UNITED STATES
SECURITIES AND EXCHANGE COMMISSION 
Washington, D.C. 20549 

____________________________

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2019March 31, 2020

or

For the Transition Period from                    to                   .

Commission File Number 000-22245

____________________________

 SEELOS THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)

300 Park Avenue, 12^th Floor, New York, NY 10022
(Address of principal executive offices and zip code)

(646) 998-6475293-2100
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

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.    Yes  x     No  o

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).    Yes  x No  o

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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes   o      No   x

As of October 31, 2019, 26,949,905May 1, 2020, 44,949,905 shares of the common stock, par value $0.001, of the registrant were outstanding.

Table of Contents

As previously disclosed, on January 24, 2019, Apricus Biosciences, Inc., a Nevada corporation ("Apricus") completed a business combination with Seelos Therapeutics, Inc., a Delaware corporation ("Seelos"), in accordance with the terms of the Agreement and Plan of Merger Reorganization (the "Merger Agreement") entered into on July 30, 2018. Pursuant to the Merger Agreement, (i) a subsidiary of Apricus merged with and into Seelos, with Seelos (renamed as "Seelos Corporation") continuing as a wholly-owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger").

For accounting purposes, the Merger is treated as a "reverse acquisition" under generally acceptable accounting principles in the United States ("U.S. GAAP") and Seelos is considered the accounting acquirer. Accordingly, Seelos' historical results of operations will replace the Company's historical results of operations for all periods prior to the Merger and, for all periods following the Merger, the results of operations of the combined company will be included in the Company's financial statements.

This quarterly report on Form 10-Q relates to the Company's quarter ended September 30, 2019 and is therefore the Company's third periodic report that includes results of operations for the combined company, including Seelos.

Unless the context otherwise requires, references to the "Company," the "combined company," "we," "our" or "us" in this report refer to Seelos Therapeutics, Inc. and its subsidiaries, references to "Seelos" refer to the Company following the completion of the Merger, references to "Apricus" refer to the Company prior to the completion of the Merger.

Except as otherwise noted, references to "common stock" in this report refer to common stock, par value $0.001 per share, of the Company.

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PART I

ITEM 1. FINANCIAL STATEMENTS

Seelos Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Seelos Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except share and per share data)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Seelos Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash FlowsChanges in Stockholders' Equity (Deficit)
For the Three Months Ended March 31, 2020 and 2019
(In thousands)thousands, except share data)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Seelos Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Three Months Ended September 30, 2019 and 2018Cash Flows
(In thousands, except share data)thousands)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Seelos Therapeutics, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit)
For the Nine Months Ended September 30, 2019 and 2018
(In thousands, except share data)
(Unaudited)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Seelos Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Organization and Description of Business

Seelos Therapeutics, Inc. and its subsidiaries (the "Company") plan on developing its clinical and regulatory strategy with its internal research and development team with a view toward prioritizing market introduction as quickly as possible. The Company's lead programs are SLS-002 for the potential treatment of suicidality in major depressive disorder ("MDD") and in post-traumatic stress disorder and in major depressive disorder,("PTSD"), SLS-005 for the potential treatment of Sanfilippo syndrome and SLS-006 for the potential treatment of Parkinson's Disease ("PD"). Additionally, the Company is developing several preclinical programs, most of which have well-defined mechanisms of action, including: SLS-004 and SLS-007 for the potential treatment of PD, SLS-008 targeted at chronic inflammation in asthma and orphan indications such as pediatric esophagitis, SLS-010, in narcolepsy and related disorders and SLS-012, an injectable therapy for post-operative pain management.

Merger with Apricus Biosciences, Inc.

On January 24, 2019, Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), completed a business combination with Seelos Therapeutics, Inc., a Delaware corporation ("Seelos"), in accordance with the terms of the Agreement and Plan of Merger Reorganization (the "Merger Agreement") entered into on July 30, 2018. Pursuant to the Merger Agreement, (i) a subsidiary of Apricus merged with and into Seelos, with Seelos (renamed as "Seelos Corporation") continuing as a wholly owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger").

