On August 22, 2022 Oncotelic Therapeutics, Inc. ("Oncotelic", "We" or the "Company") (OTCQB:OTLC) reported financial results for the three months ended June 30, 2022 ("Q2 2022") as compared to the three months ended June 30, 2021 ("Q2 2021") (Press release, Oncotelic, AUG 22, 2022, View Source [SID1234618547]). The financial results are based on the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 22, 2022.
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Highlights for Q2 2022 and thereafter:
As previously reported, on March 31, 2022, we entered into a joint venture, or JV, with Dragon Overseas Capital Ltd. (Dragon Overseas) and GMP Biotechnology Ltd. (GMP Bio). Dragon Overseas and GMP Bio are affiliated with Golden Mountain Partners (GMP). GMP Bio also has a wholly owned subsidiary, Sapu Therapeutics, LLC, which in turn has 2 wholly owned subsidiaries, namely Sapu Bioscience, LLC and Sapu Holdings, LLC.
The plan of the JV is to develop and ultimately market OT-101, individually and/or in combination with other products, along with our JV partners. Also, the JV is intended to be taken into an initial public offering (IPO) as some time in the future.
We plan to evaluate the development plans for the rest of our assets and see if we can leverage that to raise additional funding or seek similar strategic partnerships to monetize our assets and increase shareholder value, without or with minimal dilution to our shareholders.
Other highlights of the JV transaction include:
Oncotelic licensed OT-101 to the JV for a 45% ownership in the JV, recorded a fair value of over $22.6 million for the investment and recorded a gain of approximately $17 million.
Dragon Overseas investing approximately $27.6 million for the 55% ownership of the JV.
Oncotelic would receive up to $50 million on sale of the RPD voucher, following marketing approval of OT-101 for diffuse intrinsic pontine glioma, or DIPG, by the US Food and Drug Administration.
The JV, or a subsidiary to be taken into an IPO, is to be domiciled in Hong Kong at a future point in time.
Initial focus of JV on the further development and commercialization of OT-101, including for DIPG as well as pancreatic cancers and glioblastoma.
"With the JV transaction, commencing Q2 2022, we have recorded a one-time profit of approximately $16 million, primarily on the gain on transfer of OT-101 to the JV of approximately $17.0 million and substantial cost reductions due to transfer of our payroll and operational costs related to OT-101 to the JV." Commented Amit Shah, CFO. "This quarter has been transformational for the Company. The results of this quarter allow the Company to focus on uplisting activities going forward."
Comparing Q2 2022 to Q2 2021, we reported a net profit, before non-controlling interests, of approximately $16.0 million compared to a net loss of approximately $3.6 million, respectively. The higher gain of approximately $19.5 million for Q2 2022 as compared to Q2 2021 was primarily due to a gain on derecognition of non-financial asset, of approximately $17 million, reduced stock-based compensation by approximately $2 million recorded in Q2 2022 compared to Q2 2021, lower compensation expenses of approximately $1 million, reimbursement of expenses by a related party of approximately $0.25 million and higher interest expense of $0.7 million.
Comparing our research and development ("R&D") expenses between Q2 2022 and Q2 2021, our R&D expenses decreased by approximately $0.8 million for Q2 2022 compared to the Q2 2021, primarily due to personnel and operational expenses related to OT-101 being borne by the JV.
Comparing our general and administrative ("G&A") expenses between Q2, 2022 and Q2 2021, our G&A expenses decreased by approximately $2.6 million, primarily due to lower stock compensation expense of approximately $2.0 million during Q2 2021 as compared to $25 thousand during Q2 2022, and lower compensation and operational expenses of approximately $0.3 million which was borne by the JV.
As a result of our JV, we expect our future R&D and G&A expenses to be significantly lower, especially those related to OT-101 and payroll related costs.
Comparing our interest expense for Q2 2022 and Q2 2021, our interest expense increased by $0.7 million based on approximately $1.1 million for Q2 2022, primarily in connection with debt raised from convertible notes and the JH Darbie Financing, the November 2021 to March 2022 Financing and May/June 2022 financing as compared to $0.4 million for Q2 2021, in connection with debt raised from convertible notes and JH Darbie during 2021.
During Q2 2022, the Company was reimbursed approximately $0.25 million on behalf of our JV.
During Q2 2022, we recorded a non-cash gain of approximately $16.9 million on the derecognition of our non-financial asset upon the transfer of OT-101 as our capital contribution for the JV. We adopted the fair value measurements under the equity method and the gain was net of the fair value of the asset of approximately $22.6 million as reduced by the value of the intangibles of approximately $0.8 million for OT-101 and the value of the goodwill of $4.9 million recorded at the time of the 2019 Merger with Oncotelic Inc.
During Q2 2022, we recorded approximately $0.1 million change in value of derivatives upon conversion of certain debt from liability as compared to approximately $0.6 million during Q2 2021.