180 Life Sciences (ATNF) - 2023 Q4 - Annual Report

PART I Item 1. Business 180 Life Sciences is a clinical-stage biotechnology company developing therapeutics for chronic pain, inflammation, and fibrosis, with its lead Dupuytren's Contracture candidate having completed Phase 2b trials, and is exploring strategic alternatives Company Overview and Strategy - 180 Life Sciences is a clinical-stage biotechnology company focused on developing therapeutics for unmet needs in chronic pain, inflammation, and fibrosis[50] - The company operates three distinct product development platforms: Anti-TNF (fibrosis), SCAs (synthetic cannabidiol analogues), and α7nAChR (alpha 7 nicotinic acetylcholine receptor)[51] - The lead product candidate under the anti-TNF platform has completed Phase 2b clinical trials for early-stage Dupuytren's Contracture[51] - Due to resource constraints, the company has suspended research and development activities for the α7nAChR platform[53] - The company is actively evaluating strategic alternatives to maximize shareholder value, which may include mergers, acquisitions, sale of assets, or other business combinations[54] Product Development Platforms and Pipeline Product Development Pipeline Status | Platform | Indication | Development Phase | | :--- | :--- | :--- | | Anti-TNF | Dupuytren's Contracture | Phase 2b Completed | | | Frozen Shoulder | Feasibility Trial (Recruitment Closed) | | | Post-Operative Cognitive Decline (POCD) | Planned Phase 2 | | | Liver and Lung Fibrosis | Preclinical | | SCAs | Arthritis, Pain, Inflammation | Preclinical | | α7nAChR | Inflammatory Diseases | Suspended | - The Phase 2b trial for Dupuytren's Contracture met its primary endpoint of nodule hardness and secondary endpoint of nodule size with statistical significance[61] - The company intends to seek Conditional Marketing Authorization (CMA) in the U.K. for its Dupuytren's therapy, which will require a limited Phase 3 outcomes trial to be initiated prior to submission[62][63] - Recruitment for the frozen shoulder feasibility trial was closed early at nine patients due to a regulatory request in the U.K. to end slow-recruiting trials, necessitating a future trial[58][65] - The HMGB1 program, part of the Anti-TNF platform, was terminated in September 2023 to focus resources on the primary fibrosis platform[67] Material Agreements - The company has key research and licensing agreements with the Hebrew University of Jerusalem (via Yissum) for its SCAs platform, involving license fees, milestone payments, and royalties[113][116][118] - Multiple research and license agreements are in place with the University of Oxford to sponsor R&D for the anti-TNF platform (Dupuytren's, frozen shoulder, fibrosis) and the SCAs platform[125][130][133] - The exclusive license agreement with Oxford for the HMGB1 molecule program was terminated on September 22, 2023, to conserve resources[145] - An exclusive license agreement with Stanford University is in place for the α7nAChR platform, requiring annual maintenance fees, milestone payments, and royalties[147][149] - Consulting agreements are in place with key scientific leaders, including Prof. Jagdeep Nanchahal, Prof. Sir Marc Feldmann, and Prof. Lawrence Steinman, outlining compensation, bonuses, and service requirements[161][172][179] Recent and Material Events - In October 2023, the UK's MHRA confirmed that a single Phase 3 study could be sufficient for Marketing Authorization for the Dupuytren's treatment but would not support a Conditional Marketing Authorization (CMA) based on Phase 2b data alone[187][188] - In December 2023, the company engaged A.G.P./Alliance Global Partners to explore strategic alternatives, including potential mergers, acquisitions, or asset sales[192] - The company has faced multiple Nasdaq compliance issues, including failure to meet the $1.00 minimum bid price, shareholder approval rules, and the $2.5 million minimum stockholders' equity requirement[194][198][212] - A 1-for-19 reverse stock split was effective on February 28, 2024, and on March 13, 2024, Nasdaq confirmed the company regained compliance with the minimum bid price rule[197] - The company owes approximately £929,030 to the University of Oxford and is in discussions for a payment plan; Oxford has threatened legal proceedings, which could force the company to scale back operations or seek bankruptcy protection[219] Competition - For early-stage Dupuytren's Contracture, the company's proposed treatment has no currently approved direct competitor; existing treatments like surgery and Xiaflex target late-stage disease[227] - In the SCAs (cannabidiol) space, the primary competitor is Jazz Pharmaceuticals with its approved drug Epidiolex; other competitors include Cardiol Therapeutics and Zynerba Pharmaceuticals[228][230] - For the α7nAChR platform, competition includes orally available Jak inhibitors (e.g., Xeljanz, Rinvoq) and electroceutical companies like SetPoint Medical Corporation, which are developing vagus nerve stimulation devices[233][234] Government Regulation - Pharmaceutical products in the U.S. are subject to extensive regulation by the FDA under the FDC Act and PHS Act, covering research, development, testing, manufacturing, and marketing[239][240] - The drug development process typically involves preclinical testing and a three-phase clinical trial process (Phase 1, 2, 3) before submitting a New Drug Application (NDA) or Biologics License Application (BLA) to the FDA[241][247] - In the EU and UK, medicinal products are regulated by the EMA and MHRA, respectively; the process involves submitting a Clinical Trial Application (CTA) and, for approval, a marketing authorization application through various procedures (e.g., centralized, mutual recognition)[294][296][301] - The company's SCA product candidates