The Merger was accounted for as a reverse recapitalization under United States generally accepted accounting principles ("U.S. GAAP") because the primary assets of Apricus were nominal following the close of the Merger. Seelos was determined to be the accounting acquirer based upon the terms of the Merger and other factors, including: (i) Seelos' stockholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for Seelos common stock owned the majority of Apricus immediately following the effective time of the Merger, (ii) Seelos holds the majority (four of five) of board seats of the combined company and (iii) Seelos' management holds all key positions in the management of the combined company. Accordingly, the historical financial statements of Seelos Therapeutics, Inc. became the Company's historical financial statements, including the comparative prior periods. All references in the unaudited condensed consolidated financial statements to the number of shares and per-share amounts of common stock have been retroactively restated to reflect the exchange rate.

Liquidity

The Company had nogenerated limited revenues, incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2019,March 31, 2020, the Company had $15.3$12.7 million in cash and an accumulated deficit of $45.4$60.9 million. The Company has historically funded its operations through the issuance of convertible notes (the "Notes") (see Note 6), the sale of common stock (see Note 3) and the sale of warrants (see Note 7).

On August 23, 2019,March 16, 2020, the Company entered into a Securities Purchase Agreement with certain institutional investors (the "Securities Purchase Agreement"),completed an underwritten public offering pursuant to which it sold 7,500,000 shares of its common stock at a price to the public of $0.60 per share. The net proceeds to the Company agreed to issuefrom this offering were approximately $4.0 million, after deducting underwriting discounts and sell an aggregate of 4,475,000 shares of common stock in a registered direct offering, resulting in total gross proceeds of approximately $6.7 million, before deducting the placement agents' feescommissions and other estimated offering expenses (see Note 3).payable by the Company.

On June 17, 2019,February 13, 2020, the Company entered intocompleted an Equity Distribution Agreement (the "Equity Distribution Agreement") with Piper Jaffray & Co., as sales agent ("Piper Jaffray"),underwritten public offering, pursuant to which it sold 6,666,667 shares of its common stock at a price to the public of $0.75 per share. On February 19, 2020, the Company sold an additional 999,999 shares of its common stock at a price to the public of $0.75 per share pursuant to the full exercise of the underwriters' option to cover over-allotments. The net proceeds to the Company from this offering were approximately $4.8 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

Pursuant to the asset purchase agreement with Phoenixus AG f/k/a Vyera Pharmaceuticals, AG and Turing Pharmaceuticals AG ("Vyera"), as amended by an amendment thereto entered into on May 18, 2018 and an amendment thereto entered into on December 31, 2018 and as amended by an amendment thereto entered into on October 15, 2019 (as amended, the "Vyera Agreement"), the Company will be required to make a cash payment to Vyera in the amount of $1.0 million in each of April 2020 and July 2020. Pursuant to the amended and restated license agreement with Stuart Weg, M.D., the Company will be required to make a cash payment to Dr. Weg in the amount of $0.125 million in January 2021 and, if certain conditions are not met, make an additional cash payment of $0.2 million in January 2022. The Company believes that in order for it to meet its obligations arising from normal business operations for the next twelve months, the Company requires additional capital in the form of equity, debt or both. Without additional capital, the Company's ability to continue to operate will be limited. These financial statements do not include any adjustments to the recoverability and classification of recorded assets amounts and classification of liabilities that might be necessary should the Company not be able to continue as a going concern.

The Company does not currently have an effective shelf registration statement on Form S-3 filed with the Securities and Exchange Commission (the "SEC"). As further discussed in the risk factor "As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we are currently ineligible to file new short form registration statements on Form S-3, which may offerimpair our ability to raise capital on terms favorable to us, in a timely manner or at all.", the Company will no longer be permitted to use its existing registration statements on Form S-3, including its shelf registration statement on Form S-3, as of March 17, 2020, the filing date of its Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Absent a waiver of the Form S-3 eligibility requirements and sell,assuming the Company continues to timely file its required reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the earliest the Company would regain the ability to use Form S-3 is June 1, 2020. At that time, provided that the Company is otherwise current in its Exchange Act reporting obligations, the Company would become eligible to use the shelf registration statement on Form S-3 to offer from time to time through Piper Jaffray up to $50,000,000 in sharesany combination of itsdebt securities, common stock. During the three and nine months ended September 30, 2019, the Company sold 1,197,676 shares for net proceeds of approximately $2.6 million pursuant to the Equity Distribution Agreement (see Note 3).

