designed to prevent fraud, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive, and other business arrangements. The Portfolio Companies may also be subject to federal, state, and foreign laws governing the privacy and security of identifiable patient information. The U.S. healthcare laws and regulations that may affect their ability to operate include, but are not limited to:
| ● | the federal Anti-Kickback Statute, which prohibits, among other things, any person or entity from knowingly and willfully, offering, paying, soliciting or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, the purchasing, leasing, ordering or arranging for the purchase, lease, or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Practices that may be alleged to be intended to induce prescribing, purchases or recommendations, include any payments of more than fair market value, and may be subject to scrutiny if they do not qualify for an exception or safe harbor. In addition, a person or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation; |
| ● | federal civil and criminal false claims laws, including the federal civil False Claims Act, civil monetary penalty laws, and comparable foreign laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment or approval from Medicare, Medicaid, or other federal government programs that are false or fraudulent or knowingly making a false statement to improperly avoid, decrease or conceal an obligation to pay money to the federal government, including federal healthcare programs. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act and the civil monetary penalties statute; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal civil and criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up by any trick, scheme or device, a material fact or making any materially false, fictitious or fraudulent statements in connection with the delivery of, or payment for, healthcare benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, which impose requirements on certain healthcare providers, health plans, and healthcare clearinghouses, known as covered entities, and their respective business associates that perform services for them that involve the use or disclosure of individually identifiable protected health information, as well as their covered subcontractors, including breach notification regulations; |
| ● | regulations adopted by the Securities and Exchange Commission, or SEC, effective December 18, 2023, that require greater disclosure regarding cybersecurity risk management, strategy and governance, as well as disclosure of material cybersecurity incidents, which may require reporting of a cybersecurity incident before its impact has been fully assessed or the underlying issue has been remediated, which could divert management’s attention from incident response and could potentially reveal system vulnerabilities to threat actors, and for which failure to timely report such incidents under these or other similar rules could also result in monetary fines, sanctions or other forms of liability; |
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| ● | analogous state data privacy and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal information, such as social security numbers, medical and financial information, and other information, including data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or acquisition of personal information, as well as state laws such as the California Consumer Privacy Act or CCPA, which, among other things, contains new disclosure obligations for businesses that collect personal information about California residents and affords those individuals numerous rights relating to their personal information that may affect companies’ ability to use personal information or share it with business partners, and which has been expanded by comprehensive new regulations approved by the California Office of Administrative Law that became effective on January 1, 2026, and the California Privacy Rights Act, or CPRA, which expands the scope of the CCPA, imposes new restrictions on behavioral advertising, and establishes a new California Privacy Protection Agency that enforces the law and has been actively issuing implementing regulations, after the CPRA became “operative” on January 1, 2023, with a 12-month “lookback provision” applicable to personal data collected on or after January 1, 2022, and the various state laws and regulations may be more restrictive than and not preempted by United States federal laws; |
| ● | analogous foreign data protection laws, including among others the EU General Data Protection Regulation, or the GDPR, and EU member states’ implementing legislation, which imposes data protection requirements that include strict obligations and restrictions on the ability to collect, analyze, and transfer EU personal data, a requirement for prompt notice of data breaches to data subjects and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for certain violations of up to the greater of 20 million Euros or 4% of total worldwide annual turnover of the preceding financial year), as further updated by the GDPR procedural regulation, which entered into force on January 1, 2026, and which will apply to new cross-border cases as of April 2, 2027, which primarily affects how supervisory authorities process data protection-related complaints and cooperate with one another and is expected to result in stricter and more structured enforcement timelines and greater efficiencies and harmonization in cross-border regulatory investigations, with legal requirements in foreign countries relating to the collection, storage, processing, and transfer of personal data continuing to evolve and varying widely across jurisdictions; and |
| ● | the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, such reporting obligations include payments and other transfers of value provided during the previous year to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists, and certified nurse-midwives. |
We and the Portfolio Companies may also be subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may be broader in scope and vary significantly from the federal laws. For example, they may be subject to the following: state anti-kickback and false claims laws that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third party payors, including private insurers, or that apply regardless of payor; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s and medical device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government; state laws that require drug and device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, marketing expenditures, or drug pricing; state and local laws requiring the registration of pharmaceutical and device sales and medical representatives; and state and foreign laws, such as the GDPR governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. Additionally, they may be subject to federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers. In addition, our operations in foreign countries are subject to the extraterritorial application of the United States Foreign Corrupt Practices Act, or FCPA. Our global operations are also subject to foreign anti-corruption laws, such as the United Kingdom Bribery Act, among others. As part of our global compliance program, we seek to address anti-corruption risks proactively.
Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of the Portfolio Companies’ business activities, or their arrangements with physicians, could be subject to challenge under one or more of such laws. It is not always possible to identify and deter employee misconduct or business noncompliance, and the precautions we and the Portfolio Companies take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us or them from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. Efforts to ensure that our and their business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our or their business practices may not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If we, the Pharmaceutical Companies or Rafael Medical Devices or their respective employees, collaborators, independent contractors, consultants, commercial partners, and vendors violate these laws, they and we may be subject to investigations, enforcement actions and/or significant penalties, including the imposition of significant civil, criminal, and administrative penalties, damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid, Tricare, Veterans Affairs Health Programs, and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if they or we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment of our, the Pharmaceutical Companies’ and Rafael Medical Devices’ operations, any of which could adversely affect their ability to operate their business and their and our results of operations. In addition, the approval or clearance, if any, and commercialization of any of our or the Pharmaceutical Companies’ product candidates or Rafael Medical Devices’ device candidates outside the United States will also likely subject them and us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
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Risks Related to our Commercial Real Estate Business
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 could be adversely affected.
We face 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. There are a number of competitive office properties in the area in which our property is located, which may be newer or better located than our property and could have a material adverse effect on our ability to lease office space at our property, and on the effective rents we are able to charge.
Risks Related to Intellectual Property
If we or the Portfolio Companies are unable to adequately maintain or protect our proprietary technologies and product candidates and device candidates and services, if the scope of the patent protection obtained is not sufficiently broad, or if the terms of patents are insufficient to protect product candidates, device candidates, services or technologies for an adequate amount of time, competitors could develop and commercialize technology and products similar or identical to that technology or those product candidates, device candidates and services, and our ability to successfully commercialize technology or product candidates, device candidates or services may be materially impaired.
We and the Portfolio Companies rely primarily upon a combination of patents, trademarks, trade secret protection, and other intellectual property rights as well as nondisclosure, confidentiality, and other contractual agreements to protect our intellectual property related to our brands, product candidates and device candidates, services, and other proprietary technologies. Our and their success depends on our and their ability to develop, manufacture, market, and sell our and their product candidates and device candidates, if approved, and our and their delivery of services and use of proprietary technologies without alleged or actual infringement, misappropriation or other violation of the patents and other intellectual property rights of third parties. There have been many lawsuits and other proceedings asserting patents and other intellectual property rights in the biopharmaceutical industry. We and Portfolio Companies cannot assure you that our and their product candidates and device candidates, services or technologies will not infringe existing or future third-party patents. Because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be applications now pending of which we and they are unaware and which may later result in issued patents that we or they may infringe by commercializing our or their product candidates or device candidates if they receive approval or clearance or our or their services or technologies. There may also be issued patents or pending patent applications that we or they are aware of, but that we and they think are irrelevant to our product candidates or device candidates or our services or technologies, which may ultimately be found to be infringed by the manufacture, sale, or use of our or their product candidates or device candidates, services or technologies. Moreover, we and they may face claims from non-practicing entities that have no relevant product revenue and against whom our patent portfolio may thus have no deterrent effect. In addition, many of our and their product candidates have a complex structure that makes it difficult to conduct a thorough search and review of all potentially relevant third-party patents. Because we and they have not yet conducted a formal freedom to operate analysis for patents related to our and their product candidates or device candidates, we and they may not be aware of issued patents that a third party might assert are infringed by one of our or their current or future product candidates or device candidates, which could materially impair our and their ability to commercialize our and their product candidates or device candidates if they receive regulatory approval or clearance. Even if we and they diligently search third-party patents for potential infringement by our and their products or product candidates, or devices or device candidates, we and they may not successfully find patents that our and their products or product candidates or devices or device candidates may infringe. If we and the Portfolio Companies are unable to secure and maintain freedom to operate, others could preclude us from commercializing our product candidates or device candidates.
The process of obtaining patent protection is expensive and time-consuming, and we and the Portfolio Companies may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. We and they may choose not to seek patent protection for certain innovations or products and may choose not to pursue patent protection in certain jurisdictions, and, under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope and, in any event, any patent protection we or they obtain may be limited. As a result, in some jurisdictions, some of our and their products currently or in the future may not be protected by patents. We and the Portfolio Companies generally apply for patents in those countries where we intend to make, have made, use, offer for sale, or sell products and where we assess the risk of infringement to justify the cost of seeking patent protection. However, we and they may not accurately predict all the countries where patent protection would ultimately be desirable. If we and they fail to timely file a patent application in any such country or major market, we and they may be precluded from doing so at a later date. Competitors may use our and their technologies in jurisdictions where we have not obtained patent protection to develop competing products and, further, may export otherwise infringing products to territories in which we have patent protection that may not be sufficient to terminate infringing activities. In addition, the actual protection afforded by a patent varies on a product-by-product basis, from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country, and the validity and enforceability of the patent.
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Furthermore, we and the Portfolio Companies cannot guarantee that any patents will be issued from any pending or future owned or licensed patent applications, or that any current or future patents will be valid or enforceable or provide us or them with any meaningful protection or competitive advantage. Even if issued, existing or future patents may be challenged, including with respect to ownership, narrowed, invalidated, held unenforceable or circumvented, any of which could limit our and their ability to prevent competitors and other third parties from developing and marketing similar products or limit the length of terms of patent protection we and they may have for our product candidates or device candidates. Moreover, should we and they be unable to obtain meaningful patent coverage in jurisdictions with commercially significant markets, our and their ability to extend and reinforce patent protection for these product candidates in those jurisdictions may be adversely impacted, which could limit our and their ability to prevent competitors and other third parties from developing and marketing similar products or limit the length of terms of patent protection we and they may have for those product candidates. Other companies may also design around technologies we and they have patented, licensed or developed. In addition, the issuance of a patent does not give us or them the right to practice the patented invention. Third parties may have blocking patents that could prevent us and them from marketing our products or practicing our patented technology.
The patent positions of biopharmaceutical companies can be highly uncertain and involve complex legal, scientific, and factual questions for which important legal principles remain unresolved. As a result, the issuance, scope, validity, enforceability, and commercial value of our and their patent rights may be uncertain. The standards that the United States Patent and Trademark Office, or the USPTO, and its foreign counterparts use to grant patents are not always applied predictably or uniformly. Changes in either the patent laws, implementing regulations or the interpretation of patent laws may diminish the value of our rights and the rights of the Portfolio Companies. The legal systems of certain countries do not protect intellectual property rights to the same extent as the laws of the United States, if at all, and many companies have encountered significant problems in protecting and defending such rights in foreign jurisdictions. For example, patent laws in various jurisdictions, including significant commercial markets such as Europe, restrict the patentability of methods of treatment of the human body more than United States law does. In addition, many countries, including certain countries in Europe, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties (for example, the patent owner has failed to “work” the invention in that country, or the third party has patented improvements). In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of the patent. Moreover, the legal systems of certain countries, particularly certain developing countries, do not favor the aggressive enforcement of patent and other intellectual property protection, which makes it difficult to stop infringement.
Because patent applications in the United States, Europe, and many other jurisdictions are typically not published until 18 months after filing, or in some cases not at all, and because publications of discoveries in scientific literature lag behind actual discoveries, we and the Portfolio Companies cannot be certain that we were the first to conceive or reduce to practice the inventions claimed in our issued patents or pending patent applications, or that we were the first to file for protection of the inventions set forth in our patents or pending patent applications. We and they can give no assurance that all of the potentially relevant art relating to our patents and patent applications has been found; overlooked prior art could be used by a third party to challenge the validity, enforceability, and scope of our patents or prevent a patent from issuing from a pending patent application. As a result, we and they may not be able to obtain or maintain protection for certain inventions. Therefore, the validity, enforceability, and scope of our and their patents in the United States, Europe, and in other countries cannot be predicted with certainty and, as a result, any patents that we own or license may not provide sufficient protection against our competitors.
Third parties may challenge any existing patent or future patent that is owned or licensed by us or the Portfolio Companies through adversarial proceedings in the issuing offices or in court proceedings, including as a response to any assertion of our patents against them. In any of these proceedings, a court or agency with jurisdiction may find our and their patents invalid and/or unenforceable, or, even if valid and enforceable, insufficient to provide protection against competing products, technologies and services sufficient to achieve our business objectives. We and they may be subject to a third-party pre-issuance submission of prior art to the USPTO, or reexamination by the USPTO if a third party asserts a substantial question of patentability against any claim of a U.S. patent we own or license. The adoption of the Leahy-Smith America Invents Act, or the Leahy-Smith Act, in September 2011 established additional opportunities for third parties to invalidate U.S. patent claims, including inter partes review and post-grant review proceedings. Outside of the United States, patents we or they own or license may become subject to patent opposition or similar proceedings, which may result in loss of scope of some claims or the entire patent. In addition, such proceedings are very complex and expensive and may divert our management’s attention from our core business. If any of our or their patents are challenged, invalidated, or circumvented by third parties or otherwise limited or expire prior to the commercialization of our products, services or technologies, and if we do not own or have exclusive rights to other enforceable patents protecting our products, services or other technologies, competitors and other third parties could market products and use processes that are substantially similar, or superior, to ours and theirs, and our business would suffer.
The entities in which we hold interests or in which we may invest may not make necessary payments or take other actions to protect intellectual property or other rights that we or they own, license or have acquired from third parties, which could result in the loss or impairment of those rights and the reduction of the value of our interests.
The degree of future protection for our and their proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep a competitive advantage. For example:
| ● | others may be able to develop products that are similar to, or better than, ours and theirs in a way that is not covered by the claims of our patents; |
| ● | we and they might not have been the first to conceive or reduce to practice the inventions covered by our patents or pending patent applications; |
| ● | we and they might not have been the first to file patent applications for our inventions; |
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| ● | any patents that we and they obtain may not provide us or them with any competitive advantages or may ultimately be found invalid or unenforceable; and/or |
| ● | we and they may not develop additional proprietary technologies that are patentable. |
We and the Portfolio Companies are generally also subject to all of the same risks with respect to protection of intellectual property that we license as we are for intellectual property that we own. We and they currently in-license certain intellectual property from third parties to be able to use such intellectual property in our products and product candidates and to aid in our research activities. In the future, we and they may in-license intellectual property from additional licensors. We and they may rely on certain of these licensors to file and prosecute patent applications and maintain, or assist us in the maintenance of, patents and otherwise protect the intellectual property we license from these licensors. We and they may have limited control over these activities or any other intellectual property that may be related to our in-licensed intellectual property. For example, we and they cannot be certain that such activities by these licensors have been or will be conducted diligently or in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. We and they may have limited control over the manner in which our licensors initiate, or support our efforts to initiate, an infringement proceeding against a third-party infringer of the intellectual property rights, or defend certain of the intellectual property that is licensed to us or them. If we or our licensors fail to adequately protect this intellectual property, our ability to develop and commercialize product candidates and products and device candidates and devices, if any receive regulatory approval or clearance, could suffer.
We and the Portfolio Companies may become involved in lawsuits to protect or enforce our or their patents or other intellectual property, which could be expensive, time-consuming, and unsuccessful.
Competitors may infringe, misappropriate or otherwise violate the patents, trademarks, copyrights, trade secrets or other intellectual property of us or the Portfolio Companies, or those of our licensors. To counter infringement, misappropriation, unauthorized use or other violations, we and they may be required to file legal claims, which can be expensive and time consuming and divert the time and attention of our management and scientific personnel. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.
We and the Portfolio Companies may not be able to prevent, alone or with our licensees or any future licensors, infringement, misappropriation or other violations of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Any claims we and they assert against perceived infringers could provoke these parties to assert counterclaims against us or them alleging that we infringe their patents. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. The outcome following legal assertions of invalidity and unenforceability is unpredictable. We and they cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a third party or a defendant were to prevail on a legal assertion of invalidity or unenforceability, we and they would lose at least part, and perhaps all, of any future patent protection on our current or future product candidates or device candidates, services or technologies. Such a loss of patent protection could harm our and their business. In addition, in a patent infringement proceeding, there is a risk that a court will decide that a patent of ours or theirs is invalid or unenforceable, in whole or in part, and that we do not have the right to stop the other party from exploiting the claimed subject matter at issue. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that we and they do not have the right to stop the other party from exploiting its technology on the grounds that our patents do not cover such technology. An adverse outcome in a litigation or proceeding involving our or their patents could limit our ability to assert our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making, using, importing, and selling similar or competitive products, services, or technologies. Any of these occurrences could adversely affect our and their competitive business position, business prospects, and financial condition. Similarly, if we or they assert trademark infringement claims, a court may determine that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement has superior rights to the marks in question or has not infringed them. In this case, we and they could ultimately be forced to cease use of such trademarks.
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In any infringement, misappropriation or other intellectual property litigation, any award of monetary damages we or they receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our and their confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are concluded. Even if we and they ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management and scientific personnel could outweigh any benefit we receive as a result of the proceedings. We and they may not be able to detect or prevent misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our and their business could be harmed if in litigation the prevailing party does not offer us or them a license on commercially reasonable terms. Any litigation or other proceedings to enforce our and their intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees.
Our commercial success and that of the Portfolio Companies depends significantly on our ability to operate without infringing upon the intellectual property rights of third parties.
The biopharmaceutical industry is subject to rapid technological change and substantial litigation regarding patent and other intellectual property rights. Our competitors and those of the companies in which we hold interests, in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use, and sell our product candidates, device candidates, services, and technologies. Numerous third-party patents exist in the fields relating to our and their products and services, and it is difficult for industry participants, including us and them, to identify all third-party patent rights relevant to our product candidates, device candidates, services, and technologies. As the biopharmaceutical industry expands and more patents are issued, the risk increases that our and their product candidates or device candidates, services or technologies may give rise to claims of infringement of the patent rights of others. Moreover, because some patent applications are maintained as confidential for a certain period of time, we cannot be certain that third parties have not filed patent applications that cover our product candidates, device candidates, services, and technologies. Therefore, it is uncertain whether the issuance of any third-party patent would require us or them to alter our development or commercial strategies for our product candidates, device candidates, services or technologies, or to obtain licenses or cease certain activities.
Patents could be issued to third parties that we and the Portfolio Companies may ultimately be found to infringe. Third parties may have or obtain valid and enforceable patents or proprietary rights that could block us from developing products using our technology. If any third-party patents were held by a court of competent jurisdiction to cover the manufacturing process of our or their product candidates, constructs or molecules used in or formed during the manufacturing process, any final product itself if it received regulatory approval, or our device candidates, the holders of any such patents may be able to block our ability to commercialize the product candidate or device candidate unless we obtain a license under the applicable patents, or until such patents expire or they are determined to be held invalid or unenforceable. Our and their failure to obtain or maintain a license to any technology that we require to develop or commercialize our current and future product candidates and device candidates, may materially harm our business, financial condition, and results of operations. Furthermore, we and they would be exposed to a threat of litigation.
From time to time, we and the Portfolio Companies may be party to, or threatened with, litigation or other proceedings with third parties, including non-practicing entities, who allege that our product candidates, components of our product candidates, device candidates, components of our device candidates, services, and/or proprietary technologies infringe, misappropriate or otherwise violate their intellectual property rights. The types of situations in which we and they may become a party to such litigation or proceedings include:
| ● | we and our collaborators may initiate litigation or other proceedings against third parties seeking to invalidate the patents held by those third parties or to obtain a judgment that our product candidates, device candidates, services, technologies or processes do not infringe those third parties’ patents; |
| ● | we and our collaborators may participate at substantial cost in International Trade Commission proceedings to abate importation of third-party products that would compete unfairly with our products; |
| ● | if our competitors file patent applications that claim technology also claimed by us or our licensors, we or our licensors may be required to participate in interference, derivation or opposition proceedings to determine the priority of invention, which could jeopardize our patent rights and potentially provide a third party with a dominant patent position; |
| ● | if third parties initiate litigation claiming that our processes or product candidates or those of Portfolio Companies, infringe their patent or other intellectual property rights, we, they and our collaborators will need to defend against such proceedings; |
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| ● | if third parties initiate litigation or other proceedings, including inter partes reviews, oppositions or other similar agency proceedings, seeking to invalidate patents owned by or licensed to us or the Portfolio Companies, or to obtain a declaratory judgment that their products, services, or technologies do not infringe our patents or patents licensed to us or them, we will need to defend against such proceedings; |
| ● | we and the Portfolio Companies may be subject to ownership disputes relating to intellectual property, including disputes arising from conflicting obligations of consultants or others who are involved in developing our product candidates, device candidates, services, technologies, and processes; and |
| ● | if a license to necessary technology is terminated, the licensor may initiate litigation claiming that our processes or product candidates, device candidates, services, or technologies or those of the Portfolio Companies infringe or misappropriate its patent or other intellectual property rights and/or that we breached our obligations under the license agreement, and we and our collaborators would need to defend against such proceedings. |
These lawsuits and proceedings, regardless of merit, are time-consuming and expensive to initiate, maintain, defend or settle, and could divert the time and attention of managerial and technical personnel, which could materially adversely affect our business and that of the Portfolio Companies. Any such claim could also force us to do one or more of the following:
| ● | incur substantial monetary liability for infringement or other violations of intellectual property rights, which we may have to pay if a court decides that the product candidate, device candidate, service, or technology at issue infringes or violates the third party’s rights, and if the court finds that the infringement was willful, we and the Portfolio Companies could be ordered to pay up to treble damages and the third party’s attorneys’ fees; |
| ● | pay substantial damages to our customers or end users and those of the Portfolio Companies to discontinue use or replace infringing technology with non-infringing technology; |
| ● | stop manufacturing, offering for sale, selling, using, importing, exporting or licensing the product or technology incorporating the allegedly infringing technology or stop incorporating the allegedly infringing technology into such product, service, or technology; |
| ● | obtain from the owner of the infringed intellectual property right a license, which may require us and the Portfolio Companies to pay substantial upfront fees or royalties to sell or use the relevant technology and which may not be available on commercially reasonable terms, or at all; |
| ● | redesign our product candidates, device candidates, services, and technology and those of the Portfolio Companies so they do not infringe or violate the third party’s intellectual property rights, which may not be possible or may require substantial monetary expenditures and time, including potential expenditures and time associated with any regulatory proceedings that might be required to secure regulatory approval for any redesigned product candidates, device candidates, services or technology; |
| ● | enter into cross-licenses with our competitors and those of the Portfolio Companies, which could weaken our overall intellectual property position; |
| ● | lose the opportunity to license our technology and that of the Portfolio Companies to others or to collect royalty payments based upon successful protection and assertion of our intellectual property against others; |
| ● | find alternative suppliers for non-infringing products and technologies, which could be costly and create significant delay; or |
| ● | relinquish rights associated with one or more of our patent claims or those of the Portfolio Companies, if those claims are held invalid or otherwise unenforceable. |
Some of our competitors and those of the Portfolio Companies may be able to sustain the costs of complex intellectual property litigation more effectively than we can because those competitors have substantially greater resources. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays, or prohibit us or them from manufacturing, marketing or otherwise commercializing our products, services, and technology. Any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of operation, financial condition or cash flows.