may be subject to regulation as controlled substances by the DEA in the U.S. and similar bodies internationally, which imposes strict registration, security, and recordkeeping requirements[287][288] Corporate History - The company was formed as a blank check company (SPAC), KBL Merger Corp. IV, in 2016 and completed its IPO in June 2017[333][334] - On November 6, 2020, the company completed a business combination with 180 Life Corp., which became a wholly-owned subsidiary; the combined entity was renamed 180 Life Sciences Corp[337][341] - The company has executed two reverse stock splits: a 1-for-20 split effective December 19, 2022, and a 1-for-19 split effective February 28, 2024[346][348] Item 1A. Risk Factors The company faces substantial financial and operational risks, including significant doubt about its going concern ability, dependence on clinical trial success, intense competition, and Nasdaq listing non-compliance - The company's current cash is only sufficient to fund operations through approximately May 2024, raising substantial doubt about its ability to continue as a going concern; additional capital is required but may not be available on favorable terms, if at all[360][364][365] - The company is not in compliance with Nasdaq's minimum stockholders' equity requirement of $2.5 million, reporting a deficit as of September 30, 2023; failure to regain compliance by the May 13, 2024 deadline could result in delisting[627][628][633] - A significant financial risk arises from approximately £929,030 owed to the University of Oxford; failure to agree on a payment plan could lead to legal action, termination of critical license agreements, and potentially force the company to seek bankruptcy protection[379][380] - The business is highly dependent on the success of its product candidates, particularly the anti-TNF treatment for Dupuytren's Contracture; failure to successfully complete clinical development, obtain regulatory approval, or commercialize products would materially harm the business[455][456] - The company faces intense competition from well-established companies with greater financial and technical resources, and its method-of-use patents for the anti-TNF program may not prevent competitors from using biosimilar drugs for the same indication[407][408][413] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None Item 1C. Cybersecurity The company engages cybersecurity consultants, with the CFO overseeing risks and providing board updates, and reported no material incidents as of year-end 2023 - The company engages external consultants to assess and manage cybersecurity threats, including operational risks, fraud, and data privacy[677] - The CFO is responsible for overseeing cybersecurity risks, with the Board receiving periodic updates[680] - As of December 31, 2023, no cybersecurity incidents have materially affected the company's business strategy, results of operations, or financial condition[681] Item 2. Properties The company's headquarters are located in leased office space in Palo Alto, California, which it believes is suitable for its current business needs - The company's principal executive offices are located at 3000 El Camino Real, Bldg. 4, Suite 200, Palo Alto, CA 94306[683] Item 3. Legal Proceedings The company is involved in various legal proceedings, with details incorporated from financial statement Note 9, and management does not anticipate a material adverse effect - The company is involved in litigation that arises in the ordinary course of business; specific details are incorporated by reference from Note 9 – Commitments and Contingencies in the financial statements[685] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants trade on Nasdaq, with 852,758 shares outstanding as of March 19, 2024, and no cash dividends are anticipated in the foreseeable future - The company's common stock and warrants trade on the Nasdaq Capital Market under symbols "ATNF" and "ATNFW"[689] - As of March 19, 2024, there were 852,758 shares of common stock outstanding held by 71 holders of record[690] - The company has never paid cash dividends and does not plan to in the foreseeable future[691] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a net loss of $19.9 million in 2023, a significant reduction from $38.7 million in 2022 due to impairment changes, but faces critical liquidity issues with a $1.4 million working capital deficit and substantial doubt about its going concern ability Results of Operations Consolidated Results of Operations (Years Ended Dec 31) | Metric | 2023 ($) | 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Research and Development | 2,303,751 | 2,191,834 | 5% | | General and Administrative | 10,646,417 | 15,459,788 | (31%) | | Total Operating Expenses | 13,477,500 | 17,897,965 | (25%) | | Loss on Goodwill Impairment | 0 | (33,547,278) | N/A | | Loss on IP R&D Assets Impairment | (9,063,000) | (3,342,084) | 171% | | Change in Fair Value of Derivative Liabilities | 75,323 | 15,144,986 | (99.5%) | | Net Loss | (19,935,112) | (38,726,259) | (48.5%) | - The decrease in General and Administrative expenses in 2023 was primarily due to reductions in legal expenses ($2.8 million), insurance ($0.8 million), accrued bonuses ($0.7 million), and stock-based compensation ($0.5 million)[729] - The significant decrease in net loss for 2023 compared to 2022 is largely attributable to a $33.5 million goodwill impairment charge in 2022 that did not recur, partially offset by a $9.1 million IP R&D asset impairment in 2023 and a smaller gain from the change in fair value of derivative liabilities[731] Liquidity and Capital Resources - The company's cash balance is only expected to be sufficient to fund planned business operations through approximately May 2024, raising substantial doubt about its