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preferred stock and warrants. As of September 30, 2019,May 1, 2020, the Company had approximately $87.0$83.8 million available under its Form S-3 shelf registration statement. UnderHowever if, and/or when, the Company regains eligibility to use its shelf registration statement on Form S-3, under current SEC regulations, of the Securities and Exchange Commission (the "SEC"), in the event the aggregate market value of the Company's common stock held by non-affiliates ("public float"), is less than $75.0 million, the amount it can raise through primary public offerings of securities, including sales under the Securities Purchase Agreement and thean Equity Distribution Agreement with Piper Jaffray & Co. (the "Equity Distribution Agreement"), in any twelve-month period

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using shelf registration statements is limited to an aggregate of one-third of the Company's public float. SEC regulations permit the Company to use the highest closing sales price of the Company's common stock (or the average of the last bid and last ask prices of the Company's common stock) on any day within 60 days of sales under the shelf registration statement. As of September 30, 2019,May 1, 2020, the Company's public float was approximately $39.1$35.5 million based on 26.944.0 million shares of the Company's common stock outstanding at a price of $1.78$0.87 per share, which was the closing sale price of the Company's common stock on August 22, 2019.March 9, 2020. As the Company's public float was less than $75.0 million as of September 30, 2019,May 1, 2020, and the Company has sold securities pursuant to its previously effective shelf registration statement in the last 12 months, the Company's usage of itsany S-3 shelf registration statement is limited.The Company still maintains the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements. The rules and regulations of the SEC or any other regulatory agencies may restrict the Company's ability to conduct certain types of financing activities, or may affect the timing of and amounts it can raise by undertaking such activities.

The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and the Company's current plans, which are subject to change, management believes that the Company's existing cash and cash equivalents as of September 30, 2019March 31, 2020 are not sufficient to satisfy its operating cash needs for at least onethe year after the filing of this Quarterly Report on Form 10-Q.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.

The Company's future liquidity and capital funding requirements will depend on numerous factors, including:

• its ability to raise additional funds to finance its operations;
• its ability to regain and maintain compliance with the listing requirements of Thethe Nasdaq Capital Market ("Nasdaq");Market;
• the outcome, costs and timing of clinical trial results for the Company's current or future product candidates;
• the extent and amount of any indemnification claims, including any made by Ferring International Center S.A. ("Ferring") under the asset purchase agreement with Ferring, entered into on March 8, 2017, pursuant to which the Company sold to Ferring its ex-U.S. assets and rights related to products in development, intended for the topical treatment of erectile dysfunction, which are known as Vitaros in certain countries outside of the United States;
• potential litigation expenses;
• the emergence and effect of competing or complementary products or product candidates;
• its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
• its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel;
• the terms and timing of any collaborative, licensing or other arrangements that it has or may establish;
• the trading price of its common stock;
• its ability to secure a development partner for its product candidate in the CVRUnited States for the treatment of erectile dysfunction (the "CVR Product Candidate (as defined below)Candidate") in order to overcome deficiencies raised in the 2018 complete response letter issued by the U.S. Food and Drug Administration (the "FDA") related to the CVR Product Candidate; and
• its ability to increase the number of authorized shares outstanding to facilitate future financing events.

The Company will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other commercial transaction for one or more of the Company's product candidates. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. Failure to obtain additional equity or debt financing will have a material, adverse impact on the Company's business operations. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company's existing stockholders.

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2. Significant Accounting Policies

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto as of and for the year ended December 31, 20182019 included in the Company's Annual Report on Form 10-K ("Annual Report") filed with the SEC on March 28, 2019.17, 2020. The accompanying financial statements have been prepared by the Company in accordance with U.S. GAAP for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the Company's financial position, results of operations and cash flows. The December 31, 20182019 condensed consolidated balance sheet was derived from audited financial statements, but does not include all U.S. GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not necessarily indicative of results for the full year. The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. The Company's actual results may differ from these estimates under different assumptions or conditions.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company's financial statements relate to the valuation of warrants, valuation of convertible notes payable, valuation of common stock and the valuation of stock options. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company's future results of operations will be affected.

Fair Value Measurements

The Company follows the accounting guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount 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. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.

Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The Company's warrant liabilities and convertible notes were classified within Level 3 of the fair value hierarchy because their fair values were estimated by utilizing valuation models and significant unobservable inputs. The warrants and convertible notes were valued using a scenario-based discounted cash flow analysis. Two primary scenarios were considered and probability weighted to arrive at the valuation conclusion for each convertible note. The first scenario considers the value impact of conversion at the stated discount to the issue price in a qualified financing event, while the second scenario assumes the convertible notes are held to maturity.