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In addition, we and the Portfolio Companies may indemnify our customers and distributors against claims relating to the infringement of intellectual property rights of third parties related to our product candidates or device candidates, services or technologies. Third parties may assert infringement claims against our customers or distributors. These claims may require us or them to initiate or defend protracted and costly litigation on behalf of our customers or distributors, regardless of the merits of these claims. If any of these claims succeed, we and they may be forced to pay damages on behalf of our customers, suppliers or distributors, or may be required to obtain licenses for the product candidates, device candidates, services or technologies they use. If we and they cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products, services or technologies.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information and that of the Portfolio Companies could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments, which could have a material adverse effect on the price of our common stock. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. The occurrence of any of these events may have a material adverse effect on our business, results of operation, financial condition or cash flows.
If we and the Portfolio Companies are unable to protect the confidentiality of our trade secrets, our business and competitive position may be harmed.
In addition to patent and trademark protection, we and the Portfolio Companies also rely on trade secrets, including unpatented know-how, technology and other proprietary information, to maintain our competitive position. Because we and they expect to rely on third parties to manufacture our product candidates and device candidates, and we expect to continue to collaborate with third parties on the development of our product candidates and device candidates, we must, at times, share trade secrets with them. We and they seek to protect our respective trade secrets, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them prior to disclosing our proprietary information, such as our consultants and vendors, or our former or current employees. These agreements typically limit the rights of third parties to use or disclose our and their confidential information, including our trade secrets. We and they also enter into confidentiality and invention assignment agreements with our employees and consultants. Despite these efforts, however, any of these parties may breach the agreements and disclose our or their trade secrets and other unpatented or unregistered proprietary information, and once disclosed, we are likely to lose trade secret protection. Monitoring unauthorized uses and disclosures of our and their intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. In addition, we and they may not be able to obtain adequate remedies for any such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to enforce trade secret protection. A competitor’s discovery of our or their trade secrets would impair our competitive position and have an adverse impact on our business, operating results, and financial condition. Additionally, we and they cannot be certain that competitors will not gain access to our trade secrets and other proprietary confidential information or independently develop substantially equivalent information and techniques.
Changes in patent law could diminish the value of patents in general, thereby impairing the ability of us and the Portfolio Companies to protect our respective existing and future product candidates, device candidates, processes and technologies.
As is the case with other biopharmaceutical companies, our success and that of the Portfolio Companies is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity, and is therefore costly, time consuming, and inherently uncertain. In addition, the United States has enacted and implemented wide-ranging patent reform legislation. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and their patent applications and the enforcement or defense of our issued patents. On September 16, 2011, the Leahy-Smith Act was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art, may affect patent litigation, and switched the United States patent system from a “first-to-invent” system to a “first-to-file” system. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of whether another inventor had conceived or reduced to practice the invention earlier. The USPTO recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, in particular, the first-to-file provisions, became effective on March 16, 2013. It is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our and their patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business and financial condition.
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In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense of our and their patents and pending patent applications. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. Furthermore, the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. We and the Portfolio Companies cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by United States and foreign legislative bodies. Those changes may materially affect our and their patents or patent applications and our ability to obtain additional patent protection in the future.
The United States federal government retains certain rights in inventions produced with its financial assistance under the Patent and Trademark Law Amendments Act, or the Bayh-Dole Act. The federal government retains a “nonexclusive, nontransferable, irrevocable, paid-up license” for its own benefit. The Bayh-Dole Act also provides federal agencies with “march-in rights.” March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a “nonexclusive, partially exclusive, or exclusive license” to a “responsible applicant or applicants.” If the patent owner refuses to do so, the government may grant the license itself. We partner with a number of universities, including the University of Iowa and the University of Texas Southwestern Medical Center, with respect to certain of our research, development, and manufacturing. While it is our policy to avoid engaging our university partners in projects in which there is a risk that federal funds may be commingled, we cannot be sure that any co-developed intellectual property will be free from government rights pursuant to the Bayh-Dole Act. If, in the future, we co-own or license in technology which is critical to our business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, our ability to enforce or otherwise exploit patents covering such technology may be adversely affected.
If we and the Portfolio Companies do not obtain patent term extensions in the United States under the Hatch-Waxman Act and in foreign countries under similar legislation with respect to our product candidates and device candidates, thereby potentially extending the term of marketing exclusivity for such product candidates and device candidates, our business may be harmed.
In the United States, a patent that covers an FDA-approved drug, biologic or medical device may be eligible for a term extension designed to restore the period of the patent term that is lost during the premarket regulatory review process conducted by FDA. Depending upon the timing, duration, and conditions of FDA regulatory approval of our and the Portfolio Companies product candidates and device candidates, one or more of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, which permits a patent term extension of up to a maximum of five years beyond the normal expiration of the patent if the patent is eligible for such an extension under the Hatch-Waxman Act as compensation for patent term lost during development and the FDA regulatory review process, which is limited to the approved indication (and potentially additional indications approved during the period of extension) covered by the patent. This extension is limited to only one patent that covers the approved product, the approved use of the product, or a method of manufacturing the product. However, the applicable authorities, including FDA and the USPTO in the United States, and any equivalent regulatory authority in other countries, may not agree with our or their assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request.
We and the Portfolio Companies may not receive an extension if we fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Even if we or they are granted such extension, the duration of such extension may be less than our request, and the patent term may still expire before or shortly after we receive FDA regulatory approval. If we or they are unable to extend the expiration date of our existing patents or obtain new patents with longer expiry dates, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data to obtain approval of competing products following our patent expiration and launch their product earlier than might otherwise be the case.
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Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and our patent protection and that of the Portfolio Companies could be reduced or eliminated for non-compliance with these requirements.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment, and other similar provisions during the patent application process. In addition, periodic maintenance fees on issued patents often must be paid to the USPTO and foreign patent agencies over the lifetime of the patent. While an unintentional lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees, and failure to properly legalize and submit formal documents. If we or the Portfolio Companies fail to maintain the patents and patent applications covering our product candidates, device candidates, processes or technologies, we may not be able to stop a competitor from marketing products that are the same as or similar to our own or theirs, which would have a material adverse effect on our business.
If our trademarks and trade names and those of the Portfolio Companies are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
We and the Portfolio Companies have not yet registered trademarks for a commercial trade name for all of our product candidate(s) or device candidates, including in the United States or elsewhere. During trademark registration proceedings, our and their trademark application(s) may be rejected. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties can oppose pending trademark applications and seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our and their trademarks, and our trademarks may not survive such proceedings. Moreover, any name we and they propose to use with our product candidate(s) or device candidate(s) in the United States must be approved by FDA, regardless of whether we have registered it, or applied to register it, as a trademark. FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If FDA objects to any of our or their proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties, and be acceptable to FDA.
Our registered or unregistered trademarks or trade names and those of the Portfolio Companies may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks. We may not be able to protect our and their rights in these trademarks and trade names, which we need in order to build name recognition with potential partners or customers in our markets of interest. In addition, third parties have used trademarks similar and identical to our and their trademarks in foreign jurisdictions, and have filed or may in the future file for registration of such trademarks. If such third parties succeed in registering or developing common law rights in such trademarks, and if we and they are not successful in challenging such third-party rights, we may not be able to use these trademarks to market our products in those countries. In any case, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.
We and the Portfolio Companies may not be able to adequately protect our intellectual property rights throughout the world.
Certain of our key patent families and those of the Portfolio Companies have been filed in the United States, as well as in numerous jurisdictions outside the United States. However, our and their intellectual property rights in certain jurisdictions outside the United States may be less robust. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. For example, the requirements for patentability may differ in certain countries, particularly developing countries, and we and they may be unable to obtain issued patents that contain claims that adequately cover or protect our current or future product candidates or device candidates, services or technologies. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our and their patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.
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Proceedings to enforce our and their patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and attention from other aspects of our business. Furthermore, while we intend to protect our and their intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market current or future product candidates or device candidates. Consequently, we and the Portfolio Companies may not be able to prevent third parties from practicing our technology in all countries outside the United States, or from selling or importing products made using our technology in and into those other jurisdictions where we do not have intellectual property rights. Competitors may use our and their technologies in jurisdictions where we have not obtained patent protection to develop such competitors’ own products and may also export infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our and their product candidates or device candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent such competitors from competing. Accordingly, our and their efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our and their ability to obtain and enforce adequate intellectual property protection for our product candidates, device candidates, services, and technologies.
We and the Portfolio Companies may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop and market our product candidates or device candidates.
We cannot guarantee that any of our or our licensors’ patent searches or analyses, or those of the Portfolio Companies, including the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough, nor can we be certain that we or they have identified each and every third-party patent and pending application in the United States and abroad that is relevant to or necessary for the commercialization of our product candidates or device candidates. For example, U.S. patent applications filed before November 29, 2000 and certain U.S. patent applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our and their product candidates or device candidates could have been filed by others without our knowledge. Additionally, pending patent applications that have been published can, subject to certain limitations, be later amended in a manner that could cover our or their product candidates, device candidates, or the use of our products. The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent, and the patent’s prosecution history. Our and their interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates or device candidates. We and they may incorrectly determine that our product candidates or device candidates are not covered by a third-party patent or may incorrectly predict whether a third party’s pending patent application will issue with claims of relevant scope. Our and their determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates and device candidates. Our and their failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our product candidates and device candidates.
If we and the Portfolio Companies fail to identify and correctly interpret relevant patents, we may be subject to infringement claims. We and they cannot guarantee that we will be able to successfully settle or otherwise resolve such infringement claims. If we or they fail in any such dispute, in addition to being forced to pay damages, we may be temporarily or permanently prohibited from commercializing any of our product candidates or device candidates that are held to be infringing. We and they might, if possible, also be forced to redesign products, product candidates, devices, device candidates, or services so that we no longer infringe the third-party intellectual property rights. Any of these events, even if we or they were ultimately to prevail, could require us and them to divert substantial financial and management resources that we would otherwise be able to devote to our business.
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Patent terms may be inadequate to protect our competitive position and that of the Portfolio Companies on our product candidates or device candidates for an adequate amount of time.
Patents have a limited lifespan, and the protection patents afford is limited. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. Even if patents covering our product candidates and device candidates and those of the companies we hold interests are obtained, once the patent life has expired for patents covering a product or product candidate, a device or a device candidate, we and the Portfolio Companies may be subject to competition from competitive products and services. As a result, our and their patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
Intellectual property rights do not necessarily address all potential threats to our business.
While we and the Portfolio Companies seek broad coverage under our existing patent applications, there is always a risk that an alteration to products or processes may provide a sufficient basis for a competitor to avoid infringing our patent claims. In addition, patents, if granted, expire and we and they cannot provide any assurance that any potentially issued patents will adequately protect our product candidates or device candidates. Once granted, patents may remain open to invalidity challenges including opposition, interference, re-examination, post-grant review, inter partes review, nullification or derivation action in court or before patent offices or similar proceedings for a given period after allowance or grant, during which time third parties can raise objections against such grant. In the course of such proceedings, which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims thus attacked or may lose the allowed or granted claims altogether.
In addition, the degree of future protection afforded by our intellectual property rights and those of the Portfolio Companies is uncertain because even granted intellectual property rights have limitations, and may not adequately protect our business, provide a lawful barrier to entry against our competitors or potential competitors or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our or their processes or technologies, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:
| ● | others may be able to develop and/or practice processes or technologies that are similar to our or their processes or technologies or aspects of our processes or technologies, but that are not covered by the claims of the patents that we or they own or control, assuming such patents have issued or do issue; |
| ● | we or our licensors or any future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by the issued patents or pending patent applications that we own or have exclusively licensed; |
| ● | we or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions; |
| ● | others may independently develop similar or alternative processes or technologies or duplicate any of our processes or technologies without infringing our intellectual property rights; |
| ● | it is possible that our or their pending patent applications will not lead to issued patents; |
| ● | issued patents that we own or have exclusively licensed may not provide us with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by our competitors or other third parties; |
| ● | our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
| ● | third parties performing manufacturing or testing for us using our product candidates or device candidates, including our processes and technologies, could use the intellectual property of others without obtaining a proper license; |
| ● | parties may assert an ownership interest in our intellectual property and, if successful, such disputes may preclude us from exercising exclusive rights over that intellectual property; |
| ● | we may not develop or in-license additional proprietary technologies that are patentable; |
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| ● | we may not be able to obtain and maintain necessary licenses on commercially reasonable terms, or at all; and |
| ● | the patents of others may have an adverse effect on our business. |
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations and prospects.
We and the Portfolio Companies may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of their former employers or other third parties.
We and the Portfolio Companies do and may employ individuals who were previously employed at universities or other biopharmaceutical companies, including our licensors, competitors or potential competitors. Although we try to ensure that our employees, consultants, and independent contractors do not use the proprietary information or know-how of others in their work for us, and we are not currently subject to any claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties, we may in the future be subject to such claims.
Litigation may be necessary to defend against these claims. If we and the Portfolio Companies fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our processes, technologies, product candidates or device candidates. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees and could result in customers seeking other sources for the technologies or processes or ceasing from doing business with us.
Our intellectual property agreements with third parties, and those of the Portfolio Companies, may be subject to disagreements over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology.
Certain provisions in our intellectual property agreements and those of the Portfolio Companies may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of our and their rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects.
In addition, while we and the Portfolio Companies typically require our employees, consultants and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops intellectual property that we regard as our own. To the extent that we or they fail to obtain such assignments, such assignments do not contain a self-executing assignment of intellectual property rights or such assignment agreements are breached, we may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of what we regard as our intellectual property, and this may interfere with our ability to capture the commercial value of such intellectual property. If we or they fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Such intellectual property rights could be awarded to a third party, and we or they could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we and they are successful in prosecuting or defending against such claims, litigation could result in substantial costs and be a distraction to our management and scientific personnel. Disputes regarding ownership or inventorship of intellectual property can also arise in other contexts, such as collaborations and sponsored research. We and they may be subject to claims that former collaborators or other third parties have an ownership interest in our patents or other intellectual property. If we or they are subject to a dispute challenging our rights in or to patents or other intellectual property, such a dispute could be expensive and time-consuming and distract our management and other employees. If we or they are unsuccessful, we could lose valuable rights in intellectual property that we regard as our own.
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We and the Portfolio Companies may not be successful in obtaining necessary intellectual property rights to future products through acquisitions and in-licenses.
Although we and the Portfolio Companies intend to develop products and technology through our own internal research, we may also seek to acquire or in-license technologies to grow our product offerings and technology portfolio. However, we or they may be unable to acquire or in-license intellectual property rights relating to, or necessary for, any such products or technology from third parties on commercially reasonable terms or at all. In that event, we or they may be unable to develop or commercialize such products or technology. We may also be unable to identify products or technology that we believe are an appropriate strategic fit for our Company and protect intellectual property relating to, or necessary for, such products and technology.
The in-licensing and acquisition of third-party intellectual property rights for product candidates and device candidates is a competitive area, and a number of more established companies are also pursuing strategies to in-license or acquire third-party intellectual property rights for products that we may consider attractive or necessary. These established companies may have a competitive advantage over us and the Portfolio Companies due to their size, cash resources, and greater clinical development and commercialization capabilities. Furthermore, companies that perceive us or them to be a competitor may be unwilling to assign or license rights to us. If we or they are unable to successfully obtain rights to additional technologies or products, our business, financial condition, results of operations and prospects for growth could suffer.
In addition, we expect that competition for the in-licensing or acquisition of third-party intellectual property rights for products and technologies that are attractive to us may increase in the future, which may mean fewer suitable opportunities for us as well as higher acquisition or licensing costs. We and the Portfolio Companies may be unable to in-license or acquire the third-party intellectual property rights for products or technology on terms that would allow us to make an appropriate return on our investment.
Risks Related to Employee Matters, Managing Our Growth, and Other Risks Related to Our Business
Our success is highly dependent on our ability to attract and retain highly skilled executive officers and employees.
To succeed, we must recruit, retain, manage, and motivate qualified clinical, scientific, technical, and management personnel, and we face significant competition for experienced personnel. We are highly dependent on the principal members of our management and scientific and medical staff, including the Cyclo management team, and our ability to advance the development, regulatory approval of our lead candidate, Trappsol® Cyclo™ may be materially and adversely affected if we lose them. If we do not succeed in attracting and retaining qualified personnel, particularly at the management level, it could adversely affect our ability to execute our business plan and harm our operating results. In particular, the loss of one or more of our executive officers could be detrimental to us if we cannot recruit suitable replacements in a timely manner. The competition for qualified personnel in the biopharmaceutical field is intense and, as a result, we may be unable to attract and retain the qualified personnel necessary to support FDA’s review of our NDA for Trappsol® Cyclo™, and, in the event we obtain FDA approval for Trappsol® Cyclo™, its commercialization. We could in the future have difficulty attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment and retention efforts.
Many of the other biopharmaceutical companies that we compete against for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and better prospects for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can discover, develop, and commercialize our product candidates and device candidates will be limited, and the potential for successfully growing our business will be harmed.
The requirements of being a public company may strain our resources, result in more litigation, and divert management’s attention.
As a public company, we are and will continue to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, the listing requirements of the New York Stock Exchange, and other applicable securities rules and regulations. Complying with these rules and regulations has increased and will continue to increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly, and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. We are required to disclose changes made in our internal controls over financial reporting on a quarterly basis. In order to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may also need to hire additional employees or engage outside consultants to comply with these requirements, which will increase our costs and expenses.
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In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs, and making some activities more time consuming. These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We have invested and intend to continue to invest in resources to comply with evolving laws, regulations, and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.
These new rules and regulations may make it more expensive for us to obtain director and officer liability insurance and, during certain periods, including currently, we may utilize alternatives for such coverage, accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers. By disclosing information in filings required of us as a public company, our business and financial condition will continue to become more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If those claims are successful, our business could be seriously harmed. Even if the claims do not result in litigation or are resolved in our favor, the time and resources needed to resolve them could divert our management’s resources and seriously harm our business.
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. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, or any subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
We are required to disclose changes made in our internal controls and procedures on a quarterly basis and to disclose any changes and material weaknesses in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. We identified a material weakness in internal control in fiscal 2025 and have identified other (since remediated) material weaknesses in prior periods.
We cannot be certain that we will implement and maintain an effective system of internal controls over our financial reporting in future periods. Any failure to implement and maintain such internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis as required by the Securities and Exchange Commission and The New York Stock Exchange, we could face severe consequences from those authorities. In either case, there could result a material adverse effect on our business. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
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We have identified a material weakness in our internal control over financial reporting that has not been fully remediated. If we fail to remediate it, or if additional material weaknesses arise, we may be unable to report our financial results accurately or timely.
Maintaining effective internal control over financial reporting is necessary for us to produce reliable financial statements. In the past, we have identified material weaknesses in our internal control over financial reporting that have since been remediated.
Following the Merger with Cyclo on March 25, 2025, we identified a material weakness in Cyclo’s internal control over financial reporting related to the completeness and accuracy of accruals and associated expenses, including clinical trial accruals. The weakness was due to inadequately designed controls around the month-end accrual identification, measurement, and recognition process. Because this material weakness had not been remediated as of July 31, 2026, our management concluded that our internal control over financial reporting and our disclosure controls and procedures were not effective as of that date.
We have begun implementing a remediation plan, which includes integrating Cyclo’s vendor and accounts payable and accrual processes into our existing control environment and developing Cyclo’s analytical review and clinical trial accrual estimation processes. However, we have not yet completed testing of the operating effectiveness of these new and enhanced controls over a sufficient period of time. We cannot assure you that our remediation efforts will be successful or timely, or that they will prevent future material weaknesses.
If we do not remediate the material weakness, or if additional material weaknesses are discovered or occur in the future, our consolidated financial statements may contain material misstatements, we could be required to restate our financial results, and we may fail to meet our SEC reporting obligations on a timely basis.