ability to continue as a going concern[699][739] Financial Position Summary (as of Dec 31) | Metric | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Cash | 1,975,799 | 6,970,110 | | Working Capital (Deficit) | (1,422,710) | 3,270,608 | Cash Flow Summary (Years Ended Dec 31) | Metric | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | (10,922,223) | (12,127,585) | | Net Cash Provided by Financing Activities | 5,907,887 | 10,873,606 | - Cash from financing activities in 2023 was primarily from the April and August offerings, which provided combined gross proceeds of approximately $6.0 million, and an additional $0.8 million from a repricing of the August offering[735][744][745] Critical Accounting Estimates - A critical accounting estimate involves the annual impairment assessment of In-Process Research and Development (IP R&D) assets[748][749] - In 2022, the company recorded an IP R&D impairment loss of $3.3 million; in 2023, due to commercialization delays and other factors, the company recorded a full impairment loss of the remaining $9.1 million, reducing the asset's carrying value to zero[750][752] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the primary market risk is interest rate sensitivity on cash and cash equivalents, though a 100 basis point change would not materially affect their fair value - The company's primary market risk is interest rate sensitivity; as of December 31, 2023, it held $1,975,799 in cash and cash equivalents[754] Item 8. Financial Statements and Supplemental Data The required financial statements and supplemental data are included in the report starting on page F-1 - The company's consolidated financial statements are included in the report, indexed on page F-1[755] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, having remediated a material weakness related to fair value calculation review - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[757] - A material weakness identified in 2022 related to imprecise review of fair value calculations for warrants and IP R&D assets has been remediated as of December 31, 2023[762][763] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023[760] Item 9B. Other Information During the fourth quarter of 2023, none of the company's directors or officers adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements - No directors or officers adopted or terminated Rule 10b5-1 trading plans during the quarter ended December 31, 2023[766] PART III Items 10-14 Information for Items 10 through 14, covering governance, compensation, and ownership, is incorporated by reference from the forthcoming 2024 Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the forthcoming 2024 Proxy Statement[768] PART IV Item 15. Exhibits, Financial Statements and Schedules This section provides an index of the consolidated financial statements, which begin on page F-1, and a list of all exhibits filed with or incorporated by reference into the Annual Report on Form 10-K - This item contains the index to the consolidated financial statements and the exhibit index for the report[774][776] Item 16. Form 10–K Summary The company reports that there is no Form 10-K summary - None Consolidated Financial Statements Financial Statements Overview For FY2023, the company reported a $19.9 million net loss, ending with $2.0 million cash and a $1.4 million working capital deficit, with auditors expressing substantial doubt about its going concern ability Key Financial Data (as of and for the year ended Dec 31, 2023) | Metric | Amount ($) | | :--- | :--- | | Balance Sheet: | | | Cash | 1,975,799 | | Total Assets | 5,259,476 | | Total Liabilities | 5,387,209 | | Total Stockholders' (Deficit) | (127,733) | | Statement of Operations: | | | Total Operating Expenses | 13,477,500 | | Net Loss | (19,935,112) | | Cash Flow: | | | Net Cash Used in Operating Activities | (10,922,223) | - The independent auditor's report contains an explanatory paragraph highlighting substantial doubt about the company's ability to continue as a going concern due to significant working capital deficiency and recurring losses[795] Notes to Consolidated Financial Statements Notes to financial statements detail significant accounting policies, including going concern doubt, asset impairments, derivative liabilities, debt, equity, ongoing litigation, and subsequent events like the 2024 reverse stock split and Nasdaq compliance efforts - Going Concern (Note 2): The company has incurred significant losses, has a working capital deficit, and expects to require additional capital to fund operations; these conditions raise substantial doubt about its ability to continue as a going concern[831][832] - Impairment of Assets (Note 5): The company recorded a goodwill impairment loss of $33.5 million in 2022; it also recorded IP R&D asset impairment losses of $3.3 million in 2022 and a further $9.1 million in 2023, writing the asset's value down to zero[868][873][875] - Litigation (Note 9): The company is involved in multiple legal actions, including a suit against its former CEO Dr. Marlene Krauss for over $11 million, a suit by Dr. Krauss for advancement of legal fees, and a dispute with Tyche Capital LLC over a funding guarantee[914][919][922] - Stockholders' Equity & Nasdaq Compliance (Note 10): The company details its non-compliance with Nasdaq's minimum bid price, shareholder approval, and minimum stockholders' equity rules; it also describes the reverse stock splits in 2022 and 2024 aimed at addressing these issues[992][1049][1052] - Subsequent Events (Note 13): Key events after year-end include amendments reducing executive salaries, a 1-for-19 reverse stock split effective Feb. 28, 2024, regaining Nasdaq bid price compliance on March 12, 2024, and the appointment of new independent board members[1077][1086][1090]