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The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values. values (in thousands):

There were no transfers between fair value measurement levels during the ninethree months ended September 30, 2019 (in thousands):

Fair Value OptionMarch 31, 2020.

As permitted under ASC Topic 825, Financial Instruments, ("ASC 825"), the Company had electedThe Company's warrant liabilities were classified within Level 3 of the fair value option to account for its convertible notes. In accordance with ASC 825, the Company records these convertible noteshierarchy because their fair values were estimated by utilizing valuation models and significant unobservable inputs. The common stock warrant liabilities were recorded at fair value with changesusing the Black-Scholes option pricing model.  The following assumptions were used in fair value recorded in the Statement of Operations. As a result of applyingdetermining the fair value of the warrant liabilities valued using the Black-Scholes option direct costs and fees related topricing model as of March 31, 2020:

The following table is a reconciliation for the convertible notes were expensed as incurred and were not deferred.common stock warrant liabilities measured at fair value using Level 3 unobservable inputs (in thousands):

Stock-based compensation

The Company expenses stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value of the awards and forfeitures rates. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of stock-based awards represent management's best estimates and involve inherent uncertainties and the application of management's judgment. All stock-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying individual's role at the Company.

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Net Loss Per Share

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, warrants and stock options that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.

The following potentially dilutive securities outstanding for the three and nine months ended September 30,March 31, 2020 and 2019 and 2018 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive (in thousands):

Amounts in the table reflect the common stock equivalents of the noted instruments.

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Recent Accounting Pronouncements

In February 2016,August 2018, the FASB issued Accounting Standards Update ("ASU") No. 2016-02,Leases("ASU 2016-02"). The new standard establishes a right-of- use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company adopted ASU 2016-02 on January 1, 2019 and the adoption of the standard did not have a material effect on its unaudited condensed consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820)("Topic 820"), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). The amendments in this ASU require certain existing disclosure requirements in Topic 820 to be modified or removed, and certain new disclosure requirements to be added to the Topic. In addition, this ASU allows entities to exercise more discretion when considering fair value measurement disclosures. The Company adopted ASU 2018-13 will beis effective for the Company beginning January 1, 2020 with early adoption permitted. The Company is in the process of evaluating the impact2020.The adoptions of ASU 2018-13 did not have material effect on its consolidatedthe Company's financial statements and related disclosures.statements.

3. Common Stock Offerings

Public Offerings

On March 16, 2020, the Company completed an underwritten public offering pursuant to which it sold 7,500,000 shares of its common stock at a price to the public of $0.60 per share. The net proceeds to the Company from this offering were approximately $4.0 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The shares were offered by the Company pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended.

On February 13, 2020, the Company completed an underwritten public offering, pursuant to which it sold 6,666,667 shares of its common stock at a price to the public of $0.75 per share. On February 19, 2020, the Company sold an additional 999,999 shares of its common stock at a price to the public of $0.75 per share pursuant to the full exercise of the underwriters' option to cover over-allotments. The net proceeds to the Company from this offering were approximately $4.8 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The shares were offered by the Company pursuant to the Company's registration statement on Form S-1 filed with the SEC on January 22, 2020, as amended.

Stock Purchase Agreement

On January 2, 2020, the Company entered into a stock purchase agreement (the "Stock Purchase Agreement") with Vyera, pursuant to which the Company issued to Vyera 1,809,845 registered shares of the Company's common stock (the "Shares"). The Company entered into the Stock Purchase Agreement in accordance with the Vyera Agreement, as amended by the amendment entered into on October 15, 2019, see Note 4. As partial consideration for the assets of Vyera, the Company agreed to issue the Shares pursuant to the Stock Purchase Agreement. The Shares were issued pursuant to the Company's registration statement on Form S-3 (File No. 333-221285), as amended, which was declared effective by the SEC on December 7, 2017, a base prospectus dated December 7, 2017 and a prospectus supplement dated January 2, 2020.