Conditions in Israel, including the October 7, 2023 attack by Hamas and other terrorist organizations from the Gaza Strip and Israel’s war against them, may adversely affect our operations and financial condition, particularly given the impact of the war in Gaza, the June 2025 ‘12-Day War’ between Israel and Iran, the February 2026 US-Israel-Iran military escalation and ongoing regional warfare, and potential long-term impacts on Israel’s economy, technology sector, and foreign investment.
Political, economic and military conditions in and surrounding Israel, including the war in Gaza, the June 2025 ‘12-Day War’ between Israel and Iran, the February 2026 US-Israel-Iran military escalation, and related cross-border hostilities involving Hezbollah in Lebanon and Houthi militants in Yemen, may materially and adversely affect our business, operations and financial condition. A significant portion of our personnel and operations are located in Israel; accordingly, regional instability and escalation directly affect our people, facilities, vendors and service continuity (including potential airspace or infrastructure disruptions, cyberattacks, electricity or network interruptions, impaired logistics, or temporary office closures). Even though a cease fire has been reached in the conflict between Israel and groups in Gaza, that cease fire is fragile, subject to violations and may not hold or lead to a longer term arrangement. Israeli reserve-duty mobilizations may require some employees or contractors to serve for extended periods, which can delay product development, reduce support capacity and impact hiring and retention. Certain of our employees and consultants in Israel, in addition to employees of our service providers located in Israel, have been called for service in the Gaza war, and such persons may be absent for an extended period of time. As a result, operations of LipoMedix may be disrupted by such absences, which may materially and adversely affect its business and results of operations.
In February 2026, following the breakdown of diplomatic efforts and heightened regional tensions, the United States and Israel conducted a series of strikes targeting Iranian military infrastructure and strategic assets. In March 2026, Hezbollah resumed hostilities by launching projectiles into northern Israel, prompting Israeli airstrikes in Lebanon. In June 2026 Iran and Israel exchanged additional fire. Israel’s Home Front Command has from time to time imposed restrictions on civilian activity. There can be no assurance that any ceasefire will be sustained, and hostilities between the United States, Israel and Iran could resume or further escalate at any time.
How long and how severe the current conflicts in Gaza, Northern Israel, Lebanon, Iran or the broader region become is unknown at this time and any continued clash among Israel, Hamas, Hezbollah, Iran, Houthis or other countries or militant groups in the region may escalate in the future into a greater regional conflict.
The security situation can also impair domestic demand, international travel, partner engagement and supplier reliability, and may increase insurance costs or leave certain risks uninsurable. Broader macroeconomic effects, such as currency volatility, higher risk premia, capital-market dislocation, and sanctions or trade restrictions could further pressure our results. Although ceasefires have occurred, cross-border rocket, drone and missile activity has persisted intermittently, and future flare-ups or a wider regional conflict (including renewed hostilities with Iran or coordinated attacks by Iran-aligned groups) could occur without notice. Any of these developments, together or separately, could disrupt our operations, harm our ability to execute our strategy, increase costs, delay initiatives, or otherwise negatively affect our business, results of operations, cash flows and financial condition.
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In addition, political instability and conflict in other countries in the Middle East continue to affect regional stability, including in Syria, where the Assad government fell in December 2024 and a transitional government has since taken power, and in Lebanon. Iran and various extremist groups in the region have engaged in, and continue to threaten, hostilities against Israel, which could escalate further and affect the Israeli economy in general and us in particular. Any armed conflicts, terrorist activities or political instability in the region could adversely affect business conditions, harm our results of operations and make it harder for us to raise capital.
For the most part, we do not have commercial insurance that cover losses that may occur as a result of an event associated with the security situation in Israel. Although the Israeli government has in the past covered the reinstatement value of certain damages that were caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained or, if maintained, will be sufficient to compensate us fully for damages incurred. Any losses or damages incurred would likely cause a significant disruption in our employees’ lives and possibly put their lives at risk, which would have a material adverse effect on our operations. Any armed conflicts or political instability in the region would likely negatively affect business conditions generally and could harm our results of operations.
Additionally, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict business with the State of Israel and with Israeli companies. These restrictive laws and policies may have an adverse impact on our results of operations, financial conditions or the expansion of our business. A campaign of boycotts, divestment and sanctions has been undertaken against Israel, which could also adversely impact our business.
The relationships between Howard S. Jonas and other companies, including IDT Corporation and Genie Energy, could conflict with our stockholders’ interests.
Howard S. Jonas, Chairman of our Board of Directors, Chief Executive Officer, and Executive Chairman, is also the chairman of IDT Corporation and Genie Energy Ltd. and serves in other capacities with other companies. These relationships may cause a conflict of interest with our stockholders.
Insurance policies are expensive and protect us only from some business risks, which leaves us exposed to uninsured liabilities.
Some of the insurance policies we currently maintain, or which we have maintained in the past, include general liability, employment practices liability, property, product liability, workers’ compensation, umbrella, and directors’ and officers’ insurance. These policies may not adequately cover all categories of risk that our business may encounter.
Any additional product liability insurance coverage, inclusive of the product liability and building contents coverage held by Cyclo, we acquire in the future may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If we obtain regulatory approval or clearance for any of the Portfolio Companies’ product candidates or device candidates, we intend to acquire insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. A successful product liability claim or series of claims brought against us could cause our share price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business, including preventing or limiting the development and commercialization of any product candidates or device candidates we develop. We may not carry adequate specific biological or hazardous waste insurance coverage, and our property, casualty, and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals and clearances, if any, could be suspended or withdrawn.
We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance, and, during certain periods we may utilize alternatives for such coverage, accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.
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We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business and that of the Portfolio Companies effectively.
We and the Portfolio Companies and our and their other third-party vendors and collaborators receive, collect, process, use and store a large amount of information, including personal information, intellectual property, protected health and other sensitive and confidential information. This data is often accessed through transmissions over public and private networks, including the internet. The secure transmission of such information over the internet and other mechanisms is essential to maintain confidence in our and their information technology systems yet is vulnerable to unauthorized access and disclosure. We have implemented security measures, technical controls and contractual precautions designed to identify, detect and prevent unauthorized access, alteration, use or disclosure of data. We may face increased cybersecurity risks due to our reliance on internet technology and the number of employees who are working remotely, which may create additional opportunities to exploit vulnerabilities. Beyond external activity, systems that access or control access to services and databases may be compromised as a result of human error, fraud or malice on the part of employees or third parties, or may result from accidental technological failure. Because the techniques used to circumvent security systems can be highly sophisticated and change frequently, often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address all possible threats or implement adequate preventive measures for all situations.
Despite the implementation of security measures, our and the Portfolio Companies’ internal computer systems and those of other third parties with which we and the Portfolio Companies collaborate and contract are vulnerable to attempted breaches of security, unauthorized disclosure of information, attacks which reduce availability of systems such as denial of service, damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war, telecommunication and electrical failures, and the perception that personal and/or other sensitive or confidential information in our possession is not secure. System failures, accidents or security breaches could cause interruptions in our and the Portfolio Companies’ operations and could result in a material disruption of our and 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 Portfolio Companies’ regulatory approval and clearance efforts and significantly increase their costs to recover or reproduce the data and pursue regulatory approval or clearance. To the extent that any disruption or security breach were to result in a loss of, or damage to, our or the Portfolio Companies’ data or applications, or inappropriate disclosure of confidential or proprietary information or protected health or personal information, we and the Portfolio Companies could incur substantial legal liability or significant harm to our reputation, and our and their product research, development, and commercialization efforts could be delayed.
We and the Portfolio Companies and our third-party providers and business partners face risks related to the protection of information that we maintain - or for which a third-party engaged to maintain information security on our behalf - including unauthorized access, acquisition, use, disclosure, or modification of such information. Cyberattacks are increasing in their frequency, sophistication and intensity and have become increasingly difficult to detect and respond to. Cyberattacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information. The techniques used in these attacks change frequently and may be difficult to detect for periods of time, and we may face difficulties in anticipating and implementing adequate preventative measures. A material cyberattack or security incident could cause interruptions in our or their operations and could result in a material disruption of our or their business operations, damage to our or their reputation, financial condition, results of operations, cash flows and prospects.
Furthermore, we, the Portfolio Companies and our third-party providers and business partners rely on electronic communications and information systems to conduct our operations. We and our third-party providers have been, and may continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate bank accounting information, passwords, or other personal information or to introduce viruses or other malware to our information systems. In October 2021, we experienced a cybersecurity incident where a related party’s email was hacked which led to unauthorized activity.
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Although we endeavor to mitigate these threats, such cyber-attacks against us, the Portfolio Companies or our third-party providers and business partners remain a serious issue. The pervasiveness of cybersecurity incidents in general and the risks of cyber-crime are complex and continue to evolve. Although we are making significant efforts to maintain the security and integrity of our information systems and are exploring various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Our insurance policies may not be adequate to compensate us for the potential losses arising from any such disruption, failure or security breach. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all. Further, our insurance may not cover all claims made against us and could have high deductibles in any event, and defending a suit, regardless of its merit, could be costly and divert management attention.
Risks Related to Ownership of our Common Stock
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation of the value of our common stock.
We have never declared or paid any cash dividends on our equity securities. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to any appreciation in the value of our common stock, which is not certain.
We are controlled by our principal stockholder, which limits the ability of other stockholders to affect the management of the Company.
Howard S. Jonas, our Chairman of our Board of Directors, Chief Executive Officer and our Executive Chairman, controls a majority of the voting power of our capital stock. As of October 21, 2026, Mr. Jonas has voting power over 787,163 shares of our Class A common stock (which are convertible into shares of our Class B common stock on a 1-for-1 basis) and 14,031,495 shares of our Class B common stock, representing approximately 50% of the combined voting power of our outstanding capital stock. Mr. Jonas will 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 is limited.
Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market, or the perception in the market that the holders of a large number of shares of common stock intend to sell shares, could reduce the market price of our common stock. Outstanding shares of our common stock may be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act, or to the extent that such shares have already been registered under the Securities Act and are held by non-affiliates of ours. Moreover, holders of a substantial number of shares of our common stock have rights, subject to certain conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders. We also have registered all shares of common stock that we may issue under our equity compensation plans or that are issuable upon exercise of outstanding options. These shares can be freely sold in the public market upon issuance, and once vested, are not subject to volume limitations applicable to affiliates. If any of these additional shares are sold, or if it is perceived that they will be sold, in the public market, the market price of our common stock could decline.
We are a “smaller reporting company,” and the reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.
We are considered a “smaller reporting company.” We are therefore entitled to rely on certain reduced disclosure requirements, such as reduced executive compensation disclosure. These exemptions and reduced disclosures in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock prices may be more volatile.
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General Risk Factors
If we engage in future acquisitions or strategic collaborations, this may increase our capital requirements, dilute our stockholders, cause us to incur debt or assume contingent liabilities, and subject us to other risks.
From time to time, we may evaluate various acquisition opportunities and strategic collaborations, including licensing or acquiring complementary products, intellectual property rights, technologies or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:
| ● | increased operating expenses and cash requirements; |
| ● | the assumption of additional indebtedness or contingent liabilities; |
| ● | the issuance of our equity securities; |
| ● | assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel; |
| ● | the diversion of our management’s attention from our existing programs and initiatives in pursuing such a strategic merger or acquisition; |
| ● | retention of key employees, the loss of key personnel and uncertainties in our ability to maintain key business relationships; |
| ● | risks and uncertainties associated with the other party to such a transaction, including the prospects of that party and their existing products or product candidates, devices or device candidates, and any regulatory approvals or clearances; |
| ● | assumption of the regulatory risks, costs, and responsibilities associated with the other party’s existing products or product candidates, devices or device candidates, and any regulatory approvals or clearances; and |
| ● | our inability to generate revenue from acquired technology and/or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs. In addition, if we undertake acquisitions or pursue collaborations in the future, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities, and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development of our business. |
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. In addition, if we do not provide our Portfolio Companies with the capital they require, they may seek capital from other sources, which would result in dilution and possible subordination or other diminution in value of our interests in those companies.
If we fail to meet the continued listing standards of the New York Stock Exchange, our Class B common stock could be delisted.
The NYSE requires, among other things, that a listed company’s average closing price be at least $1.00 over a consecutive 30-trading-day period and that it maintain minimum average market capitalization and stockholders’ equity levels. Following the announcement of the Phase 3 topline results, the market price of our Class B common stock declined. If we fail to satisfy the NYSE’s continued listing standards, the NYSE could delist our Class B common stock. Delisting would reduce the liquidity and market price of our Class B common stock and impair our ability to raise capital.
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 has been, and is likely to remain, volatile. The stock market in general and the market for the Portfolio 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:
| ● | actual or anticipated variations in quarterly operating results; |
| ● | changes in financial estimates by us or by any securities analysts who might cover our stock; |
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| ● | conditions or trends in our industry; |
| ● | stock market price and volume fluctuations of other publicly traded companies and, in particular, those that operate in the real estate or healthcare industries; |
| ● | announcements by us or our competitors of preliminary or interim data from or the results of clinical trials, new product or service offerings, or significant acquisitions; |
| ● | strategic collaborations or divestitures; |
| ● | announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us; |
| ● | capital commitments; |
| ● | additions or departures of key personnel; and |
| ● | sales of our common stock, including sales by our directors and officers or specific stockholders. |
The realization of any of the above risks or any of a broad range of other risks, including those described in this “Risk Factors” section, could have a dramatic and adverse impact on the market price of our common stock.
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 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.
We may be subject to securities litigation, which is expensive and could divert management attention.
The market price of our common stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. In September 2026, upon the announcement that the Phase 3 trial for Trappsol® Cyclo™ did not meet its primary endpoint, the market price for our Class B common stock dropped and we are aware that a certain law firm announced investigations. We may be the target of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could seriously harm our business.
Item 1B. Unresolved Staff Comments
None.
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Item 1C. Cybersecurity
Cybersecurity risk management and strategy
Our cybersecurity risk management is based on recognized cybersecurity industry frameworks and standards, including those of the National Institute of Standards and Technology, the Center for Internet Security Controls, and the International Organization for Standardization. We use these frameworks, together with information collected from internal assessments, to develop policies for the use of our information assets (for example, information resources such as mobile phones, computers and workstations), access to specific intellectual property or technologies, and protection of personal information. We protect these information assets through industry-standard techniques, such as multifactor authentication and malware defenses.
Our cybersecurity risk management extends to risks associated with our use of
Our cybersecurity risk management is an important part of our comprehensive business continuity program and enterprise risk management. Our global information security team periodically
Governance of cybersecurity risk management
Management is responsible for day-to-day assessment and management of cybersecurity risks and reports regularly to the audit committee.
Item 2. Properties
Our principal executive office is located at 520 Broad Street, Newark, New Jersey.
See Item 1 - “Real Estate” for a discussion of properties held by the Company for investment purposes for a detailed listing of such facilities.
Item 3. Legal Proceedings
Legal proceedings disclosure is presented in Note 18 to our Consolidated Financial Statements included in Item 8 to Part II of this Annual Report.
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, 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.
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Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
MARKET INFORMATION
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 the New York Stock Exchange on November 21, 2019.
On October 21, 2026, there were 282 holders of record of our Class B common stock and one holder of record of our Class A common stock. Howard S. Jonas has voting and dispositive power over all shares of Class A common stock. 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 26, 2026, the last sales price reported on the NYSE for the Class B common stock was $1.18 per share.
We do not anticipate paying dividends on our common stock unless and 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, 2026, and which is incorporated by reference herein.
Recent Sales of Unregistered Securities
None.
Performance Graph of Stock
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Issuer Repurchases of Equity Securities
None.
Item 6. [Reserved].
Not applicable.
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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, including statements regarding FDA’s review of our New Drug Application for Trappsol® Cyclo™ (remibetadex), including whether it will be filed, granted priority review, be approved, or be eligible for or receive a rare pediatric disease priority review voucher. 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”, “Rafael”, “we” or the “Company”) is a biotechnology company that develops pharmaceuticals and holds interests in clinical and early-stage companies that develop pharmaceuticals and medical devices. Our lead candidate is Trappsol® Cyclo™ (remibetadex), an investigational therapy for the potential treatment of Niemann-Pick Disease Type C (“NPC”), a rare, fatal and progressive genetic disorder. We have completed the pivotal Phase 3 clinical trial of Trappsol® Cyclo™ and on October 28, 2026 submitted a New Drug Application to the U.S. Food and Drug Administration. We also hold: (i) a majority equity interest in LipoMedix Pharmaceuticals Ltd. (“LipoMedix”), a clinical stage pharmaceutical company; (ii) Barer Institute Inc. (“Barer”), a wholly-owned subsidiary holding equity interests in early stage cancer assets; (iii) a majority equity, and debt, interest in Cornerstone Pharmaceuticals, Inc. (“Cornerstone”), formerly known as Rafael Pharmaceuticals Inc., a cancer metabolism-based therapeutics company; (iv) a majority equity interest in Rafael Medical Devices, LLC (“Rafael Medical Devices”), an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries; and (v) a majority equity interest in Day Three Labs, Inc. (“Day Three”), which empowers third-party manufacturers to bring to market better, cleaner, more precise and predictable versions of their product by utilizing Day Three’s technology and which holds equity and debt interests in two industry related companies. Our primary focus is to obtain FDA approval of Trappsol® Cyclo™, for which we submitted a New Drug Application on October 28, 2026 following the recent completion of Cyclo’s pivotal Phase 3 clinical trial, and, if approved, to bring that product to market. We also evaluate opportunities to expand our investment portfolio through strategic investments, including in therapeutics, that address high unmet medical needs. We continuously evaluate our other holdings to ensure the future focus of our resources is on core assets and specifically the Trappsol® Cyclo™ clinical development and commercialization efforts.
Historically, we owned real estate assets. As of July 31, 2026, we hold a portion of a commercial building in Jerusalem, Israel as our sole remaining real estate asset.
On March 25, 2025, we consummated the Merger (as defined below) with Cyclo whereby Cyclo became a wholly-owned subsidiary. In May 2023, we first invested in Cyclo, a clinical-stage biotechnology company that develops cyclodextrin-based products for the potential treatment of neurodegenerative diseases. Cyclo’s lead drug candidate is Trappsol® Cyclo™ (hydroxypropyl-β-cyclodextrin, IV), a treatment for NPC. NPC is a rare and fatal autosomal recessive genetic disease resulting in disrupted cholesterol metabolism that impacts the brain, lungs, liver, spleen, and other organs. In January 2017, FDA granted Fast Track designation to Trappsol® Cyclo™ for the treatment of NPC. Initial patient enrollment in the U.S. Phase I study commenced in September 2017 and, in May 2020, Cyclo announced Top Line data indicating Trappsol® Cyclo™ was well tolerated in this study. Cyclo has completed its pivotal Phase 3 Clinical Trial evaluating Trappsol® Cyclo™ in Pediatric and Adult Patients with Niemann-Pick Disease, Type C and announced topline data from the study on September 30, 2026. The study did not meet its primary endpoint in the overall population; a prespecified analysis in patients receiving background miglustat and/or leucine therapy demonstrated a statistically significant treatment benefit. On October 28, 2026, Cyclo submitted a New Drug Application (“NDA”) to FDA seeking approval of Trappsol® Cyclo™ for the treatment of the neurovisceral manifestations of NPC in adult and pediatric patients from birth. Within 60 days of receipt, the FDA will determine whether the application is complete and acceptable for filing and, if accepted, whether Priority Review will be granted. If the application is accepted, the FDA will assign a Prescription Drug User Fee Act (PDUFA) target action date. The NDA includes a request for a rare pediatric disease priority review voucher. The United States Adopted Names (“USAN”) Council has assigned the nonproprietary name “remibetadex” to Trappsol® Cyclo™. In addition, on April 16, 2026, Cyclo entered into an exclusive, worldwide, royalty-bearing Patent License Agreement with the Massachusetts Institute of Technology (“MIT”) for certain patent rights relating to small molecules to improve myelination in Alzheimer’s disease and APOE4 carriers, under which Cyclo may develop and commercialize products containing hydroxypropyl-β-cyclodextrin for Alzheimer’s disease.
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LipoMedix is a clinical stage Israeli company based in Israel that is focused on the development of a product candidate, Promitil, that holds the potential to be a therapy for cancer based on liposome delivery. As of July 31, 2026, our ownership interest in LipoMedix was approximately 95%. As needed, we provide debt or equity funding to LipoMedix to support its development and clinical efforts. LipoMedix has recently initiated an IST (investigator sponsored study) specifically an open-label, Phase II Single-Arm Trial of PROMITIL Combined with Radiotherapy in patients with Cisplatin-Ineligible Head and Neck Cancer. LipoMedix is also currently exploring strategic options for its lead candidate, including potential licensing opportunities, collaborations with industry partners, and investigator-initiated studies.
In 2019, we established Barer, originally as a preclinical cancer metabolism research operation, to focus on developing a pipeline of novel therapeutic compounds, including compounds designed to regulate cancer metabolism with potentially broader application in other indications beyond cancer. Barer was comprised of scientists and academic advisors that are experts in cancer metabolism, chemistry, and drug development. In addition to its own internal discovery efforts, Barer pursued collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Barer’s majority owned subsidiary, Farber Partners, LLC (“Farber”), was formed around one such agreement with Princeton University’s Office of Technology Licensing (“Princeton”) for technology from the laboratory of Dr. Joshua Rabinowitz, in the Department of Chemistry, Princeton University, for an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. In November 2022, we resolved to curtail its early-stage development efforts, including pre-clinical research at Barer and have, since that date, ceased almost all of such activity. Since then, we have sought partners for Farber programs and have entered into a license agreement for one of its technologies that is in the pre-clinical research stage with the Ludwig Institute of Cancer Research and have transferred majority ownership of another one of its technologies, SHMT, to a new company, Forme Therapeutics, that is being managed by Dr. Joshua Rabinowitz with the goal of developing SHMT while seeking out external investment and partnerships. Going forward, we expect that Barer will primarily operate as an entity holding interest in these two cancer-focused opportunities.