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Securities Purchase Agreement

On August 23, 2019, the Company entered into thea Securities Purchase Agreement with certain institutional investors (the "Securities Purchase Agreement"), pursuant to which the Company agreed to issueissued and sellsold an aggregate of 4,475,000 shares of common stock in a registered direct offering, resulting in total gross proceeds of approximately $6.7 million, before deducting the placement agents' fees and other estimated offering expenses. The shares were offered by the Company pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended. The Company also agreed to issueissued to the investors unregistered warrants to purchase up to 2,237,500 shares of common stock in a concurrent private placement (the "August 2019 Warrants"). The August 2019 Warrants have an exercise price of $1.78 per share of common stock, will be exercisable six months from the date of issuance and will expire four years following the date of issuance. The combined purchase price for one share and one warrant to purchase half of a share of common stock in the offerings was $1.50. The closing of the offerings occurred on August 27, 2019. The Company also agreed, pursuant to the Securities Purchase Agreement, to filefiled a registration statement on Form S-1 byon November 21, 2019 to provide for the resale of the shares of common stock issuable upon the exercise of the August 2019 Warrants (the "Warrant Shares"), and will beis obligated to use commercially reasonable efforts to keep such registration statement effective from the date the warrants initially become exercisable until the earlier of (i) the date on which the Warrant Shares may be sold without registration pursuant to Rule 144 under the Securities Act during any 90 day period, and (ii) the date on which no purchaser owns any warrants or Warrant Shares. On August 23, 2019, the Company also entered into a Placement Agency Agreement (the "Placement Agency Agreement") with Roth Capital Partners, LLC ("Roth"), pursuant to which Roth agreed to serveserved as the placement agent for the issuance and sale of the shares and the warrants, and the Company agreed to paypaid Roth an aggregate fee equal to 7.0% of the gross proceeds received by the Company in the offerings. The Placement Agency Agreement includes indemnity and other customary provisions for transactions of this nature.

Equity Distribution Agreement

On June 17, 2019, the Company entered into the Equity Distribution Agreement with Piper Jaffray & Co., as sales agent ("Piper Jaffray"), pursuant to which the Company may offer and sell, from time to time, through Piper Jaffray (the "Offering") up to $50,000,000 in shares. Any shares offered and sold in the offering will be issued pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended on December 1, 2017 and declared effective on December 7, 2017, the prospectus supplement relating to the offering filed with the SEC on June 17, 2019 and any applicable additional prospectus supplements related to the offering that form a part of the registration statement. The number of shares eligible for sale under the Equity Distribution Agreement will be subject to the limitations of General Instruction I.B.6 of Form S-3. Subject to the terms and conditions of the Equity Distribution Agreement, Piper Jaffray will use its commercially reasonable efforts to sell the shares from time to time, based upon the Company's instructions. Under the Equity Distribution Agreement, Piper Jaffray may sell the shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), including sales made directly on the Nasdaq Capital Market or on any other existing trading market for the shares. Subject to the Company's prior written consent, Piper Jaffray may also sell shares by any other method permitted by law including, but not limited to, privately negotiated transactions. The Company has no obligation to sell any of the shares, and may at any time suspend offers under the Equity Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of all of the shares, or (ii) the termination of the Equity Distribution Agreement according to its terms by either the Company or Piper Jaffray. The Company and Piper Jaffray may each terminate the Equity Distribution Agreement at any time by giving advance written notice to the other party as required by the Equity Distribution Agreement.

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Under the terms of the Equity Distribution Agreement, Piper Jaffray will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Equity Distribution Agreement. The Company will also reimburse Piper Jaffray for certain expenses incurred in connection with the Equity Distribution Agreement, and agreed to provide indemnification and contribution to Piper Jaffray with respect to certain liabilities, including liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). During the three and nine monthsyear ended September 30,December 31, 2019, the Company sold 1,197,676 shares for net proceeds of approximately $2.6 million pursuant to the Equity Distribution Agreement. On August 23, 2019, the Company suspended its continuous offering under the Equity Distribution Agreement.

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Pre-Merger Financing

On January 24, 2019, Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), completed a business combination with Seelos CorporationTherapeutics, Inc., a Delaware corporation ("STI"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the "Merger Agreement") entered into on July 30, 2018. Pursuant to the Merger Agreement, (i) a subsidiary of Apricus merged with and into STI, with STI (renamed as "Seelos Corporation") continuing as a wholly owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger").

On January 24, 2019, STI and Apricus closed a private placement transaction with certain accredited investors (the "Investors"), whereby, among other things, Seelos CorporationSTI issued to investors shares of the Company'sSTI's common stock immediately prior to the Merger in a private placement transaction (the "Financing"), pursuant to the Securities Purchase Agreement, made and entered into as of October 16, 2018, by and among Seelos Corporation,STI, Apricus and the investors, as amended (the "Purchase Agreement").

Pursuant to the Purchase Agreement, Seelos CorporationSTI (i) issued and sold to the Investors an aggregate of 2,374,672 shares of Seelos Corporation'sSTIs common stock aswhich converted pursuant to the exchange ratio in the Merger into the right to receive 1,829,407 shares of the Company's common stock and (ii) issued warrants representing the right to acquire 1,463,519 shares of common stock at a price per share of $4.15, subject to adjustment as provided therein (the "Series A Warrants"), currently adjusted to a price per share of $0.60 per share, and additional warrants initially representing the right to acquire no shares of common stock at a price per share of $0.001, subject to adjustment as provided therein (the "Series B Warrants" together with the Series A Warrants, the "Investor Warrants"), for aggregate gross proceeds of $18.0 million, or $16.5 million net of financing fees. The terms of the Investor Warrants included certain provisions that could result in adjustments to both the number of warrants issued and the exercise price of each warrant, which resulted in the warrants being classified as a liability upon issuance (see Note 7). The Investor Warrants were recorded at fair value of $21.5 million upon issuance and given the liability exceed the proceeds received, a loss of $5.0 million was recognized.

On March 7, 2019, the Company entered into Amendment Agreements (collectively, the "Amendment Agreements") with each Investor amending: (i) the Purchase Agreement, (ii) the Series A Warrants, and (iii) the Series B Warrants. The Amendment Agreements, among other things, (i) fixed the aggregate number of shares of common stock issued and issuable pursuant to the Series B Warrants at 11,614,483 (which number includes shares of common stock issued pursuant to exercises of the Series B Warrants on or prior to March 7, 2019), (ii) fixed the aggregate number of shares of common stock issued and issuable pursuant to the Series A Warrants at 3,629,023 (none of which were exercised as of March 7, 2019), (iii) reduced the duration of the period during which the Investors were limited in the number of shares of common stock subject to the Series B Warrants that Investors can exercise on a daily basis, such that such period terminated on March 21, 2019, (iv) reduced the duration of the period during which the number of shares of common stock underlying the Series B Warrants would adjust based on the volume-weighted average price of the common stock, such that the adjustment period terminated on March 7, 2019, (v) fixed the "Reset Price" based on which the Series B Warrants adjusted on March 7, 2019 at $1.3389, (vi) amended the Purchase Agreement such that the date until which the Company was restricted from effecting certain variable rate transactions would be March 20, 2019, (vii) amended the Series A Warrants so that any references therein to the Series B Warrants refer to the Series B Warrants, as amended or restated from time to time, and (viii) made certain other technical, conforming and clarifying changes.. The terms of the Investor Warrants continue to include certain provisions that could result in a future adjustment to the exercise price of the Investor Warrants and accordingly, they continue to be classified as a liability after the Amendment Agreements.

Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the exercise price of the Series A Warrants automatically decreased from $1.6736 per share to $0.9267 per share as a result of the announcement of the issuance of the August 2019 Warrants pursuant to the Securities Purchase Agreement.

At September 30, 2019, 1.0March 31, 2020, 0.9 million Series A Warrants remain unexercised. All Series B Warrants were exercised during the nine monthsyear ended September 30,December 31, 2019.

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4. License Agreements

Acquisition of License from Ligand Pharmaceuticals Incorporated

On September 21, 2016, the Company entered into a License Agreement (the "License Agreement") with Ligand Pharmaceuticals Incorporated ("Ligand"), Neurogen Corporation and CyDex Pharmaceuticals, Inc. (collectively, the "Licensors"), pursuant to which, among other things, the Licensors granted to the Company an exclusive, perpetual, irrevocable, worldwide, royalty-bearing, nontransferable right and license under (i) patents related to a product known as Aplindore, which is now known as SLS-006, acetaminophen (as it may have been or may be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is acetaminophen), which is now known as SLS-012, an H3 receptor antagonist, which is now known as SLS-010, and either or both of the Licensors' two proprietary CRTh2 antagonists, which are now known collectively as SLS-008 (collectively, the "Licensed Products"), and (ii) copyrights, trade secrets, moral rights and all other intellectual and proprietary rights related thereto. The Company is obligated to use commercially reasonable efforts to (a) develop the Licensed Products, (b) obtain regulatory approval for the Licensed Products in the United States, the European Union (either in its entirety or including at least one of France, Germany or, if at the time the United Kingdom is a member of the European Union, the United Kingdom), the United Kingdom, if at the time the United Kingdom is not a member of the European Union, Japan or the People's Republic of China (each, a "Major Market"), or the United States, and (c) commercialize the Licensed Products in each country where regulatory approval is obtained. The Company has the exclusive right and sole responsibility and decision-making authority to research and develop any Licensed Products and to conduct all clinical trials and non-clinical studies the Company believes appropriate to obtain regulatory approvals for commercialization of the Licensed Products. The Company also has the exclusive right and sole responsibility and decision-making authority to commercialize any of the Licensed Products.