On March 13, 2024, Cornerstone consummated a restructuring of its outstanding debt and equity interests (the “Cornerstone Restructuring”). As a result of the Cornerstone Restructuring, Rafael became a 67% owner of the issued and outstanding common stock of Cornerstone (the “Cornerstone Acquisition”), and Cornerstone became a consolidated subsidiary of Rafael. We are currently reviewing Cornerstone’s current efforts, prospects and available resources to determine the optimal operational direction.
In May 2021, we formed Rafael Medical Devices, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries. In August 2023, Rafael Medical Devices sold an aggregate 31.6% equity interest to third parties for $925,000. In February 2025, we invested approximately $582,000 in cash, and Rafael Medical Devices raised approximately $44,000 from third parties in exchange for Rafael Medical Devices’ Class A Units. In July 2026, we converted the balance of an intercompany promissory note plus accrued interest, totaling $2,087,086, in exchange for Rafael Medical Devices’ Class A Units. As a result, we currently hold an 83% equity interest in Rafael Medical Devices. On December 11, 2024, Rafael Medical Devices received a substantial equivalence determination for the VECTR System from the Food and Drug Administration (“FDA”) in response to Rafael Medical Devices’ 510(k) premarket notification. FDA’s clearance of the VECTR System is for use in minimally invasive ligament or fascia release surgeries, such as carpal tunnel release in the wrist and cubital tunnel release in the elbow. The VECTR System has been classified into Class II and is subject to special controls (performance standards). Rafael Medical Devices’ development of future products will depend upon the success of the VECTR System and our Company’s ability to identify attractive investment and development opportunities.
In January 2024, we entered into a series of transactions with Day Three and certain of its shareholders, acquiring a controlling interest in Day Three and subsequently consolidating Day Three’s results (the “Day Three Acquisition”). On March 14, 2025, Day Three Labs Manufacturing (“DTLM”), a majority-owned subsidiary of Day Three, entered into an Asset Purchase Agreement and Licensing Agreement, pursuant to which DTLM sold assets and licensed certain applications of their Unlokt™ technology used in their cannabinoid ingredient manufacturing business in exchange for equity and debt interests in these companies.
Results of Operations
Our business consists of three reportable segments - Healthcare, Infusion Technology and Real Estate. We evaluate the performance of our Healthcare segment based primarily on results of clinical trials and loss from operations, and the Infusion Technology and Real Estate segments based primarily on revenues and income (loss) from operations. Accordingly, the income and expense line items below loss from operations are only included in the discussion of consolidated results of operations.
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Healthcare segment
Results of operations for our Healthcare segment were as follows:
| Year Ended July 31, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Product revenue | $ | 519 | $ | 515 | $ | 4 | 0 | % | ||||||||
| Cost of product revenue | (42 | ) | (28 | ) | (14 | ) | 50 | % | ||||||||
| General and administrative | (9,405 | ) | (13,165 | ) | 3,760 | (29 | )% | |||||||||
| Research and development | (24,322 | ) | (12,568 | ) | (11,754 | ) | 94 | % | ||||||||
| Depreciation and amortization | (131 | ) | (48 | ) | (83 | ) | 173 | % | ||||||||
| Loss from operations | $ | (33,381 | ) | $ | (25,294 | ) | $ | (8,087 | ) | 32 | % | |||||
The Healthcare segment is comprised of the activities of Cyclo, Rafael Medical Devices, Barer, LipoMedix, Farber, and Cornerstone. As of July 31, 2026, we held a 100% interest in Barer and Cyclo, a 95% interest in LipoMedix, a 93% interest in Farber, a 67% interest in Cornerstone and an 83% interest in Rafael Medical Devices.
Product revenue. Total revenue for the Healthcare segment for the year ended July 31, 2026, was approximately $519 thousand compared to $515 thousand for the year ended July 31, 2025. Product revenue is generated by Cyclo’s specialty chemicals business and VECTR System devices sold by Rafael Medical Devices.
Cost of product revenue. Cost of product revenue for the Healthcare segment for the year ended July 31, 2026, was $42 thousand compared to $28 thousand for the year ended July 31, 2025.
General and administrative expenses. General and administrative expenses consist mainly of payroll, stock-based compensation expense, benefits, facilities, consulting and professional fees. The decrease of $3.8 million in general and administrative expenses for the year ended July 31, 2026 compared to the year ended July 31, 2025 is primarily attributable to decreases: in professional fees of $1.3 million, primarily due to merger-related costs in the prior year; in payroll expense of $0.6 million; in stock based compensation expense of $1.2 million; in other expenses of $0.6 million; and in Cyclo’s general and administrative expenses of $0.1 million.
Research and development expenses. Research and development expenses are derived from activity at Cyclo, Barer, LipoMedix, Farber, Cornerstone and Rafael Medical Devices. Research and development expenses increased by $11.8 million for the year ended July 31, 2026 compared to the year ended July 31, 2025. For the year ended July 31, 2026, the increase was attributable to the increase in Cyclo’s research and development expenses which amounted to $13.4 million in fiscal 2026, as well as an increase in R&D stock-based compensation expense of $0.4 million, offset by decreases: in R&D payroll of $1.5 million; and in clinical trial and other expenses of $0.6 million.
Infusion Technology segment
Results of operations for our Infusion Technology segment were as follows:
| Year Ended July 31, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Infusion Technology revenue | $ | — | $ | 93 | $ | (93 | ) | (100 | )% | |||||||
| Cost of Infusion Technology revenue | — | (106 | ) | 106 | (100 | )% | ||||||||||
| Loss on impairment of goodwill | — | (3,050 | ) | 3,050 | (100 | )% | ||||||||||
| General and administrative | (43 | ) | (320 | ) | 277 | (87 | )% | |||||||||
| Research and development | (11 | ) | (255 | ) | 244 | (96 | )% | |||||||||
| Depreciation and amortization | — | (177 | ) | 177 | (100 | )% | ||||||||||
| Loss from operations | $ | (54 | ) | $ | (3,815 | ) | $ | 3,761 | (99 | )% | ||||||
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The Infusion Technology segment is comprised of our majority equity interest in Day Three, which was acquired in January 2024. Revenues associated with the Infusion Technology segment consist of Infusion Technology revenue derived from Day Three’s Unlokt™ technology. Cost of Infusion Technology revenue includes supplies, materials, production labor and travel costs. General and administrative expenses for the Infusion Technology segment consist mainly of payroll, insurance, software and licenses. Research and development expenses for the Infusion Technology segment include costs related to the development of new products and services.
Due to reductions in certain operations, including a layoff within the Company’s Infusion Technology segment, we concluded that a triggering event occurred during November 2024, that required us to assess if there was an impairment under ASC 350 and ASC 360. We completed an analysis pursuant to ASC 360 and determined that the expected undiscounted cash flows of the asset group exceeded its carrying amount, indicating that the long-lived assets were not impaired. In accordance with ASC 350, we performed a quantitative goodwill impairment test, which indicated that the carrying amount of the reporting unit exceeded the estimated fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. We recorded an impairment charge of $3.1 million related to the Infusion Technology segment’s goodwill during the year ended July 31, 2025.
On March 14, 2025, Day Three Labs Manufacturing entered into the DTLM Sale Agreement, pursuant to which it sold assets and licensed certain applications of their Unlokt™ technology used in Infusion Technology services, causing an overall reduction in revenues and operating expenses during the year ended July 31, 2026 compared to the prior year period.
Real Estate segment
The Real Estate segment consists of a portion of a commercial building in Israel. Consolidated revenue, expenses and loss for our Real Estate segment were as follows:
| Year Ended July 31, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Rental – Third Party | $ | 236 | $ | 197 | $ | 39 | 20 | % | ||||||||
| Rental – Related Party | 119 | 112 | 7 | 6 | % | |||||||||||
| General and administrative | (256 | ) | (296 | ) | 40 | (14 | )% | |||||||||
| Depreciation and amortization | (73 | ) | (63 | ) | (10 | ) | 16 | % | ||||||||
| Income (loss) from operations | $ | 26 | $ | (50 | ) | $ | 76 | (152 | )% | |||||||
General and administrative expenses. General and administrative expenses consist mainly of real estate taxes, payroll, accounting and legal fees, as well as building operating and office expenses.
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Consolidated Operations
Our consolidated income and expense line items below loss from operations were as follows:
| Year Ended July 31, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| (in thousands) | ||||||||||||||||
| Loss from operations | $ | (33,409 | ) | $ | (29,159 | ) | $ | (4,250 | ) | 15 | % | |||||
| Interest income | 1,236 | 1,996 | (760 | ) | (38 | )% | ||||||||||
| Realized gain on available-for-sale securities | - | 178 | (178 | ) | (100 | )% | ||||||||||
| Unrealized loss on investment - Cyclo | - | (5,144 | ) | 5,144 | (100 | )% | ||||||||||
| Unrealized loss on convertible notes receivable, due from Cyclo | - | (719 | ) | 719 | (100 | )% | ||||||||||
| Interest expense | (333 | ) | (658 | ) | 325 | (49 | )% | |||||||||
| Gain on settlement of accounts payable and convertible notes payable | 4,422 | - | 4,422 | 100 | % | |||||||||||
| Other income, net | 117 | 310 | (193 | ) | (62 | )% | ||||||||||
| Loss before income taxes | (27,967 | ) | (33,196 | ) | 5,229 | (16 | )% | |||||||||
| Benefit from income taxes | 13 | 2,553 | (2,540 | ) | (99 | )% | ||||||||||
| Consolidated net loss | (27,954 | ) | (30,643 | ) | 2,689 | (9 | )% | |||||||||
| Net income (loss) attributable to noncontrolling interests | 1,681 | (123 | ) | 1,804 | 1467 | % | ||||||||||
| Net loss attributable to Rafael Holdings, Inc. | $ | (29,635 | ) | $ | (30,520 | ) | $ | 885 | (3 | )% | ||||||
Interest income. We recorded interest income of $1.2 million and $2.0 million for the years ended July 31, 2026 and 2025, respectively. In November 2024, we sold our investments in available-for-sale securities and cash equivalents to reallocate assets to better align with our strategic goals. Accordingly, interest income has decreased due to a lower interest rate and decreased cash and other interest income earning balances.
Realized gain on available-for-sale securities. We recognized a realized gain on available-for-sale securities of $0.2 million for the year ended July 31, 2025. No such realized gains were recognized during the year ended July 31, 2026 as the available-for-sale portfolio was sold in November 2024.
Unrealized loss on investment - Cyclo. Unrealized gains and losses on investment - Cyclo were recognized as a result of changes in the fair value of our investments in Cyclo common stock and warrants which fluctuated due to the volatility of the market price of Cyclo common stock leading up to the Cyclo Merger during the year ended July 31, 2025.
Unrealized loss on convertible notes receivable, due from Cyclo. We recorded an unrealized loss of $0.7 million for the year ended July 31, 2025, related to the change in fair value of our convertible notes receivable due from Cyclo, which were forgiven as part of the Cyclo merger.
Interest expense. We recorded interest expense of $0.3 million and $0.7 million related to Cornerstone’s convertible notes and creditor payable for the years ended July 31, 2026 and 2025, respectively. The decrease during these periods is primarily attributable to the settlement of the creditor payable and certain convertible notes during the year ended July 31, 2026.
Gain on settlement of accounts payable and convertible notes payable. We recorded a gain of $4.4 million for the year ended July 31, 2026, related to settlements between Cornerstone and various vendors and convertible notes holders.
Other income, net. Other income, net was $0.1 million for the year ended July 31, 2026 due to a gain on the sale of certain equipment held by Cornerstone. Other income, net was $0.3 million for the year ended July 31, 2025, due to the gain on sale of certain Cornerstone IPR&D.
Benefit from income taxes. We recorded a net benefit from income taxes of an insignificant amount for the year ended July 31, 2026. For the year ended July 31, 2025, we recorded an income tax benefit of $2.6 million, primarily related to the sale of state net operating losses.
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Net income (loss) attributable to noncontrolling interests. The change in the net income (loss) attributable to noncontrolling interests is primarily attributed to net income at Cornerstone during the year ended July 31, 2026, driven by gains on the settlement of accounts payable and convertible notes payable.
Liquidity and Capital Resources
| As of July 31, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Balance Sheet Data: | (in thousands) | |||||||||||||||
| Cash and cash equivalents | $ | 22,074 | $ | 52,769 | (30,695 | ) | (58 | )% | ||||||||
| Convertible notes receivable classified as available-for-sale | 2,044 | 1,858 | 186 | 10 | % | |||||||||||
| Working capital | 14,830 | 45,114 | (30,284 | ) | (67 | )% | ||||||||||
| Total assets | 83,055 | 114,109 | (31,054 | ) | (27 | )% | ||||||||||
| Total equity attributable to Rafael Holdings, Inc. | 66,309 | 94,391 | (28,082 | ) | (30 | )% | ||||||||||
| Noncontrolling interests | 5,661 | 3,980 | 1,681 | 42 | % | |||||||||||
| Total equity | 71,970 | 98,371 | (26,401 | ) | (27 | )% | ||||||||||
| Year Ended July 31, | Change | |||||||||||||||
| 2026 | 2025 | $ | % | |||||||||||||
| Cash flows (used in) provided by: | (in thousands) | |||||||||||||||
| Operating activities | $ | (29,987 | ) | $ | (18,924 | ) | $ | (11,063 | ) | 58 | % | |||||
| Investing activities | (676 | ) | 44,035 | (44,711 | ) | (102 | )% | |||||||||
| Financing activities | (116 | ) | 24,830 | (24,946 | ) | (100 | )% | |||||||||
| Effect of exchange rates on cash and cash equivalents | 84 | 153 | (69 | ) | (45 | )% | ||||||||||
| (Decrease) increase in cash and cash equivalents | $ | (30,695 | ) | $ | 50,094 | $ | (80,789 | ) | (161 | )% | ||||||
Capital Resources
As of July 31, 2026, we had a working capital surplus of approximately $14.8 million, an accumulated deficit of approximately $261.9 million and cash and cash equivalents of approximately $22.1 million. Throughout our history as an independent company, we have incurred recurring losses from operations and, for the years ended July 31, 2026 and 2025, had consolidated net losses of approximately $28.0 million and $30.6 million, respectively, and net cash used in operating activities of approximately $30.0 million and $18.9 million, respectively. We expect to incur significant expenses in connection with our ongoing activities to support FDA’s review of our NDA for Trappsol® Cyclo™, submitted on October 28, 2026, and, if approved, to commercialize Trappsol® Cyclo™. As a result, management has concluded that substantial doubt exists regarding our ability to continue as a going concern for at least 12 months from the date of issuance of the accompanying consolidated financial statements.
Our ability to continue operations depends on our ability to raise additional capital through equity financings, debt financings, strategic collaborations, or other sources. While we are actively pursuing additional financing, there can be no assurance that such funding will be available on acceptable terms, or at all. If we are unable to obtain sufficient capital, we may be required to delay, reduce, or discontinue our clinical development programs or other operations, which could materially adversely affect our business.
Operating Activities
For the year ended July 31, 2026, cash used in operating activities was $30.0 million due to our net loss of $28.0 million adjusted for non-cash items totaling $3.0 million. Cash generated from changes in operating assets and liabilities primarily included the collection of other receivables of $1.2 million and an increase in accounts payable and accrued expenses of $0.3 million offset by an increase in prepaid expenses and other current assets of $0.3 million and a decrease in accrued expenses, noncurrent of $0.4 million.
For the year ended July 31, 2025, cash used in operating activities was $18.9 million, due to our net loss of $30.6 million adjusted for non-cash items totaling $10.9 million. Cash generated from changes in operating assets and liabilities included the collection of interest receivables of $0.5 million and a decrease in prepaid expenses and prepaid clinical costs of $0.9 million.
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Investing Activities
Cash used in investing activities for the year ended July 31, 2026 of $0.7 million was primarily due to the purchase of preferred shares and warrants from Nina Medical Ltd. for $0.8 million, offset by proceeds of $0.1 million from the sale of property and equipment.
Cash provided by investing activities for the year ended July 31, 2025 was primarily due to proceeds of $80.7 million from sales and maturities of available-for-sale securities and $2.5 million in proceeds from hedge funds, offset by purchases of available-for-sale securities of approximately $17.0 million, purchases of $19.5 million in convertible notes receivable, due from Cyclo, and net cash used in the Cyclo Merger of $2.7 million.
Financing Activities
Cash used in financing activities for the year ended July 31, 2026 was related to payment for taxes related to shares withheld for employee taxes of $0.1 million and cash paid to settle convertible notes payable of an insignificant amount.
Cash provided by financing activities for the year ended July 31, 2025 was primarily related to net proceeds from the issuance of common stock in the Rights Offering of $25 million offset by a payment related to shares withheld for employee taxes of $0.2 million.
We do not anticipate paying dividends on our common stock unless and 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.
Critical Accounting Estimates
We have chosen accounting policies that we believe are appropriate to accurately and fairly report our operating results and financial condition in conformity with U.S. GAAP. We apply these accounting policies in a consistent manner. Our significant accounting policies are discussed in Note 2, “Summary of Significant Accounting Policies”, in our accompanying consolidated financial statements.
The application of critical accounting policies requires that we make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures. These estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. We evaluate these estimates and assumptions on an ongoing basis and may retain outside consultants to assist in our evaluation. If actual results ultimately differ from previous estimates, the revisions are included in results of operations in the period in which the actual amounts become known. The critical accounting policies that involve the most significant management judgments and estimates used in preparation of our consolidated financial statements, or are the most sensitive to change from outside factors are:
Business Combinations
The purchase price for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets, in-process research and development (“IPR&D”) and customer relationships, is based on detailed valuations that use information and assumptions provided by management, including expected future cash flows. We allocate any excess purchase price over the fair value of the identifiable net assets and liabilities acquired to goodwill. Acquired IPR&D pursuant to an asset acquisition that has no alternative future use is expensed immediately as a component of in-process research and development expense in the consolidated statements of operations and comprehensive loss.
Impairment of Long-Lived Assets
In accordance with ASC 360, Property, Plant, and Equipment, we assess the recoverability of long-lived assets, which include property and equipment, amortizable intangible assets, and patents, whenever significant events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset group are compared to its carrying amount to determine whether the asset group’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results.
Due to reductions in certain operations including a layoff within our Infusion Technology segment, we concluded that a triggering event occurred during November 2024, that required us to evaluate long-lived assets within the Infusion Technology segment for potential impairment under ASC 360. Accordingly, we completed an analysis pursuant to ASC 360 and determined that the expected undiscounted cash flows of the asset group exceeded its carrying amount, indicating that the long-lived assets were not impaired.
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Impairment of IPR&D
We evaluate our IPR&D assets for impairment annually and whenever significant events or changes in circumstances indicate that the carrying amount of such assets may be impaired. In performing our annual IPR&D impairment test, we are permitted to first assess the qualitative factors to determine whether it is more likely than not that the fair value of an IPR&D asset is less than its carrying amount. As part of the qualitative assessment, we consider the results of clinical trials, among other factors, in evaluating whether an IPR&D asset is impaired.
Goodwill
We assess goodwill for impairment on an annual basis as of May 31, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. Management regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results. The process of evaluating the potential impairment of goodwill requires significant judgment. In performing our annual goodwill impairment test, we are permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of any of our reporting units is less than its carrying amount, including goodwill. In performing the qualitative assessment, management considers certain events and circumstances specific to the reporting unit and the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of any of the reporting units is less than its carrying amount. We are also permitted to bypass the qualitative assessment and proceed directly to the quantitative test. If we choose to undertake the qualitative assessment and conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we would then proceed to the quantitative impairment test. In the quantitative assessment, we compare the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value exceeds the carrying value, no impairment loss exists. If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.
Due to reductions in certain operations including a layoff within our Infusion Technology segment, we concluded that a triggering event occurred during November 2024, that required us to assess if there was an impairment under ASC 350, Intangibles - Goodwill and Other (“ASC 350”). In accordance with ASC 350, we performed a quantitative goodwill impairment test, which indicated that the carrying amount of the reporting unit exceeded the estimated fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. We recorded an impairment charge of $3.1 million during the year ended July 31, 2025, representing a full write-off of the goodwill balance associated with the Infusion Technology operating segment.
See Note 13 to our Consolidated Financial Statements for further information.
Clinical Trial Accruals
We estimate clinical trial accruals related to obligations for services performed on our behalf by third-party vendors. The amount recorded for the clinical trial accrual represents our evaluation of the progress to completion of specific tasks, unbilled patient visits and the facts and circumstances known at the time of the estimate as it relates to clinical trial activities.
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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks
FOREIGN CURRENCY RISK
Revenue from tenants located in Israel represented 41% and 34% of our consolidated revenues for the fiscal years ended July 31, 2026 and 2025, 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.
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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-1 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 Exchange Act of 1934, as amended) as of July 31, 2026. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company did not maintain effective disclosure controls and procedures because of the material weakness in internal control over financial reporting described below.
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 U.S. GAAP.
During the year ended July 31, 2025, management identified a material weakness in internal control over financial reporting related to the completeness and accuracy of accruals and associated expenses at Cyclo, a wholly-owned subsidiary. Specifically, controls were not appropriately designed or operating effectively to ensure accruals and related expenses were recorded completely and accurately, due to inadequately designed controls surrounding the month-end accrual identification, measurement, and recognition process, including controls related to clinical trials. The material weakness resulted in immaterial misstatements, which were corrected in the Company’s consolidated financial statements during the year ended July 31, 2025.
Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of July 31, 2026 utilizing the framework established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Because the material weakness identified during the year ended July 31, 2025 had not been remediated as of July 31, 2026, management concluded that the Company’s internal control over financial reporting was not effective as of July 31, 2026.