As consideration for the grant of the rights and licenses under the License Agreement, the Company paid to Ligand a nominal option fee. As further consideration for the grant of the rights and licenses to the Company under the License Agreement, the Company was obligated to pay to Ligand an aggregate of $1.3 million within 30 days after the closing of the issuance and sale by the Company of debt and/or equity securities for gross proceeds to the Company of at least $7.5 million.11

In connection with the closing of the Merger, the Company issued 392,307801,253 shares of common stock to settle this obligation.As further consideration for the grant of the rightsLigand and licenses to the Company by Ligand under the License Agreement, the Company agreed to pay to Ligand certain one-time, non-refundable milestone payments upon the achievement of certain financing milestones, consisting of (i) the lesser of $3.5 million or 10% of the net proceeds to the Company in the event of the Company's initial public offering or a financing transaction consummated in connection with a transaction as a result of which the Company's business becomes owned or controlled by an existing issuer with a class of securities registered under the Exchange Act and immediately after such transaction, the security holders of the Company as of immediately before such transaction own, as a result of such transaction, at least 35% of the equity securities or voting power of such issuer, or (ii) the lesser of $3.5 million or 10% of the net proceeds to the Company in the event the Company is acquired. In connection with the closing of the Merger, the Company issued 408,946 shares of common stock to settle this obligation. The Company recognized research and development expense totaling approximately $2.2 million during the ninethree months ended September 30,March 31, 2019 for the common stock issued in connection with the Merger.this License Agreement.

As further consideration for the grant of the rights and licenses under the License Agreement, theThe Company also agreed to pay to Ligand certain one-time, non-refundable regulatory milestone payments in connection with the Licensed Products, other than in connection with Aplindore for the indication of PDParkinson's Disease ("PD") or Restless Leg Syndrome, consisting of (i) $750,000 upon submission of an application with the FDA or equivalent foreign body for a particular Licensed Product, (ii) $3.0 million upon FDA approval of an application for a particular Licensed Product, (iii) $1.125 million upon regulatory approval in a Major Market for a particular Licensed Product, and (iv) $1.125 million upon regulatory approval in a second Major Market for a particular Licensed Product.

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As further consideration for the grant of the rights and licenses under the License Agreement, theThe Company also agreed to pay to Ligand certain one-time, non-refundable regulatory milestone payments in connection with the Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome, consisting of (i) $100,000 upon submission of an application with the FDA or equivalent foreign body for such a particular Licensed Product, (ii) $350,000 upon FDA approval of an application for such a particular Licensed Product, (iii) $125,000 upon regulatory approval in a Major Market for such a particular Licensed Product, and (iv) $125,000 upon regulatory approval in a second Major Market for such a particular Licensed Product.

As further consideration for the grant of the rights and licenses under the License Agreement, theThe Company agreed to pay to Ligand certain one-time, non-refundable commercial milestone payments in connection with the Licensed Products, consisting of (i) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon Aplindore, (ii) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon an H3 receptor antagonist, (iii) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon acetaminophen (as it may have been or may be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is acetaminophen), (iv) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon CRTh2 antagonists, (v) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon Aplindore, (vi) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon an H3 receptor antagonist, (vii) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon acetaminophen (as it may have been or may be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is acetaminophen), and (viii) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon CRTh2 antagonists.

The Company will also pay to Ligand middle single-digit royalties on aggregate annual net sales of Licensed Products other than in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are covered under a licensed patent and a tiered incremental royalty in the upper single digit to lower double digit range on aggregate annual net sales of Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are covered under a licensed patent. Additionally, the Company will pay to Ligand low single digit royalties on aggregate annual net sales of Licensed Products other than in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are not covered under a licensed patent and a tiered incremental royalty in the lower single digit to middle single digit range on aggregate annual net sales of Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are not covered under a licensed patent.