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 U.S. GAAP; (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.
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This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Remediation Plan for Material Weakness in Internal Control Over Financial Reporting
In response to the material weakness identified above, the Company developed a plan, which will be updated as deemed necessary, to remediate the material weakness at Cyclo, including enhancing the design of and implementing additional process-level control activities and ensuring they are properly evidenced and operating effectively. Such design and implementation control activities include, but are not limited to:
| ● | Integration of Cyclo’s vendor and accounts payable management process into the Company’s existing control process; |
| ● | Integration of Cyclo’s accrual process into the Company’s existing control process; |
| ● | Development of Cyclo’s analytical review process; |
| ● | Development of Cyclo’s clinical trial accrual estimation process. |
Because the reliability of the internal control process requires repeatable execution, the successful on-going remediation of the material weakness will require on-going review and evidence of effectiveness prior to concluding that the controls are effective. Management has not yet completed testing of the operating effectiveness of the new and enhanced controls over a sufficient period of time. The Company’s remediation efforts are underway; however, there is no assurance that the remediation efforts will be effective in the future or that additional material weaknesses will not develop or be identified.
Changes in Internal Control over Financial Reporting
During the quarter ended July 31, 2026, the Company continued to implement the remediation plan described above, including integrating Cyclo’s vendor and accounts payable management process and accrual process into the Company’s existing control process and developing Cyclo’s analytical review and clinical trial accrual estimation processes. These changes have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The material weakness had not been remediated as of July 31, 2026.
Except as described above, there were no changes in the Company’s internal control over financial reporting during the quarter ended July 31, 2026 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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Part III
Item 10. Directors, Executive Officers and Corporate Governance.
The following is a list of our directors and executive officers as of October 29, 2026:
Executive Officers
Howard S. Jonas — Chief Executive Officer
David Polinsky — Chief Financial Officer
Joshua Fine — Chief Operating Officer
Directors
Howard S. Jonas—Chairman of the Board
Susan Y. Bernstein
Alan Grayson
Markus W. Sieger
Dr. Mark Stein
Dr. Michael J. Weiss
Non-Voting Ex-Officio Director
N. Scott Fine
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, 2026, and which is incorporated by reference herein.
Insider Trading Policies and Procedures
We have insider trading policies and procedures that govern the purchase, sale, and other dispositions of our securities by directors, officers, employees, and consultants, as well as our own. We believe these policies and procedures are reasonably designed to promote compliance with insider trading laws, rules and regulations and applicable listing standards. See “Index of Exhibits” within this Annual Report on Form 10-K for our Insider Trading Policy.
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.
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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, 2026, 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, 2026, 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, 2026, 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, 2026, and which is incorporated by reference herein.
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Part IV
Item 15. Exhibits, Financial Statement Schedules.
| (a) | The following documents are filed as part of this Report: |
| 1. | Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements. |
Consolidated Financial Statements covered by Report of Independent Registered Public Accounting Firm.
| 2. | Financial Statement Schedules. |
All schedules have been omitted since they are either included in the Notes to Consolidated Financial Statements or not required or not applicable.
| 3. | Exhibits. The exhibits listed in paragraph (b) of this item are filed, furnished, or incorporated by reference as part of this Form 10-K. |
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:
| ● | may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements; |
| ● | may apply standards of materiality that differ from those of a reasonable investor; and |
| ● | were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances. |
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.
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| (b) | Exhibits. |
| Exhibit Number | Description | |
| 3.1(1) | Amended and Restated Certificate of Incorporation of Rafael Holdings, Inc. | |
| 3.2(2) | Fourth Amended and Restated By-Laws of Rafael Holdings, Inc. | |
| 4.2* | Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 | |
| 10.1(3) | 2021 Equity Incentive Plan, as amended and restated | |
| 10.2(4) | Employment Agreement dated as of June 13, 2022, between the Company and Howard S. Jonas. | |
| 10.3(5) | Amended and Restated Executive Employment Agreement between Joshua Fine and Cyclo Therapeutics, Inc., dated as of January 30, 2025. | |
| 10.4(6) | Novation and Amendment to the Amended and Restated Executive Employment Agreement between Joshua Fine and Cyclo Therapeutics, Inc., dated August 6, 2025. | |
| 10.5(6) | General Release Agreement, dated August 4, 2025, between the Company and N. Scott Fine. | |
| 10.6(7) | Securities Purchase Agreement, dated August 19, 2021, by and among Rafael Holdings, Inc. and the Investors named therein. | |
| 10.7(7) | Securities Purchase Agreement, dated August 19, 2021, by and among Rafael Holdings, Inc. and I9 Plus, LLC. | |
| 10.8(7) | Registration Rights Agreement, dated August 19, 2021, by and among Rafael Holdings, Inc. and the Investors named therein. | |
| 19.01(8) | Insider Trading Policy | |
| 21.01* | Subsidiaries of the Registrant | |
| 23.1* | Consent of CohnReznick LLP, Independent Registered Public Accounting Firm | |
| 31.01* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.02* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.01* | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 32.02* | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 97(9) | Compensation Clawback Policy | |
| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed or furnished herewith. |
| (1) | Incorporated by reference to Form 10-12G/A, filed March 26, 2018. |
| (2) | Incorporated by reference to Form 8-K, filed July 18, 2025. |
| (3) | Incorporated by reference to Exhibit A of the Company’s Definitive Proxy Statement, filed with the Commission on November 18, 2025. |
| (4) | Incorporated by reference to Form 8-K, filed June 14, 2022. |
| (5) | Incorporated by reference to Exhibit to Amendment No. 4 to the Registration Statement on S-4 filed February 11, 2025. |
| (6) | Incorporated by reference to Form 8-K, filed August 7, 2025 |
| (7) | Incorporated by reference to Form 8-K, filed August 24, 2021. |
| (8) | Incorporated by reference to Exhibit 19.01 to Form 10-K, filed October 29, 2025. |
| (9) | Incorporated by reference to Exhibit 97 to Form 10-K, filed October 29, 2025. |
Item 16. Form 10-K Summary
None.
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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.
| Rafael Holdings, Inc. | ||
| By: | /s/ Howard Jonas | |
| Howard Jonas | ||
| Chief Executive Officer | ||
Date: October 29, 2026
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.
| Signature | Titles | Date | ||
| /s/ Howard Jonas | Chief Executive Officer | October 29, 2026 | ||
| Howard Jonas | (Principal Executive Officer and Chairman of the Board) | |||
| /s/ David Polinsky | Chief Financial Officer | October 29, 2026 | ||
| David Polinsky | (Principal Financial Officer and Principal Accounting Officer) | |||
| /s/ Susan Y. Bernstein | Director | October 29, 2026 | ||
| Susan Y. Bernstein | ||||
| /s/ Alan Grayson | Director | October 29, 2026 | ||
| Alan Grayson | ||||
| /s/ Markus W. Sieger | Director | October 29, 2026 | ||
| Markus W. Sieger | ||||
| /s/ Dr. Mark Stein | Director | October 29, 2026 | ||
| Dr. Mark Stein | ||||
| /s/ Michael J. Weiss | Director | October 29, 2026 | ||
| Dr. Michael J. Weiss |
101
Index to Consolidated Financial Statements
| Report of Independent Registered Public Accounting Firm (PCAOB ID 596) | F-2 | |
| Consolidated Balance Sheets as of July 31, 2026 and July 31, 2025 | F-3 | |
| Consolidated Statements of Operations and Comprehensive Loss for the years ended July 31, 2026 and 2025 | F-4 | |
| Consolidated Statements of Equity for the years ended July 31, 2026 and 2025 | F-5 | |
| Consolidated Statements of Cash Flows for the years ended July 31, 2026 and 2025 | F-7 | |
| Notes to Consolidated Financial Statements | F-8 |
F-1
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. and Subsidiaries as of July 31, 2026 and 2025, 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 Rafael Holdings, Inc. and Subsidiaries as of July 31, 2026 and 2025, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these 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 Rafael Holdings, Inc. 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Rafael Holdings, Inc. 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.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We have determined that there are no critical audit matters.
/s/
We have served as Rafael Holdings Inc.'s auditor since 2019.
October 29, 2026
F-2
RAFAEL HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| July 31, | ||||||||
| 2026 | 2025 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid clinical costs | ||||||||
| Other receivables | — | |||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Inventory | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Non-current prepaid clinical costs | ||||||||
| Convertible notes receivable classified as available-for-sale | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| In-process research and development | ||||||||
| Investments | — | |||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Convertible notes payable | ||||||||
| Due to related parties, net | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Accrued expenses, noncurrent | — | |||||||
| Convertible notes payable, noncurrent | ||||||||
| Deferred income tax liability | ||||||||
| Other liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| EQUITY | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost; | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income related to unrealized income on available-for-sale securities | ||||||||
| Accumulated other comprehensive income related to foreign currency translation adjustment | ||||||||
| Total equity attributable to Rafael Holdings, Inc. | ||||||||
| Noncontrolling interests | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
F-3
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
| Year Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| REVENUE | ||||||||
| Infusion Technology | $ | — | $ | |||||
| Rental – Third Party | ||||||||
| Rental – Related Party | ||||||||
| Product revenue | ||||||||
| Total revenue | ||||||||
| COSTS AND EXPENSES | ||||||||
| Cost of Infusion Technology revenue | — | |||||||
| Cost of product revenue | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Depreciation and amortization | ||||||||
| Loss on impairment of goodwill | — | |||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Realized gain on available-for-sale securities | — | |||||||
| Unrealized loss on investment - Cyclo | — | ( | ) | |||||
| Unrealized loss on convertible notes receivable, due from Cyclo | — | ( | ) | |||||
| Interest expense | ( | ) | ( | ) | ||||
| Gain on settlement of accounts payable and convertible notes payable | — | |||||||
| Other income, net | ||||||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Benefit from income taxes | ||||||||
| Consolidated net loss | ( | ) | ( | ) | ||||
| Net income (loss) attributable to noncontrolling interests | ( | ) | ||||||
| Net loss attributable to Rafael Holdings, Inc. | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Consolidated net loss | $ | ( | ) | $ | ( | ) | ||
| Unrealized gain on available-for-sale securities | ||||||||
| Foreign currency translation adjustment | ||||||||
| Comprehensive loss | ( | ) | ( | ) | ||||
| Comprehensive income (loss) attributable to noncontrolling interests | ( | ) | ||||||
| Comprehensive loss attributable to Rafael Holdings, Inc. | $ | ( | ) | $ | ( | ) | ||
| Loss per share attributable to common stockholders | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares used in calculation of loss per share | ||||||||
| Basic and diluted | ||||||||
See accompanying notes to the consolidated financial statements.
F-4
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share data)
| Year Ended July 31, 2026 | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock, | Common Stock, | Additional | Accumulated other | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | paid- | Accumulated | comprehensive | Noncontrolling | Class B | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in capital | deficit | income | interests | Shares | Amount | Equity | ||||||||||||||||||||||||||||||||||
| Balance at July 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | — | — | ( | ) | — | — | — | ( | ) | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Shares withheld for payroll taxes | — | — | ( | ) | ( | ) | ( | ) | — | — | — | — | — | ( | ) | |||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance at July 31, 2026 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
F-5
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except share data)
| Year Ended July 31, 2025 | ||||||||||||||||||||||||||||||||||||||||||||
| Common Stock, | Common Stock, | Additional | Accumulated other | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | paid- | Accumulated | comprehensive | Noncontrolling | Class B | Total | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in capital | deficit | income | interests | Shares | Amount | Equity | ||||||||||||||||||||||||||||||||||
| Balance at July 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | ) | — | ( | ) | — | — | ( | ) | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Forfeiture of restricted stock | — | — | ( | ) | — | ( | ) | — | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||||
| Shares withheld for payroll taxes | — | — | ( | ) | — | ( | ) | — | — | — | — | — | ( | ) | ||||||||||||||||||||||||||||||
| Sale of Rafael Medical Devices membership units | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Shares issued in connection with Cyclo Merger | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock in Rights Offering, net of transaction costs | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Rollover options issued in connection with Cyclo Merger | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Replacement Warrants issued in connection with Cyclo Merger | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| DTLM shares issued in connection with the DTLM Sale Transactions | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Unrealized gain on available-for-sale securities | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
| Balance at July 31, 2025 | $ | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
F-6
RAFAEL HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
| Year Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| Operating activities | ||||||||
| Consolidated net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile consolidated net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| (Gain) loss on sale of property and equipment | ( | ) | ||||||
| Gain on settlement of accounts payable and convertible notes payable | ( | ) | — | |||||
| Realized gain on available-for-sale securities | — | ( | ) | |||||
| Amortization of discount on available-for-sale securities | — | ( | ) | |||||
| Loss on impairment of goodwill | — | |||||||
| Unrealized loss on equity investments - Cyclo | — | |||||||
| Unrealized loss on Convertible Notes, due from Cyclo | — | |||||||
| Credit loss expense | ( | ) | — | |||||
| Stock-based compensation | ||||||||
| Gain on DTLM Sale Transactions | — | ( | ) | |||||
| Change in assets and liabilities, net of effects from acquisitions: | ||||||||
| Trade accounts receivable | ( | ) | ||||||
| Interest receivable | — | |||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Prepaid clinical trial costs (current and non-current) | ||||||||
| Other receivables | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Other current liabilities | ( | ) | ||||||
| Due to related parties | ( | ) | ( | ) | ||||
| Accrued expenses, noncurrent | ( | ) | ||||||
| Convertible notes payable | ||||||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | ||||||||
| Purchases of available-for-sale securities | — | ( | ) | |||||
| Purchase of preferred shares and warrants from Nina Medical | ( | ) | — | |||||
| Proceeds from the sale and maturities of available-for-sale securities | — | |||||||
| Purchase of intangible assets | — | ( | ) | |||||
| Issuance of Convertible Notes, due from Cyclo | — | ( | ) | |||||
| Cash paid in Cyclo Merger, net of cash acquired | — | ( | ) | |||||
| Proceeds from hedge funds | — | |||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Financing activities | ||||||||
| Payments for taxes related to shares withheld for employee taxes | ( | ) | ( | ) | ||||
| Cash paid to settle convertible notes payable | ( | ) | — | |||||
| Proceeds from issuance of common stock in Rights Offering, net of transaction costs | — | |||||||
| Proceeds from sale of Rafael Medical Devices membership units | — | |||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of year | $ | $ | ||||||
| Non-cash supplemental disclosure | ||||||||
| Fair value of Class B common stock issued as consideration in Cyclo Merger | $ | — | $ | |||||
| Fair value of Rollover Options issued as consideration in Cyclo Merger | $ | — | $ | |||||
| Fair value of Replacement Warrants issued as consideration in Cyclo Merger | $ | — | $ | |||||
| Fair value of Cyclo Convertible notes receivable included as consideration in Cyclo Merger | $ | — | $ | |||||
| Transaction costs related to the Rights Offering included in accounts payable | $ | — | $ | |||||
| Conversion of Convertible notes receivable, due from Cyclo into common stock | $ | — | $ | |||||
| Convertible note receivable received in exchange for Day Three Labs Manufacturing assets | $ | — | $ | |||||
See accompanying notes to the consolidated financial statements.
F-7
RAFAEL HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – DESCRIPTION OF BUSINESS
Rafael Holdings, Inc. (“Rafael Holdings”, “Rafael”, “we” or the “Company”) is a biotechnology company that develops pharmaceuticals and holds interests in clinical and early-stage companies that develop pharmaceuticals and medical devices. Our lead candidate is Trappsol® Cyclo™ (remibetadex), an investigational therapy for the potential treatment of Niemann-Pick Disease Type C (“NPC”), a rare, fatal and progressive genetic disorder. We have completed the pivotal Phase 3 clinical trial of Trappsol® Cyclo™ and on October 28, 2026 submitted a New Drug Application to the U.S. Food and Drug Administration. We also hold: (i) a majority equity interest in LipoMedix Pharmaceuticals Ltd. (“LipoMedix”), a clinical stage pharmaceutical company; (ii) Barer Institute Inc. (“Barer”), a wholly-owned subsidiary holding equity interests in early stage cancer assets; (iii) a majority equity, and debt, interest in Cornerstone Pharmaceuticals, Inc. (“Cornerstone”), formerly known as Rafael Pharmaceuticals Inc., a cancer metabolism-based therapeutics company; (iv) a majority equity interest in Rafael Medical Devices, LLC (“Rafael Medical Devices”), an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries; and (v) a majority equity interest in Day Three Labs, Inc. (“Day Three”), which empowers third-party manufacturers to bring to market better, cleaner, more precise and predictable versions of their product by utilizing Day Three’s technology and which holds equity and debt interests in two industry related companies. Our primary focus is to obtain FDA approval of Trappsol® Cyclo™, for which we submitted a New Drug Application on October 28, 2026 following the recent completion of Cyclo’s pivotal Phase 3 clinical trial, and, if approved, to bring that product to market. We also evaluate opportunities to expand our investment portfolio through strategic investments, including in therapeutics, that address high unmet medical needs. We continuously evaluate our other holdings to ensure the future focus of our resources is on core assets and specifically the Trappsol® Cyclo™ clinical development and commercialization efforts.
Historically, we owned real estate assets. As of July 31, 2026, we hold a portion of a commercial building in Jerusalem, Israel as our sole remaining real estate asset.
On March 25, 2025, we consummated the Merger (as defined below) with Cyclo whereby Cyclo became a wholly-owned subsidiary. In May 2023, we first invested in Cyclo, a clinical-stage biotechnology company that develops cyclodextrin-based products for the potential treatment of neurodegenerative diseases. Cyclo’s lead drug candidate is Trappsol® Cyclo™ (hydroxypropyl-β-cyclodextrin, IV), a treatment for NPC. NPC is a rare and fatal autosomal recessive genetic disease resulting in disrupted cholesterol metabolism that impacts the brain, lungs, liver, spleen, and other organs. In January 2017, FDA granted Fast Track designation to Trappsol® Cyclo™ for the treatment of NPC. Initial patient enrollment in the U.S. Phase I study commenced in September 2017 and, in May 2020, Cyclo announced Top Line data indicating Trappsol® Cyclo™ was well tolerated in this study. Cyclo has completed its pivotal Phase 3 Clinical Trial evaluating Trappsol® Cyclo™ in Pediatric and Adult Patients with Niemann-Pick Disease, Type C and announced topline data from the study on September 30, 2026. The study did not meet its primary endpoint in the overall population; a prespecified analysis in patients receiving background miglustat and/or leucine therapy demonstrated a statistically significant treatment benefit. On October 28, 2026, Cyclo submitted a New Drug Application (“NDA”) to FDA seeking approval of Trappsol® Cyclo™ for the treatment of the neurovisceral manifestations of NPC in adult and pediatric patients from birth. Within 60 days of receipt, the FDA will determine whether the application is complete and acceptable for filing and, if accepted, whether Priority Review will be granted. If the application is accepted, the FDA will assign a Prescription Drug User Fee Act (PDUFA) target action date. The NDA includes a request for a rare pediatric disease priority review voucher. The United States Adopted Names (“USAN”) Council has assigned the nonproprietary name “remibetadex” to Trappsol® Cyclo™. In addition, on April 16, 2026, Cyclo entered into an exclusive, worldwide, royalty-bearing Patent License Agreement with the Massachusetts Institute of Technology (“MIT”) for certain patent rights relating to small molecules to improve myelination in Alzheimer’s disease and APOE4 carriers, under which Cyclo may develop and commercialize products containing hydroxypropyl-β-cyclodextrin for Alzheimer’s disease.
LipoMedix is a clinical stage Israeli company based in Israel that is focused on the development of a product candidate, Promitil, that holds the potential to be a therapy for cancer based on liposome delivery. As of July 31, 2026, our ownership interest in LipoMedix was approximately
F-8
In 2019, we established Barer, originally as a preclinical cancer metabolism research operation, to focus on developing a pipeline of novel therapeutic compounds, including compounds designed to regulate cancer metabolism with potentially broader application in other indications beyond cancer. Barer was comprised of scientists and academic advisors that are experts in cancer metabolism, chemistry, and drug development. In addition to its own internal discovery efforts, Barer pursued collaborative research agreements and in-licensing opportunities with leading scientists from top academic institutions. Barer’s majority owned subsidiary, Farber Partners, LLC (“Farber”), was formed around one such agreement with Princeton University’s Office of Technology Licensing (“Princeton”) for technology from the laboratory of Dr. Joshua Rabinowitz, in the Department of Chemistry, Princeton University, for an exclusive worldwide license to its SHMT (serine hydroxymethyltransferase) inhibitor program. In November 2022, we resolved to curtail its early-stage development efforts, including pre-clinical research at Barer and have, since that date, ceased almost all of such activity. Since then, we have sought partners for Farber programs and have entered into a license agreement for one of its technologies that is in the pre-clinical research stage with the Ludwig Institute of Cancer Research and have transferred majority ownership of another one of its technologies, SHMT, to a new company, Forme Therapeutics, that is being managed by Dr. Joshua Rabinowitz with the goal of developing SHMT while seeking out external investment and partnerships. Going forward, we expect that Barer will primarily operate as an entity holding interest in these two cancer-focused opportunities.
On March 13, 2024, Cornerstone consummated a restructuring of its outstanding debt and equity interests (the “Cornerstone Restructuring”). As a result of the Cornerstone Restructuring, Rafael became a
In May 2021, we formed Rafael Medical Devices, an orthopedic-focused medical device company developing instruments to advance minimally invasive surgeries. In August 2023, Rafael Medical Devices sold an aggregate
In January 2024, we entered into a series of transactions with Day Three and certain of its shareholders, acquiring a controlling interest in Day Three and subsequently consolidating Day Three’s results (the “Day Three Acquisition”). On March 14, 2025, Day Three Labs Manufacturing (“DTLM”), a majority-owned subsidiary of Day Three, entered into an Asset Purchase Agreement and Licensing Agreement, pursuant to which DTLM sold assets and licensed certain applications of their Unlokt™ technology used in their cannabinoid ingredient manufacturing business in exchange for equity and debt interests in these companies.
The “Company” in these consolidated financial statements refers to Rafael Holdings and its subsidiaries on a consolidated basis.
All wholly and majority-owned subsidiaries and RP Finance, LLC are consolidated with all intercompany transactions and balances eliminated in consolidation. In addition to Rafael Holdings, Inc., the entities included in these consolidated financial statements are as follows:
| Company | Country of Incorporation | Percentage Owned | ||||
| Broad Atlantic Associates, LLC | % | |||||
| IDT R.E. Holdings Ltd. | % | |||||
| Rafael Holdings Realty, Inc. | % | |||||
| Barer Institute, Inc. | %* | |||||
| Hillview Avenue Realty, JV | % | |||||
| Hillview Avenue Realty, LLC | % | |||||
| Rafael Medical Devices, LLC | % | |||||
| Farber Partners, LLC | %* | |||||
| Pharma Holdings, LLC | %** | |||||
| LipoMedix Pharmaceuticals Ltd. | % | |||||
| Altira Capital & Consulting, LLC | % | |||||
| CS Pharma Holdings, LLC | %** | |||||
| Day Three Labs, Inc. | % | |||||
| Cornerstone Pharmaceuticals, Inc. | %** | |||||
| RP Finance, LLC | % | |||||
| Cyclo Therapeutics, LLC (Note 3) | % | |||||
*
**
F-9
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal year 2026 refers to the fiscal year ended July 31, 2026).
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates.
Liquidity and Going Concern
As of July 31, 2026, the Company had a working capital surplus of approximately $
The Company’s existing cash resources are not expected to provide sufficient funds to carry out the Company’s operations through the next twelve months from the issuance of these consolidated financial statements. The ability of the Company to continue as a going concern is dependent upon its ability to continue to successfully raise additional equity or debt financing to fund ongoing operations. While the Company is actively pursuing additional financing, there can be no assurance that such funding will be available on acceptable terms, or at all. If the Company is unable to obtain sufficient capital, it may be required to delay, reduce, or discontinue its clinical development programs or other operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
The accompanying consolidated financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities if the Company is unable to continue as a going concern, and do not include any adjustments that might result from the outcome of this uncertainty.
Concentration of Credit Risk and Significant Customers
The Company routinely assesses the financial strength of its customers. As a result, the Company believes that its accounts receivable credit risk exposure is limited. As of July 31, 2026, two third-party customers and one related-party tenant represented
For the year ended July 31, 2026, one third-party customer, one third-party tenant, and one related-party tenant represented
For the year ended July 31, 2025, one third-party customer, one third-party tenant, and one related-party tenant represented
Major Vendors
Following the Cyclo Merger, one vendor made up
Cash and Cash Equivalents
The Company considers all liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
F-10
Reserve for Receivables
The allowance for credit losses reflects the Company’s best estimate of lifetime credit losses inherent in the accounts receivable balance. The allowance is determined based on known troubled accounts, historical experience and other currently available evidence. Doubtful accounts are written off upon final determination that the trade accounts will not be collected. The computation of this allowance is based on the tenants’ or customers’ payment histories, as well as certain industry or geographic specific credit considerations. If the Company’s estimates of collectability differ from the cash received, then the timing and amount of the Company’s reported revenue could be impacted. The Company did not recognize any credit loss expense during the year ended July 31, 2026 or 2025.
Inventory and Cost of Goods Sold
Inventory consists of VECTR system devices, cyclodextrin products and chemical complexes purchased for resale recorded at the lower of cost (first-in, first-out) or net realizable value. Cost of products sold includes the acquisition cost of the products sold. The Company records a specific reserve for inventory items that are determined to be obsolete. The Company determined no reserve for obsolete inventory was necessary as of July 31, 2026 or July 31, 2025.
Prepaid Clinical Expenses
Prepaid clinical expenses consist of the Company’s active pharmaceutical ingredients and other raw materials for Trappsol® Cyclo™, that is expected to be used in its clinical trial program, recorded at cost. In addition, advance payments for goods or services for future research and development activities are included as prepaid clinical expenses. Prepaid clinical expenses are expensed as research and development costs as the goods are delivered or the related services are performed. Prepaid clinical expenses expected to be utilized beyond one year from the balance sheet date are classified as non-current assets.
Convertible Notes Receivable
The Company holds convertible notes receivable that are classified as available-for-sale as defined under Accounting Standards Codification (“ASC”) 320, Investments - Debt and Equity Securities (“ASC 320”), and are recorded at fair value. Subsequent changes in fair value are recorded in accumulated other comprehensive income.
The fair value of these convertible notes receivable are estimated using a scenario-based analysis based on the probability-weighted present value of future investment returns, considering each of the possible outcomes available to the Company, including cash repayment, equity conversion and collateral transfer scenarios. Estimating the fair value of the convertible note requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors.
Variable Interest Entities
In accordance with ASC 810, Consolidation (“ASC 810”), the Company assesses whether it has a variable interest in legal entities in which it has a financial relationship and, if so, whether or not those entities are variable interest entities (“VIEs”). For those entities that qualify as VIEs, ASC 810 requires the Company to determine if the Company is the primary beneficiary of the VIE, and if so, to consolidate the VIE.
If an entity is determined to be a VIE, the Company evaluates whether the Company is the primary beneficiary. The primary beneficiary analysis is a qualitative analysis based on power and economics. The Company consolidates a VIE if both power and benefits belong to the Company – that is, the Company (i) has the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance (power), and (ii) has the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE (benefits). The Company consolidates VIEs whenever it is determined that the Company is the primary beneficiary.
Investments
The method of accounting applied to long-term investments in equity securities involves an evaluation of the significant terms of each investment that explicitly grant or suggest evidence of control or influence over the operations of the investee and also include the identification of any variable interests in which the Company is the primary beneficiary. The consolidated financial statements include the Company’s controlled affiliates. All significant intercompany accounts and transactions between the consolidated affiliates are eliminated.
Investments in equity securities may be accounted for using (i) the fair value option, if elected, (ii) fair value through earnings if fair value is readily determinable, or (iii) for equity investments without readily determinable fair values, the measurement alternative to measure at cost adjusted for any impairment and observable price changes, as applicable. The election to use the measurement alternative is made for each eligible investment.
Prior to the Merger, as defined in Note 3, the Company elected the fair value option to account for its investment in Cyclo, as the Company had significant influence over Cyclo’s management. The fair value option is irrevocable once elected. The Company measured its initial investment in Cyclo at fair value and recorded all subsequent changes in fair value in earnings in the consolidated statements of operations and comprehensive loss. The Company believed the fair value option best reflected the underlying economics of the investment. Prior to the Merger, the Company had determined that Cyclo was a VIE, however, the Company had determined that it was not the primary beneficiary as the Company did not have the power to direct the activities of Cyclo that most significantly impact Cyclo’s economic performance. See Note 4, “Investment in Cyclo Therapeutics, LLC”.
F-11
Investments in which the Company does not have the ability to exercise significant influence over operating and financial matters are accounted for in accordance with ASC 321, Investments – Equity Securities. Investments without readily determinable fair values are accounted for using the measurement alternative which is at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The Company periodically evaluates its investments for impairment. If the Company determines that fair value is less than the investment’s carrying value, then an impairment loss is recorded in the accompanying consolidated statements of operations and comprehensive loss.
At July 31, 2026, the Company held an investment of $
Investments - Hedge Funds
The Company accounted for its previously held investments in hedge funds in accordance with ASC 321, Investments – Equity Securities. Unrealized gains and losses resulting from the change in fair value of these securities are included in unrealized loss on investments - Hedge Funds in the consolidated statements of operations and comprehensive loss. During fiscal year 2025, the Company withdrew its remaining balance in Hedge Fund Investments.
Corporate Bonds and US Treasury Bills
The Company’s marketable securities are considered to be available-for-sale as defined under ASC 320, Investments - Debt and Equity Securities, and are recorded at fair value. Unrealized gains or losses are included in accumulated other comprehensive loss. Realized gains or losses are determined using the specific identification method and are released from accumulated other comprehensive loss and into earnings on the consolidated statements of operations and comprehensive loss. The Company did not hold any corporate bonds or US Treasury bills at July 31, 2026 or July 31, 2025.
Long-Lived Assets
Equipment, buildings, leasehold improvements and furniture and fixtures are recorded at cost less accumulated depreciation and amortization.
| Classification | Years | |
| Building and improvements | ||
| Tenant improvements | ||
| Machinery and equipment | ||
| Other (primarily office equipment, furniture and fixtures) |
Properties
The Company owns a portion of the 6th floor of a building located at 5 Shlomo Halevi Street, in Jerusalem, Israel.
Business Combinations
The purchase price for acquisitions are allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed valuations that use information and assumptions provided by management, including expected future cash flows. The Company allocates any excess purchase price over the fair value of the identifiable net assets and liabilities acquired to goodwill. Identifiable intangible assets with finite lives are amortized over their useful lives. Acquisition-related costs, including advisory, legal, accounting, valuation and other costs, are expensed in the periods in which the costs are incurred. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
Impairment of Long-Lived Assets
In accordance with ASC 360, Property, Plant and Equipment, the Company assesses the recoverability of long-lived assets, which include property and equipment and finite-lived intangible assets, whenever significant events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. If indicators of impairment exist, projected future undiscounted cash flows associated with the asset group are compared to its carrying amount to determine whether the asset group’s carrying value is recoverable. Any resulting impairment is recorded as a reduction in the carrying value of the related asset in excess of fair value and a charge to operating results.
For the years ended July 31, 2026 and 2025, the Company determined there was no impairment of its long-lived assets.
F-12
Goodwill
The Company assesses goodwill for impairment on an annual basis or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. The Company regularly monitors current business conditions and other factors including, but not limited to, adverse industry or economic trends and lower projections of profitability that may impact future operating results. The process of evaluating the potential impairment of goodwill requires significant judgment. In performing the Company’s annual goodwill impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of any of the Company’s reporting units is less than its carrying amount, including goodwill. In performing the qualitative assessment, the Company considers certain events and circumstances specific to the reporting unit and the entity as a whole, such as macroeconomic conditions, industry and market considerations, overall financial performance and cost factors when evaluating whether it is more likely than not that the fair value of any of the reporting units is less than its carrying amount. The Company is also permitted to bypass the qualitative assessment and proceed directly to the quantitative test. If the Company chooses to undertake the qualitative assessment and concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company would then proceed to the quantitative impairment test. In the quantitative assessment, the Company compares the fair value of the reporting unit to its carrying amount, which includes goodwill. If the fair value exceeds the carrying value, no impairment loss exists. If the fair value is less than the carrying amount, a goodwill impairment loss is measured and recorded.
The Company assesses goodwill for impairment on an annual basis as of May 31, or more frequently when events and circumstances occur indicating that recorded goodwill may be impaired.
For the year ended July 31, 2026, the Company determined there was no impairment of goodwill.
During the year ended July 31, 2025, due to reductions in certain operations including a layoff within the Company’s Infusion Technology segment, the Company concluded that a triggering event occurred under ASC 350, Intangibles - Goodwill and Other (“ASC 350”), that required the Company to assess if there was an impairment. In accordance with ASC 350, the Company performed a quantitative goodwill impairment test, which indicated that the carrying amount of the reporting unit exceeded the estimated fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. As a result, the Company recognized a goodwill impairment charge of $
In-Process Research and Development
The Company has acquired in-process research and development (“IPR&D”) intangible assets pursuant to a business combination. These IPR&D assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts. These IPR&D assets are not amortized but reviewed for impairment analysis on an annual basis on May 31, or when events or changes in the business environment indicate the carrying value may be impaired. The process of evaluating the potential impairment of IPR&D requires significant judgment. In performing the Company’s annual IPR&D impairment test, the Company is permitted to first assess qualitative factors to determine whether it is more likely than not that the fair value of any of the Company’s IPR&D assets is less than its carrying amount. In performing the qualitative assessment, the Company considers the results of clinical trials, among other factors, when evaluating whether the IPR&D is impaired.
Acquired IPR&D pursuant to an asset acquisition that has no alternative future use is expensed immediately as a component of in-process research and development expense in the consolidated statements of operations and comprehensive loss.
For the years ended July 31, 2026 and 2025, the Company determined there was no impairment of IPR&D.
F-13
Clinical Trial Accruals
The Company estimates the clinical trial accrual related to its obligations for services performed on their behalf by third-party vendors. The amount recorded for the clinical trial accrual represents the Company’s evaluation of the progress to completion of specific tasks and the facts and circumstances known at the time of the estimate as it relates to clinical trial activities.
Revenue Recognition
The Company applies the five-step approach as described in ASC 606, Revenue from Contracts with Customers, which consists of the following: (i) identifying the contract with a customer, (ii) identifying the performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the performance obligations in the contract, and (v) recognizing revenue when (or as) the entity satisfies a performance obligation. The Company disaggregates its revenue by source within its consolidated statements of operations and comprehensive loss.
Infusion Technology Revenue:
The Company’s Infusion Technology revenue is derived from Day Three’s Unlokt™ technology which is recognized in accordance with ASC 606. Day Three provides manufacturing services where it uses proprietary technology, equipment and processes to manufacture water-soluble product for their customers at their customer facilities. Day Three is acting as a principal in the transaction, as it is primarily responsible for fulfillment and acceptability of the services. Infusion Technology revenue is recognized over time as the Company’s performance obligation is satisfied, which is generally within a 30-day period. The criterion in ASC 606-10-25-27, that the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, is met given that the customer is controlling the product as Day Three is performing the service on the customer’s premises. Revenue is recognized over the period of performance using an output method where the number of grams produced is the output, as such method best depicts the Company’s efforts to satisfy the performance obligation. Customer billings in advance of revenue recognition result in contract liabilities. As of July 31, 2026 and 2025, there were no contract liabilities recognized on the consolidated balance sheets related to Infusion Technology revenue.
The cost of Infusion Technology revenue includes costs related to supplies, materials, production labor and travel costs.
Rental Revenue:
As an owner and operator of real estate, the Company derives rental revenue from leasing office and parking space to tenants at its property. In addition, the Company earns revenue from recoveries from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs. Revenue from recoveries from tenants is recorded together with rental income on the consolidated statements of operations and comprehensive loss which is also consistent with the guidance under ASC 842, Leases.
Contractual rental revenue is reported on a straight-line basis over the terms of the respective leases. Accrued rental income, included within other assets on the consolidated balance sheets, represents cumulative rental income earned in excess of rent payments received pursuant to the terms of the individual lease agreements.
Product Revenue:
The majority of the Company’s product revenue is generated in North America from companies in the pharmaceutical industry that are manufacturing or conducting research. In other countries, the Company sells products primarily to wholesale distributors and other third-party distribution partners.
Revenues from product sales are recognized when the customer obtains control of the product, which occurs at a point in time, typically upon delivery to the customer. The Company expenses incremental costs of obtaining a contract as and when incurred if the expected amortization period of the asset that the Company would have recognized is one year or less or the amount is immaterial. Shipping and handling costs performed after a customer obtains control of the product are treated as a fulfillment cost. The Company has identified one performance obligation in its contracts with customers which is the delivery of product. The transaction price is recognized in full when the product is delivered to the customer, which is the point at which the Company has satisfied its performance obligation.
F-14
Research and Development Costs
Research and development costs and expenses incurred by consolidated entities consist primarily of salaries and related personnel expenses, stock-based compensation, fees paid to external service providers, laboratory supplies, costs for facilities and equipment, license costs and other costs for research and development activities. Research and development expenses are recorded in operating expenses in the period in which they are incurred. Estimates have been used in determining the liability for certain costs where services have been performed but not yet invoiced. The Company monitors levels of performance under each significant contract for external service providers, including the extent of patient enrollment and other activities through communications with the service providers to reflect the actual amount expended.
Contingent milestone payments associated with acquiring rights to intellectual property are recognized when probable and estimable. These amounts are recorded as research and development expense when there is no alternative future use associated with the intellectual property. There were no such payment expenses during the years ended July 31, 2026 and 2025.
Stock-Based Compensation
The Company accounts for stock-based compensation using the provisions of ASC 718, Stock-Based Compensation, which requires the recognition of the fair value of stock-based compensation. Stock-based compensation is estimated at the grant date based on the fair value of the awards. The Company accounts for forfeitures of grants as they occur. Compensation cost for awards is recognized using the straight-line method over the vesting period. Stock-based compensation is included in general and administrative expense and research and development expense in the consolidated statements of operations and comprehensive loss.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.
The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The Company determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more likely than not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the consolidated financial statements. The tax position is measured at the largest amount of benefit that is greater than
The Company classifies interest and penalties on income taxes as a component of income tax expense, if any.
Contingencies
The Company accrues for loss contingencies when both (a) information available prior to issuance of the consolidated financial statements indicates that it is probable that a liability had been incurred at the date of the consolidated financial statements and (b) the amount of loss can reasonably be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company records its best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible that a loss may have been incurred.
F-15
Fair Value Measurements
Fair value of financial and non-financial assets and liabilities is defined as an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:
| ● | Level 1 - quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2 - quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or |
| ● | Level 3 - unobservable inputs for the asset or liability, such as discounted cash flow models or valuations. |
A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.
Functional Currency
The U.S. Dollar is the functional currency of our entities operating in the United States. The functional currency for our subsidiaries operating outside of the United States is the New Israeli Shekel, or NIS, the currency of the primary economic environment in which such subsidiaries primarily expend cash. The Company translates those subsidiaries’ financial statements into U.S. Dollars. The Company translates assets and liabilities at the exchange rate in effect as of the consolidated financial statement date, and translates accounts from the consolidated statements of operations and comprehensive loss using the weighted average exchange rate for the period. The Company reports gains and losses from currency exchange rate changes related to intercompany receivables and payables, which are not of a long-term investment nature, as part of other comprehensive loss.
Warrants
The Company accounts for warrants to purchase its Class B common stock as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants considering the authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants meet the definition of a liability pursuant to ASC 480 and meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and satisfy additional conditions for equity classification. Equity classified warrants are measured at fair value at their issuance date in accordance with ASC 820, Fair Value Measurement. Warrants that are liability-classified are measured at fair value at each reporting date in accordance with the guidance in ASC 820, with any subsequent changes in fair value recognized in the statement of operations in the period of change.
Loss Per Share
Basic loss per share is computed by dividing net loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted loss per share is determined in the same manner as basic loss per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive.
Recently Adopted Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The Company adopted the standard prospectively during the year ended July 31, 2026. The adoption resulted in more detailed income tax disclosures which are included in Note 16 - Income Taxes.
F-16
Recently Issued Accounting Standards Not Yet Adopted
On November 4, 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (“DISE”), which requires disaggregated disclosure of income statement expenses for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the consolidated financial statements. ASU 2024-03 is effective for all public business entities for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
NOTE 3 - CYCLO MERGER
On March 25, 2025, the Company, Cyclo, Tandem Therapeutics, Inc., a wholly-owned subsidiary of the Company (“First Merger Sub”), and Tandem Therapeutics, LLC, a wholly-owned subsidiary of the Company (“Second Merger Sub”), completed a business combination transaction pursuant to which: (i) First Merger Sub merged with and into Cyclo, with Cyclo being the surviving entity (the “First Merger”), and (ii) immediately following the First Merger, Cyclo merged with and into Second Merger Sub, with Second Merger Sub being the surviving entity (the “Surviving Entity”) of the subsequent merger (the “Second Merger” and together with the First Merger, the “Merger”). As part of the Merger:
a) The Company issued
b) All compensatory options (the “Historical Cyclo Options”) to purchase Cyclo Common Stock that were outstanding immediately prior to the Merger were converted into options to acquire, on substantially similar terms and conditions, a number of shares, adjusted based on the Exchange Ratio, of the Company’s Class B common stock (rounded down to the nearest whole share), at an adjusted exercise price per share based upon the Exchange Ratio (rounded up to the nearest whole cent) (the “Rollover Options”);
c) Unless otherwise provided for in outstanding warrant agreements, all outstanding warrants to purchase Cyclo Common Stock (the “Cyclo Warrants”), other than those held by the Company (the “Rafael-Owned Cyclo Warrants”, as more fully described in Note 4, which were cancelled), converted into warrants to purchase
d) The outstanding principal and accrued interest on the Cyclo Convertible Notes, as defined in Note 5, were forgiven.
Upon consummation of, and as a result of the Merger, the Company became the primary beneficiary of Cyclo, a VIE that constitutes a business. In accordance with ASC 810, the initial consolidation of a VIE that is a business is a business combination and shall be accounted for in accordance with the provisions in ASC 805, Business Combinations (“ASC 805”).
In accordance with the guidance for a step acquisition in ASC 805, Rafael recognized goodwill on the initial consolidation of Cyclo as of the Closing Date of the Merger, measured as the excess of (a) the sum of (i) the fair value of consideration transferred, (ii) the fair value of any noncontrolling interests in the acquiree, and (iii) the fair value of previously held equity interests, over (b) the net amount of the identifiable assets acquired and liabilities assumed measured in accordance with ASC 805.
F-17
The following table presents, in accordance with ASC 805, the sum of (i) the fair value of consideration transferred, (ii) the fair value of any noncontrolling interests in the acquiree, and (iii) the fair value of previously held equity interests (amounts in thousands):
| Fair value of consideration | ||||
| (i) Fair value of Rafael common shares issued1 | $ | |||
| Fair value of Rollover Options2 | ||||
| Fair value of Replacement Warrants3 | ||||
| Cash paid to extinguish warrants4 | ||||
| Fair value of the Cyclo Convertible Notes which were forgiven5 | ||||
| (ii) Fair value of noncontrolling interests | — | |||
| (iii) Fair value of previously held equity interests6 | ||||
| Total consideration | $ | |||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
F-18
The following table presents the fair values of the identifiable assets acquired and liabilities assumed and goodwill recognized, measured in accordance with ASC 805 (amounts in thousands):
| Assets acquired and liabilities assumed | ||||
| Cash | $ | |||
| Accounts receivable | ||||
| Inventory | ||||
| Prepaid expenses and other current assets | ||||
| Property and equipment | ||||
| Prepaid expenses, noncurrent | ||||
| Other assets | ||||
| Other receivable | ||||
| Intangible assets - customer relationships | ||||
| Acquired In Process Research & Development (IPR&D) | ||||
| Accounts payable | ( | ) | ||
| Accrued expenses | ( | ) | ||
| Other current liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Other liabilities | ( | ) | ||
| Total identifiable net assets acquired | $ | |||
| Goodwill | $ | |||
The Company incurred transaction costs of $
To value the IPR&D and Customer Relationships, the Company utilized the Multi-Period Excess Earnings Method (“MPEEM”), under the Income Approach. The method considers the present value of excess earnings generated by Cyclo’s IPR&D and customers after taking into account the cost to realize the revenue, charges for contributory assets and an appropriate discount rate to reflect the time value and risk associated with the invested capital. IPR&D acquired represents Cyclo’s research and development activities related to its lead drug candidate Trappsol® Cyclo™ (hydroxypropyl-β-cyclodextrin, IV) as a treatment for NPC. The acquired Customer Relationships are related to Cyclo’s Specialty Chemicals business. The identifiable intangible assets associated with Customer Relationships are being amortized on a straight-line basis over their estimated useful lives of eight years. IPR&D is considered an indefinite lived asset.
The Merger has been treated as a tax-free reorganization and therefore Cyclo’s tax basis in the assets acquired and liabilities assumed will carry over. Accordingly, the Company recognized net deferred tax liabilities associated with the Merger of $
The goodwill acquired, which is not tax deductible, represents the excess of the purchase price over the fair values of the net identifiable assets of the business acquired.
Pro Forma Financial Information
The following pro forma condensed combined financial information has been prepared to present the combination on a pro forma basis of the historical consolidated financial statements of Rafael and the historical financial statements of Cyclo, after giving effect to the Merger, as if the Merger had occurred on August 1, 2023.
The pro forma results of operations are presented for informational purposes only and are not indicative of the results of operations that would have been achieved if the Merger with Cyclo had taken place on the date noted above, or of results that may occur in the future.
| Year Ended July 31, | ||||
| (in thousands) | 2025 | |||
| Revenue | $ | |||
| Loss from operations | ( | ) | ||
| Net loss attributable to Rafael common stockholders | ( | ) | ||
F-19
NOTE 4 – INVESTMENT IN CYCLO THERAPEUTICS, LLC.
On December 23, 2024, Rafael exercised its discretionary conversion option under the Cyclo Convertible Notes (refer to Note 5) converting $
Prior to the Merger, William Conkling, who served as Rafael’s CEO, was a member of Cyclo’s Board of Directors.
Prior to the Merger, the Company had determined that Cyclo was a VIE; however, the Company determined that it was not the primary beneficiary as the Company did not have the power to direct the activities of Cyclo that most significantly impacted Cyclo’s economic performance and, therefore, was not required to consolidate Cyclo.
Prior to the Merger, Rafael’s ownership of
The Company elected to account for its investment in Cyclo under the fair value option, with subsequent changes in fair value recognized as Unrealized (gain) loss on investment - Cyclo in the consolidated statements of operations and comprehensive loss. During the year ended July 31, 2025, the Company recognized unrealized losses of $
On March 25, 2025, Rafael consummated the Merger with Cyclo. As part of the Merger, Rafael’s Prior Investment in Cyclo represented previously held equity interests in Cyclo that were included in the purchase consideration at their fair values as of the closing of the Merger. See Note 3 for additional information regarding the Merger.
NOTE 5 – CONVERTIBLE NOTES RECEIVABLE, DUE FROM CYCLO THERAPEUTICS, LLC.
On June 11, 2024, the Company entered into a Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
On July 16, 2024, the Company entered into a First Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
On August 21, 2024, Rafael entered into a Second Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
F-20
On September 9, 2024, Rafael entered into a Third Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
On October 8, 2024, Rafael entered into a Fourth Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
Also on October 8, 2024, Rafael entered into an Amendment to Convertible Promissory Notes whereby the maturity dates of the Cyclo Convertible Note I and the Cyclo Convertible Note II were amended to be December 21, 2024, such that each of the Cyclo Convertible Notes that were outstanding as of October 8, 2024 had a maturity date of
On November 7, 2024, the Company entered into a Fifth Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
On December 5, 2024, the Company entered into a Sixth Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
On December 21, 2024, Rafael entered into an Amendment to Convertible Promissory Notes whereby the maturity date of each of the Cyclo Convertible Notes was amended to be
On December 23, 2024, Rafael exercised its discretionary conversion option under the Cyclo Convertible Notes, converting $
On January 3, 2025, Rafael entered into a Seventh Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
F-21
On February 4, 2025, Rafael entered into an Eighth Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
Also on February 4, 2025, Rafael entered into an Amendment to Convertible Promissory Notes whereby the maturity date of each of the Cyclo Convertible Notes was amended to be March 31, 2025.
On March 6, 2025, the Company entered into a Ninth Amended and Restated Note Purchase Agreement with Cyclo, pursuant to which Cyclo issued and sold a convertible promissory note in the principal amount of $
The Cyclo Convertible Note I, the Cyclo Convertible Note II, the Cyclo Convertible Note III, the Cyclo Convertible Note IV, the Cyclo Convertible Note V, the Cyclo Convertible Note VI, the Cyclo Convertible Note VII, the Cyclo Convertible Note VIII, the Cyclo Convertible Note IX and the Cyclo Convertible Note X are collectively referred to as the “Cyclo Convertible Notes”.
Prior to the Merger with Cyclo, the Cyclo Convertible Notes were required to be accounted for at fair value pursuant to ASC 825, Financial Instruments (“ASC 825”), at their respective dates of issuance and in subsequent reporting periods, as the Company elected to account for its prior investment in Cyclo Common Stock under the fair value option. The Company had elected to present interest income from the Cyclo Convertible Notes, together with the changes in fair value of the Cyclo Convertible Notes in unrealized gain/loss on convertible notes due from Cyclo on the consolidated statements of operations and comprehensive loss.
On March 25, 2025, Rafael consummated the Merger with Cyclo. As part of the Merger, the outstanding principal and accrued interest on the Cyclo Convertible Notes were forgiven and their fair values as of the Closing Date of the Merger, which equaled the outstanding principal and accrued interest through that date, is included in the purchase consideration of the Merger. See Note 3 for additional information regarding the Merger.
NOTE 6 – INTERCOMPANY LINE OF CREDIT
On February 3, 2020, Cornerstone entered into a Line of Credit with RP Finance (“RPF Line of Credit”) which provided a revolving commitment of up to $
The Company owns
F-22
RP Finance had funded a cumulative total of $
On March 13, 2024, Cornerstone and RP Finance amended the RPF Line of Credit agreement. to (i) extend the maturity date of the approximately $
The Company assumed Cornerstone’s liability to RP Finance under the Amended RPF Line of Credit at its fair value in the Cornerstone Acquisition and acquired RP Finance’s receivable from Cornerstone under the Amended RPF Line of Credit at its fair value in the RP Finance Consolidation. These intercompany amounts are eliminated in consolidation. The Company will accrete the fair value of Cornerstone’s liability and RP Finance’s receivable under the Amended RPF Line of Credit to the amount due on May 31, 2028 as interest expense and interest income, respectively, in the consolidated statements of operations and comprehensive loss over the estimated term of the Amended RPF Line of Credit.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
As of July 31, 2026, Cornerstone had $
The outstanding Series C Convertible Notes are convertible, at the option of the holders, in certain equity financings consummated by Cornerstone or into equity securities and warrants to purchase equity securities of Cornerstone.
In the event of a liquidation event of Cornerstone prior to the repayment or conversion of the Series C Convertible Notes, the holders are entitled to receive either (a) an amount equal to the outstanding principal and interest due, or (b) the pro rata per share amount of the proceeds of such liquidation the holders would be entitled to had they exercised their conversion right.
Of the Series C Convertible Notes outstanding as of July 31, 2026:
| (a) | Series C Convertible Notes with an aggregate outstanding principal amount of $ |
| (b) | one outstanding Series C Convertible Note with a principal amount of $ |
F-23
During the year ended July 31, 2026, the Company entered into settlement agreements with four holders of Series C Convertible Notes. Under these agreements, the Company settled aggregate principal and interest balances of $
During the year ended July 31, 2026, the Company recorded $
During the year ended July 31, 2025, the Company recorded $
NOTE 8 - ACCRUED EXPENSES
Accrued expenses consist of the following:
| July 31, 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Accrued expenses, current | ||||||||
| Accrued severance expenses | $ | $ | ||||||
| Accrued bonuses | ||||||||
| Accrued professional fees | ||||||||
| Accrued interest | ||||||||
| Accrued clinical trial expense | ||||||||
| Other accrued expenses | ||||||||
| Total accrued expenses, current | ||||||||
| Creditor payable, noncurrent | — | |||||||
| Accrued severance, noncurrent | — | |||||||
| Total accrued expenses, noncurrent | — | |||||||
| Total accrued expenses | $ | $ | ||||||
Creditor Payable
In the Cornerstone Acquisition, Rafael assumed a forbearance agreement, signed by Cornerstone on June 2, 2023, with a major creditor (the “Creditor”) of Cornerstone to which Cornerstone owed approximately $
Following the payment of the initial $
F-24
As part of the Cornerstone Acquisition, the creditor payable was recognized by the Company as an assumed liability and measured at its fair value of $
On January 30, 2026, the Company entered into a debt settlement agreement with the Creditor to settle the outstanding creditor payable totaling $
NOTE 9 – CONVERTIBLE NOTES RECEIVABLE
On March 8, 2024, Day Three entered into a convertible note subscription agreement with a third-party company, Steady State LLC. Steady State LLC promises to pay Day Three $
In March 2025, Day Three Labs Manufacturing received a convertible promissory note with a principal amount of $
The Company’s convertible notes receivable are classified as available-for-sale and recorded at fair value (see Note 10).
NOTE 10 – FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:
| ● | Level 1 - quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2 - quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or |
| ● | Level 3 - unobservable inputs for the asset or liability, such as discounted cash flow models or valuations. |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
F-25
The Company’s assets required to be measured at fair value on a recurring basis and where they are classified within the fair value hierarchy as of July 31, 2026 and July 31, 2025 are as follows:
| July 31, 2026 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | (in thousands) | |||||||||||||||
| Convertible notes receivable classified as available-for-sale | $ | — | $ | — | $ | $ | ||||||||||
| Total | $ | — | $ | — | $ | $ | ||||||||||
| July 31, 2025 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Assets: | (in thousands) | |||||||||||||||
| Convertible notes receivable classified as available-for-sale | — | — | ||||||||||||||
| Total | $ | — | $ | — | $ | $ | ||||||||||
As of July 31, 2026 and July 31, 2025, the Company did not have any liabilities measured at fair value on a recurring basis.
The following table summarizes the changes in the fair value of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| Year Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Balance, beginning of period | $ | $ | ||||||
| Withdrawal from Hedge Fund Investments | — | ( | ) | |||||
| Unrealized loss on Cyclo Warrants | — | ( | ) | |||||
| Funding of Cyclo Convertible Notes | — | |||||||
| Change in fair value of Cyclo Convertible Notes | — | ( | ) | |||||
| Conversion of Cyclo Convertible Note | — | ( | ) | |||||
| Forgiveness of Cyclo Convertible Notes in the Cyclo Merger | — | ( | ) | |||||
| Issuance of new convertible notes receivable | — | |||||||
| Change in fair value of convertible notes receivable classified as available-for sale | ||||||||
| Balance, end of period | $ | $ | ||||||
Available-for-sale securities classified as Level 3 include convertible notes receivable which may not be based on readily observable data inputs. The availability of observable inputs can vary and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security. The fair value of these assets is estimated using a scenario-based analysis based on the probability-weighted present value of future investment returns, considering each of the possible outcomes available to us, including cash repayment, equity conversion and collateral transfer scenarios. Estimating the fair value of the convertible notes receivable requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Therefore, these assets are classified as Level 3.
Fair Value of Other Financial Instruments
The estimated fair value of the Company’s other financial instruments was determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting these data to develop estimates of fair value. Consequently, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange.
The Company’s financial instruments include trade accounts receivable, trade accounts payable and due from related parties. The recorded carrying amounts of accounts receivable, accounts payable and due to related parties approximate their fair value due to their short-term nature.
F-26
NOTE 11 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
| July 31, 2026 | July 31, 2025 | |||||||
| (in thousands) | ||||||||
| Accounts receivable - third party | $ | $ | ||||||
| Accounts receivable - related party | ||||||||
| Less allowance for credit losses | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
NOTE 12 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
| July 31, 2026 | July 31, 2025 | |||||||
| (in thousands) | ||||||||
| Building and improvements | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Other | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Other property and equipment consist of other equipment and miscellaneous computer hardware.
Depreciation and amortization expense pertaining to property and equipment was approximately $
NOTE 13 - GOODWILL AND INTANGIBLE ASSETS
Impairment
The Company assesses goodwill and indefinite-lived intangible assets, including IPR&D, for impairment at least annually at May 31, or more frequently if events or changes in the business environment indicate the carrying value may be impaired. The Company assesses the recoverability of long-lived assets, which include property and equipment and finite-lived intangible assets, whenever significant events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable.
During the year ended July 31, 2025, the Company identified a triggering event that required an impairment test for its long-lived assets and goodwill balances within its Infusion Technology reporting unit in accordance with ASC 360 and ASC 350, respectively. The triggering event was identified due to reductions in certain operations including a layoff within the Company’s Infusion Technology segment. The Company performed an interim impairment analysis of the Infusion Technology reporting unit as of November 30, 2024.
Under ASC 360, the Company performed a recoverability test for its long-lived assets. The carrying amount of the long-lived assets was compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. Based on this assessment, the Company determined that the carrying amount of its long-lived assets was recoverable, and no impairment was recognized.
In accordance with ASC 350 the Company performed a quantitative goodwill impairment test that utilized a combination of an income and market approach to assess the fair value of the reporting unit as of November 30, 2024. The income approach utilized a discounted cash flow model, considering projected future cash flows (including timing and profitability), discount rate reflecting the risk inherent in future cash flows, and perpetual growth rate, while the guideline public company market approach used guideline public company revenue multiples from a selection of comparable public companies. The Company determined that the carrying amount of the reporting unit exceeded the estimated fair value of the reporting unit, indicating that the goodwill of the reporting unit was impaired. The Company recorded the impairment charge of $
F-27
Goodwill
The following is a summary of goodwill by reportable segment as of July 31, 2026 and July 31, 2025:
| Healthcare | Real Estate | Infusion Technology | Consolidated | |||||||||||||
| (in thousands) | ||||||||||||||||
| Balance as of July 31, 2025 | $ | $ | — | $ | — | $ | ||||||||||
| Balance as of July 31, 2026 | $ | $ | — | $ | — | $ | ||||||||||
IPR&D
The Company has acquired in-process research and development intangible assets pursuant to a business combination. These IPR&D assets are considered indefinite-lived intangible assets until completion or abandonment of the associated research and development efforts.
The following is a summary of in-process research and development as of July 31, 2026 and July 31, 2025:
| (in thousands) | ||||
| Balance as of July 31, 2025 | $ | |||
| Balance as of July 31, 2026 | $ | |||
Intangible assets
The following is a summary of intangible assets at July 31, 2026:
| Weighted average remaining useful life (years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||
| (in thousands) | ||||||||||||||
| Customer Relationships | $ | $ | ( | ) | $ | |||||||||
| Total Intangible Assets | $ | $ | ( | ) | $ | |||||||||
F-28
The following is a summary of intangible assets at July 31, 2025:
| Weighted average remaining useful life (years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||
| (in thousands) | ||||||||||||||
| Customer Relationships | $ | $ | ( | ) | $ | |||||||||
| Total Intangible Assets | $ | $ | ( | ) | $ | |||||||||
Amortization expense for the next five years and thereafter for intangible assets is estimated to be as follows for years ending:
| Year Ending July 31, | ( in thousands) | |||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Thereafter | ||||
| Total | $ | |||
Amortization of intangible assets totaled $
NOTE 14 – LOSS PER SHARE
Basic loss per share is computed by dividing net loss attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted loss per share includes potentially dilutive securities such as stock options, unvested restricted stock, warrants to purchase common stock and other convertible instruments unless the result of inclusion would be anti-dilutive.
The following table summarizes the Company’s potentially dilutive securities which have been excluded from the calculation of dilutive loss per share as their effect would be anti-dilutive:
| Year Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| Shares issuable upon exercise of stock options | ||||||||
| Shares issuable upon vesting of restricted stock | ||||||||
| Shares issuable upon exercise of warrants | ||||||||
Restricted stock may be granted to directors, officers, employees, or consultants of the Company and are subject to service-based vesting conditions. Non-vested restricted stock is excluded from the computation of basic loss per share, as the underlying shares are not considered outstanding until the applicable vesting conditions have been satisfied. As of July 31, 2026 and 2025, the Company had
F-29
The diluted loss per share computation equals basic loss per share for the years ended July 31, 2026 and 2025, because the Company had a net loss in both such periods and the impact of the assumed vesting of restricted shares, exercise of stock options and exercise of warrants would have been anti-dilutive.
The following table summarizes the basic and diluted loss per share calculations (in thousands, except for share and per share amounts):
| Year Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) attributable to noncontrolling interests | ( | ) | ||||||
| Net loss attributable to Rafael Holdings, Inc. | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted average shares outstanding | ||||||||
| Loss per share attributable to common stockholders | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
NOTE 15 – RELATED PARTY TRANSACTIONS
IDT Corporation
IDT Corporation (“IDT”), a related party through common ownership and some common members of management, has historically maintained a due to/from balance that relates to cash advances for investments, loan repayments, charges for services provided to the Company by IDT and payroll costs for the Company’s personnel that were paid by IDT as the relevant persons were also providing services to IDT. IDT billed the Company approximately $
IDT currently leases approximately
Related Party Rental Income
The Company leased space to related parties (including IDT Corporation - see above) which represented approximately
Howard S. Jonas, Chairman of the Board, Chief Executive Officer
On May 6, 2025, the Company entered into a Standby Purchase Agreement with Howard S. Jonas. The agreement was entered into in connection with a $
Following the expiration of the Rights Offering on June 4, 2025, certain related parties of Howard S. Jonas purchased
F-30
NINA Medical Ltd.
On September 21, 2025, the Company entered into the Second Series Seed Preferred Share Purchase Agreement with NINA Medical Ltd., pursuant to which the Company invested $
The Seed Preferred Shares are convertible at the holder’s option into ordinary shares without additional consideration and will automatically convert into ordinary shares upon a qualified IPO or upon the affirmative vote or written consent of the majority of the holders of preferred shares. Howard S. Jonas holds an indirect investment in Nina. For so long as these combined investments (that of the Company and Howard S. Jonas) represent more than
On December 25, 2025, the Company invested $
Subsequent to year-end, on August 11, 2026, the Company invested $
NOTE 16 – INCOME TAXES
The components of loss before income taxes are as follows:
| For the Years Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Domestic | $ | ( | ) | $ | ( | ) | ||
| Foreign | ( | ) | ( | ) | ||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
Benefit from income taxes consisted of the following:
| For the Years Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Current: | ||||||||
| Foreign | $ | $ | — | |||||
| Federal | — | — | ||||||
| State | ( | ) | ||||||
| Total current expense (benefit) | ( | ) | ||||||
| Deferred: | ||||||||
| Foreign | — | — | ||||||
| Federal | ( | ) | ( | ) | ||||
| State | ( | ) | ( | ) | ||||
| Total deferred benefit | ( | ) | ( | ) | ||||
| Benefit from income taxes | $ | ( | ) | $ | ( | ) | ||
F-31
The reconciliation between the Company’s effective tax rate on loss before income taxes and the statutory tax rate for the year ended July 31, 2026 is as follows:
| For the Year Ended July 31, 2026 | ||||||||
| $ | % | |||||||
| (in thousands) | ||||||||
| U.S. federal income tax at statutory rate | $ | ( | ) | ( | )% | |||
| Nontaxable/Nondeductible items | ( | ) | ( | )% | ||||
| State and local income taxes, net of federal taxes (a) | % | |||||||
| Rate change | — | — | % | |||||
| Foreign operations | — | % | ||||||
| R&D Credit | ( | ) | ( | )% | ||||
| Deferred true-up | % | |||||||
| Uncertain tax benefit | % | |||||||
| Other adjustments | % | |||||||
| Sales of state NOLs | — | — | % | |||||
| Orphan drug credits | — | — | % | |||||
| Change in valuation allowance | % | |||||||
| Benefit from income taxes | $ | ( | ) | ( | )% | |||
| (a) |
The reconciliation between the Company’s effective tax rate on loss before income taxes and the statutory tax rate for the year ended July 31, 2025, prior to the adoption of ASU 2023-09, is as follows:
| For the Years Ended July 31, | ||||
| 2025 | ||||
| (in thousands) | ||||
| U.S. federal income tax at statutory rate | $ | ( | ) | |
| Nondeductible items | ||||
| State and local income taxes, net of federal taxes | ( | ) | ||
| Rate change | ||||
| Foreign operations | ( | ) | ||
| R&D Credit | — | |||
| Deferred true-up | — | |||
| Uncertain tax benefit | — | |||
| Other adjustments | ( | ) | ||
| Sales of state NOLs | ( | ) | ||
| Orphan drug credits | ( | ) | ||
| Change in valuation allowance | ||||
| Benefit from income taxes | $ | ( | ) | |
In accordance with the State of New Jersey’s Technology Business Tax Certificate Transfer Program, which allowed certain high technology and biotechnology companies to sell unused net operating loss carryforwards (“NOLs”) to other New Jersey-based corporate taxpayers, the Company received approximately $
Deferred income taxes reflect the net tax effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of net deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain.
F-32
Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows:
| At July 31, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| R&D credits, net of uncertain tax position | ||||||||
| Capitalized Sec. 174 research and experimental expenditures | ||||||||
| Stock-based compensation | ||||||||
| Depreciation | ||||||||
| Lease liability | — | |||||||
| Allowance for doubtful accounts | ||||||||
| Reserves and accruals | — | — | ||||||
| Charitable contributions | ||||||||
| Related party interest | ||||||||
| Disallowed interest expense | ||||||||
| Gross deferred tax assets | ||||||||
| Less valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax assets, net of valuation allowance | ||||||||
| Deferred tax liabilities: | ||||||||
| Unrealized gain | ( | ) | ( | ) | ||||
| Right-of-use assets | ( | ) | — | |||||
| Intangible assets | ( | ) | ( | ) | ||||
| Total deferred tax liabilities: | ( | ) | ( | ) | ||||
| Deferred tax liability, net | $ | ( | ) | $ | ( | ) | ||
The Company continually evaluates the likelihood of the realization of deferred tax assets and adjusts the carrying amount of the deferred tax assets by the valuation allowance to the extent the future realization of the deferred tax assets is more likely than not. The Company considers many factors when assessing the likelihood of future realization of its deferred tax assets, including its recent cumulative earnings experience by taxing jurisdiction, expectation of future taxable income or loss, the timing of reversals of taxable temporary differences, the carryforward periods available to the Company for tax reporting purposes, and other relevant factors.
Deferred tax assets established for the excess outside tax basis of an investee are derecognized upon the event that the investee becomes a domestic subsidiary as a result of a business combination or consolidation, as it is likely that the deferred tax asset will no longer qualify for recognition. During the year ended July 31, 2025, the Company derecognized unrealized loss deferred tax assets related to prior investments in Cyclo as a result of the Cyclo Acquisition.
As of July 31, 2026, based on the Company’s history of losses and its assessment of future losses, management believes that it is more likely than not that future taxable income will not be sufficient to realize all of the Company’s deferred tax assets. Therefore, a valuation allowance has been applied to deferred tax assets.
Effective for tax years beginning after December 31, 2021, taxpayers are required to capitalize any expenses incurred that are considered incidental to research and experimentation (“R&E”) activities under IRC Section 174. While taxpayers historically had the option of deducting these expenses under IRC Section 174, the December 2017 Tax Cuts and Jobs Act mandates capitalization and amortization of R&E expenses for tax years beginning after December 31, 2021. Expenses incurred in connection with R&E activities in the U.S. must be amortized over a five-year period and R&E expenses incurred outside the U.S. must be amortized over a
As of July 31, 2026, the Company has federal and state net operating loss carryforwards of approximately $
F-33
The utilization of the Company’s, excluding Cyclo’s, net operating losses and research and development tax credits may be subject to a U.S. federal limitation due to the “change in ownership provisions” under Sections 382 and 383 of the Internal Revenue Code and other similar limitations in various state jurisdictions. Such limitations may result in a reduction of the amount of net operating loss carryforwards and research and development tax credits in future years and possibly the expiration of certain net operating loss carryforwards and research and development tax credits before their utilization. In connection with the acquisition of Cyclo, the Company completed a Section 382 analysis, which determined that Cyclo experienced an ownership change in March 2025. The Company has not conducted a Section 382 analysis with respect to its other prior transactions to determine the potential limitations on the utilization of its remaining net operating loss carryforwards and other tax attributes. Management does not believe that any such limitations, if applicable, would have a material impact on the Company’s consolidated financial statements.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examinations by federal, foreign, and state and local jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from 2021 to present in the U.S. and from 2020 to present in the Company’s foreign operations. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state and local tax authorities to the extent utilized in a future period.
On July 4, 2025, the One Big Beautiful Bill was enacted (“OBBBA”), introducing significant and wide-ranging changes to the U.S. federal tax system. Significant components include restoration of
The OBBBA modified the U.S. International Tax provisions for Global Intangible Low-Taxed Income (“GILTI”), Foreign-Derived Intangible Income (“FDII”), and the Base-erosion Anti-abuse Tax (“BEAT”) effective for tax years starting after December 31, 2025. The tax rate on GILTI, now renamed to Net CFC Tested Income (“NCTI”), is now
The Company is also subject to certain non-income taxes such as value added taxes, sales taxes, and property taxes. The Company has taken certain positions that management feels, although not free from doubt, should not result in a successful challenge by certain tax authorities.
As required by the uncertain tax position guidance in ASC No. 740, Income Taxes, (“ASC 740”) the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applied the uncertain tax position guidance in ASC 740 to all tax positions for which the statute of limitations remained open. Any estimates of tax contingencies contain assumptions and judgments about potential actions by taxing jurisdictions. Any interest and penalties related to uncertain tax positions would be included as part of the income tax provision.
The Company’s conclusions regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of or changes in tax laws, regulations and interpretations thereof as well as other factors.
F-34
A reconciliation of the beginning and ending amount of unrecognized tax benefits associated with uncertain tax positions is as follows:
| At July 31, | ||||||||
| 2026 | 2025 | |||||||
| (in thousands) | ||||||||
| Balance, beginning of the year | $ | $ | ||||||
| Additions of tax positions related to the current year | ||||||||
| Additions of tax positions related to the current year - Cyclo Acquisition | — | |||||||
| Lapses in Statute | ( | ) | — | |||||
| Balance, end of year | $ | $ | ||||||
NOTE 17 – BUSINESS SEGMENT INFORMATION
The Company conducts business as
The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its Healthcare segment based primarily on results of clinical trials and loss from operations, and the Infusion Technology and Real Estate segments based primarily on revenues and (loss) income from operations. The CODM uses these measures to allocate the Company’s resources. The CODM does not review any measure of significant segment expenses which differ from the level of reporting reflected in the tables below. Currently, the CODM does not review assets in evaluating the results of the operating segments, and therefore, such information is not presented.
The Healthcare segment is comprised of the Company’s ownership of Cyclo (and the interest therein prior to the Merger) and majority equity interests in LipoMedix, Barer, Cornerstone and Rafael Medical Devices. The Healthcare segment generated $
The Real Estate segment consists of the Company’s real estate holdings, which are currently comprised of a portion of a commercial building in Israel.
The Infusion Technology segment is comprised of a majority equity interest in Day Three. Revenues associated with the Infusion Technology segment include Infusion Technology revenue derived from Day Three’s Unlokt™ technology.
Operating results for the business segments of the Company are as follows:
| (in thousands) | Healthcare | Infusion Technology | Real Estate | Total | ||||||||||||
| Year Ended July 31, 2026 | ||||||||||||||||
| Product revenue | $ | $ | — | $ | — | $ | ||||||||||
| Rental – Third Party | — | — | ||||||||||||||
| Rental – Related Party | — | — | ||||||||||||||
| COSTS AND EXPENSES | ||||||||||||||||
| Cost of product revenue | ( | ) | — | — | ( | ) | ||||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Research and development | ( | ) | ( | ) | — | ( | ) | |||||||||
| Depreciation and amortization | ( | ) | — | ( | ) | ( | ) | |||||||||
| (Loss) income from operations | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
F-35
| (in thousands) | Healthcare | Infusion Technology | Real Estate | Total | ||||||||||||
| Year Ended July 31, 2025 | ||||||||||||||||
| Product revenue | $ | $ | — | $ | — | |||||||||||
| Infusion technology revenue | — | — | ||||||||||||||
| Rental – Third Party | — | — | ||||||||||||||
| Rental – Related Party | — | — | ||||||||||||||
| COSTS AND EXPENSES | ||||||||||||||||
| Cost of Infusion Technology revenue | — | ( | ) | — | ( | ) | ||||||||||
| Cost of product revenue | ( | ) | — | — | ( | ) | ||||||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Research and development | ( | ) | ( | ) | — | ( | ) | |||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on impairment of goodwill | — | ( | ) | — | ( | ) | ||||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
A reconciliation between loss from operations by reportable segment to consolidated net loss before income taxes for the years ended July 31, 2026 and 2025, is as follows:
| (in thousands) | July 31, 2026 | July 31, 2025 | ||||||
| (Loss) income from operations by segment | ||||||||
| Healthcare | $ | ( | ) | $ | ( | ) | ||
| Infusion Technology | ( | ) | ( | ) | ||||
| Real Estate | ( | ) | ||||||
| Total | ( | ) | ( | ) | ||||
| Reconciliation to loss before income taxes: | ||||||||
| Interest income | ||||||||
| Realized gain on available-for-sale securities | — | |||||||
| Unrealized loss on investment - Cyclo | — | ( | ) | |||||
| Unrealized loss on convertible notes receivable, due from Cyclo | — | ( | ) | |||||
| Interest expense | ( | ) | ( | ) | ||||
| Gain on settlement of accounts payable and convertible notes payable | — | |||||||
| Other income, net | ||||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
Geographic Information
Healthcare Segment
Revenue from the Healthcare segment was generated primarily from customers located in the United States. During the year ended July 31, 2026, product revenue from customers outside of the United States was nominal. During the year ended July 31, 2025, approximately $
Infusion Technology Segment
Revenue from the Infusion Technology segment was generated entirely from customers located in the United States.
Real Estate Segment
Revenue from the Real Estate segment was generated entirely from tenants located in Israel.
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Assets
Net property, plant and equipment and total assets summarized by geographic area are as follows:
| (in thousands) | United States | Israel | Total | |||||||||
| July 31, 2026 | ||||||||||||
| Property, plant and equipment, net | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
| July 31, 2025 | ||||||||||||
| Property, plant and equipment, net | $ | $ | $ | |||||||||
| Total assets | ||||||||||||
NOTE 18 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company may from time to time be subject to legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, 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.
License Agreements
License Agreement - Cyclo
On April 16, 2026, Cyclo entered into an exclusive, worldwide, royalty-bearing Patent License Agreement (the “MIT License Agreement”) with MIT for certain patent rights relating to small molecules to improve myelination in Alzheimer’s disease and APOE4 carriers. The MIT License Agreement grants Cyclo the exclusive right to develop, manufacture, use and commercialize licensed products containing hydroxypropyl-β-cyclodextrin as the active pharmaceutical ingredient within the field of Alzheimer’s disease. The MIT License Agreement remains in effect until the expiration of the last valid claim under the licensed patent rights, unless earlier terminated. Under the MIT License Agreement, the Company is required to satisfy certain development, regulatory and commercialization diligence requirements within specified time periods. Failure to satisfy these requirements, subject to applicable extension and cure provisions, could result in termination of the agreement.
The Company paid MIT a license issuance fee of $
License Agreement - Cornerstone
Cornerstone is party to two license agreements in connection with certain technology being used for products under development and is required to make certain annual maintenance payments to maintain such licenses. In addition, royalty payments, calculated on a low single digit percentage of net sales, as defined in the respective agreements, will be required upon the commercialization of licensed technology. Sublicensing fees are calculated and due based upon a percentage of gross sublicense fees. Cornerstone expenses license obligation payments to research and development on the consolidated statements of operations and comprehensive loss.
One worldwide license agreement requires Cornerstone to reimburse the other party for costs associated with filing and defending various patents worldwide. Payment obligations under this license agreement remain in effect until the last underlying patents granted under the license agreement expire in their respective countries. The last patent expired in 2019. License maintenance fees are currently $
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The remaining minimum payments required under the license agreement, assuming the agreement is not terminated by Cornerstone, excluding any escalation for receiving government marketing approval subsequent to July 31, 2018, are $
Cornerstone’s second license continues until the later of the last to expire patent or royalty obligation under the agreement on a country-by-country basis (currently, or as otherwise provided in the license agreement).
As part of a royalty agreement, Cornerstone is obligated to pay royalties, based upon percentage (low single digit) of net sales, to Altira Capital and Consulting LLC (“Altira”), a consolidated majority-owned subsidiary of the Company. The royalty obligations remain in effect, on a country-by-country basis, until the last to expire patent claims associated with such products and services expire or are no longer in force. No payments have been made in connection with a royalty pool. As of July 31, 2026, the last to expire patent claim is to remain in force until fiscal year 2034.
Release Agreements
On August 4, 2025, John Goldberg resigned as the Chief Medical Officer of the Company, effective July 31, 2025. In connection with Dr. Goldberg’s departure, the Company entered into a general release agreement pursuant to which Dr. Goldberg will receive severance in the amount of $
On July 31, 2025, N. Scott Fine resigned as the Chief Executive Officer of Cyclo Therapeutics. In connection with Fine’s departure, the Company entered into a general release agreement pursuant to which Fine will receive severance in the amount of $
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NOTE 19 – EQUITY
Class A Common Stock and Class B Common Stock
The rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. The holders of Class A common stock and Class B common stock receive identical dividends per share when and if declared by the Company’s Board of Directors. In addition, the holders of Class A common stock and Class B common stock have identical and equal priority rights per share in liquidation. The Class A common stock and Class B common stock do not have any other contractual participation rights. The holders of Class A common stock are entitled to three votes per share and the holders of Class B common stock are entitled to one-tenth of a vote per share. Each share of Class A common stock may be converted into one share of Class B common stock, at any time, at the option of the holder. Shares of Class A common stock are subject to certain limitations on transferability that do not apply to shares of Class B common stock.
Equity Incentive Plans
In March 2018, the Company established its 2018 Equity Incentive Plan. On January 19, 2022, the Company’s stockholders approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2018 Equity Incentive Plan was suspended and replaced by the 2021 Plan and, following January 19, 2022, no new grants are to be awarded under the 2018 Equity Incentive Plan. Existing grants under the 2018 Equity Incentive Plan were not impacted by the adoption of the 2021 Plan. Any of the Company’s employees, directors, consultants and other service providers, and those of the Company’s affiliates, are eligible to participate in the 2021 Plan. In accordance with applicable tax rules, only employees (and the employees of parent or subsidiary corporations) are eligible to be granted incentive stock options. The 2021 Plan authorizes stock options (both incentive stock options or non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units and cash or other stock-based awards. On January 19, 2022, the Company filed a Registration Statement on Form S-8 registering
On January 8, 2026, the Company’s Board of Directors approved an amendment to the 2021 Plan that, among other things, increased the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional
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Stock Options
A summary of stock option activity for the Company is as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
| Outstanding at July 31, 2025 | $ | $ | — | |||||||||||||
| Granted | — | |||||||||||||||
| Expired | — | — | — | — | ||||||||||||
| Cancelled / Forfeited | — | — | — | — | ||||||||||||
| Outstanding at July 31, 2026 | $ | $ | — | |||||||||||||
| Exercisable at July 31, 2026 | $ | $ | — | |||||||||||||
At July 31, 2026, there were unrecognized compensation costs related to non-vested stock options granted under the 2021 Plan of $
The determination of the fair value of options granted during the year ended July 31, 2026 used the following assumptions and key inputs:
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Expected dividend yield | — | % |
The weighted average fair value per share of stock options granted for the year ended July 31, 2026 was $
The determination of the fair value of options granted during the year ended July 31, 2025 used the following assumptions and key inputs:
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Expected dividend yield | — | % |
The weighted average fair value per share of stock options granted for the year ended July 31, 2025 was $
Subsequent to year end, on August 18, 2026, the Company granted stock options to employees and consultants of the Company to purchase an aggregate of
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Rafael Medical Devices Stock Options
In connection with the conversion of Rafael Medical Devices from a Delaware corporation to a Delaware limited liability company, Rafael Medical Devices adopted the Rafael Medical Devices, LLC 2023 Equity Incentive Plan (the “RMD 2023 Plan”) in August 2023. The RMD 2023 Plan allows for issuance of up to
Rafael Medical Devices, LLC records compensation expense for stock-based awards based upon an assessment of the grant date fair value for options using the Black-Scholes model. The expected term was determined according to the simplified method, which is the average of the vesting tranche dates and the contractual term. Due to the lack of company specific historical and implied volatility data, the estimate of expected volatility is primarily based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, characteristics from comparable companies are selected, including enterprise value and position within the industry, and with historical share price information sufficient to meet the expected life of the share-based awards. The risk-free interest rate is determined by reference to the U.S. Treasury Constant Maturity Treasury rates with remaining maturities similar to the expected term of the options. Expected dividend yield is zero as Rafael Medical Devices, LLC has never paid cash dividends and does not expect to pay cash dividends in the foreseeable future.
A summary of option activity for Rafael Medical Devices, LLC is as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
| Outstanding at July 31, 2025 | $ | $ | — | |||||||||||||
| Granted | — | |||||||||||||||
| Outstanding at July 31, 2026 | $ | $ | — | |||||||||||||
| Exercisable at July 31, 2026 | $ | $ | — | |||||||||||||
At July 31, 2026, the total unrecognized compensation related to stock option awards granted under the RMD 2023 Plan was $
The determination of the fair value of options granted during the year ended July 31, 2026 used the following assumptions and key inputs:
| Risk-free interest rate | % | |||
| Expected term (in years) | ||||
| Expected volatility | % | |||
| Expected dividend yield | — | % |
The weighted average fair value per share of stock options granted for the year ended July 31, 2026 was $
Cornerstone Stock Options
Cornerstone has outstanding stock options and non-qualified options to purchase Cornerstone’s common stock which were granted under Cornerstone’s 2009 and 2018 Stock Incentive Plans (the “Cornerstone Plans”), as well as additional options issued during a prior capital raise.
At July 31, 2026, there were
In connection with Cornerstone’s 2003 common stock offerings, Cornerstone entered into an option agreement with an individual in connection with identifying investors. The option agreement grants the right to purchase an option (a “Purchase Option”) to purchase
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As part of the Cornerstone Restructuring, Cornerstone increased the available reserve of Cornerstone Common Stock for grant to employees, consultants and other service providers to approximately
Replacement Warrants
As part of the Merger with Cyclo, all outstanding warrants to purchase Cyclo Common Stock (other than those held by Rafael, which were cancelled, and those which were settled in cash) were automatically converted into warrants to purchase
The following table presents the number of common stock warrants outstanding:
| Replacement Warrants issued as part of the Cyclo Merger on March 25, 2025 | ||||
| Expired | ( | ) | ||
| Warrants outstanding, July 31, 2026 |
The following table presents the number of common stock warrants outstanding, their exercise price and expiration dates as of July 31, 2026 (the names below refer to the related Cyclo transaction prior to the Merger):
| Name | Warrants Issued | Exercise Price | Expiration Date | |||||||
| August 2020 PIPE Warrant | $ | |||||||||
| April 2023 PIPE Warrants | $ | |||||||||
| October 2023 Warrant Exchange | $ | |||||||||
Restricted Stock
The fair value of restricted shares of the Company’s Class B common stock is determined based on the closing price of the Company’s Class B common stock on the grant date. Share awards generally vest on a graded basis over three to four years of service.
On January 6, 2025, the Company issued
On January 13, 2025, the Company issued
On June 13, 2025, the Company issued
On September 2, 2025, the Company issued
On January 13, 2026, the Company issued
On January 28, 2026, the Company issued
On June 15, 2026, the Company issued
On July 29, 2026, the Company issued
A summary of the status of the Company’s grants of restricted shares of Class B common stock is presented below:
| Number of Non-vested Shares | Weighted Average Grant Date Fair Value | |||||||
| Outstanding at July 31, 2025 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Non-vested shares at July 31, 2026 | $ | |||||||
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At July 31, 2026, there was $
A summary of the stock-based compensation expense for the Company’s equity incentive plans is presented below (in thousands):
| Year Ended July 31, | ||||||||
| 2026 | 2025 | |||||||
| General and administrative | $ | $ | ||||||
| Research and development | ||||||||
| Forfeiture of RSUs within research and development | — | ( | ) | |||||
| Total stock-based compensation expense | $ | $ | ||||||
NOTE 20 – LEASES
The future contractual minimum lease payments to be received (excluding operating expense reimbursements) by the Company as of July 31, 2026, under non-cancellable operating leases are as follows (in thousands):
| Fiscal Years Ending July 31, | Total | |||
| (in thousands) | ||||
| 2027 | $ | |||
| 2028 | ||||
| Total Minimum Future Rental Income | $ | |||
NOTE 21 - EMPLOYEE RETENTION CREDITS
During the year ended July 31, 2025, the Company recorded refunds as a result of Employee Retention Credits (“ERCs”), which are refundable tax credits against certain federal employment taxes initially made available under the Coronavirus Aid, Relief and Economic Security Act (the “CARES” Act). In accordance with the Company’s accounting policy, the ERC amounts have been recognized in other income, net as the Company determined that all relevant criteria for recognition had been met. The ERC represents a one-time benefit and does not constitute recurring operational income.
During the year ended July 31, 2025, the Company recognized $
NOTE 22 – SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date through the date the consolidated financial statements were issued.
On October 15, 2026, Barer entered into a securities purchase agreement with CBX Therapeutics Ltd. (“CBX”), pursuant to which CBX issued
On September 30, 2026, the Company announced topline results from its Phase 3 TransportNPC™ study of Trappsol® Cyclo™, which did not meet its primary endpoint in the overall study population.
On October 28, 2026, Cyclo submitted a New Drug Application to FDA seeking approval of Trappsol® Cyclo™ (remibetadex) for the treatment of the neurovisceral manifestations of Niemann-Pick Disease Type C in adult and pediatric patients from birth.
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