The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.March 31, 2020.

Acquisition of Assets from Phoenixus AG f/k/a Vyera Pharmaceuticals, AG and Turing Pharmaceuticals AG ("Vyera")

On May 25, 2017, the Company entered into a non-binding term sheet to acquire TUR-002 (intranasal ketamine) ("TUR-002") from Vyera. During the year ended December 31, 2017, the Company recorded $400,000 in research and development expenses related to the non-refundable but creditable payments to continue to negotiate exclusively with Vyera while the Company continued to identify financing terms with other parties to provide the necessary funding to purchase TUR-002.

On January 18, 2018, the Company and Vyera entered into an Amendment to the May 25, 2017 term sheet for TUR-002. The Company paid $100,000 as a non-refundable but creditable payment to continue to negotiate exclusively with Vyera to purchase TUR-002.

On March 6, 2018, the Company entered into an Asset Purchasethe Vyera Agreement with Vyera, as amended by an amendment thereto entered into on May 18, 2018 and an amendment thereto entered into on December 31, 2018 (as amended, the "Vyera Agreement"), pursuant to which the Company agreed to acquireacquired the assets (the "Vyera Assets") and liabilities (the "Vyera Assumed Liabilities"), of Vyera related to a product candidate known as TUR-002 (intranasal ketamine), which is now known as SLS-002. The Company is obligated to use commercially reasonable efforts to seek regulatory approval in the United States for and commercialize SLS-002. The Company agreed that if it receives regulatory approval to commence a Phase 3 clinical trial

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As consideration for SLS-002 and no third party has alleged any claim of conflict, infringement, invalidity or other violation of any rights of others with regard to the Vyera Assets, then the Company must commencepaid to Vyera a Phase 3 clinical trialnon-refundable cash payment of $150,000 on May 21, 2018. As further consideration for SLS-002the Vyera Assets, upon public announcement of the entry by June 30, 2020 (the "Phase III Obligation"),Apricus and ifSTI into the Merger Agreement, the Company failedpaid to do so,Vyera a non-refundable cash payment of $150,000. As further consideration for the Vyera Assets, the Company issued to Vyera 191,529 shares of common stock and paid Vyera a non-refundable cash payment of $1,000,000 on January 29, 2019.

Pursuant to the amendment to the Asset Purchase Agreement would terminate immediatelyentered into by the Company and become nullVyera on October 15, 2019, the Company issued Vyera 1,809,845 registered shares of the Company's common stock on January 2, 2020 and voidmade cash payments to Vyera in the amounts of $750,000, $750,000 and $1.0 million in October 2019, January 2020 and April 2020, respectively and is obligated to pay $1.0 million in July 2020 (each, a "Payment Obligation"). In event the Company fails to timely meet a Payment Obligation (subject to a cure period), Vyera has the right to require that all of the Vyera Assets and the Vyera Assumed Liabilities would automatically be returned to Vyera. As partial consideration for the Vyera Assets, the Company agreed to make a non-refundable milestone payment of $3.5 million upon dosing of the first patient in a Phase III clinical trial for SLS-002 (the "Dosing Milestone").

In the event that the Company sells, directly or indirectly, all or substantially all of the Vyera Assets to a third party, then the Company must pay Vyera an amount equal to 4% of the net proceeds actually received by the Company as an upfront payment in such sale.

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As consideration for the Vyera Assets, the Company paid to Vyera a non-refundable cash payment of $150,000. As further consideration for the Vyera Assets, upon public announcement of the entry by Apricus and Seelos Corporation into the Merger Agreement, the Company paid to Vyera a non-refundable cash payment of $150,000. As further consideration for the Vyera Assets, the Company issued to Vyera 191,529 shares of common stock and paid Vyera a non-refundable cash payment of $1,000,000. The Company agreed to pay to Vyera certain one-time, non-refundable milestone payments consisting of (i) $3.5 million upon dosing of the first patient in a Phase 3III clinical trial for SLS-002, (ii) $10.0 million upon approval by the FDA of a new drug application (an "NDA"), with respect to SLS-002, (iii) $5.0 million upon approval by the European Medicines Agency (the "EMA") of the foreign equivalent to an NDA with respect to SLS-002 in a Major Market, (iv) $2.5 million upon approval by the EMA of the foreign equivalent to an NDA with respect to SLS-002 in a second Major Market, (v) $5.0 million upon the achievement of $250.0 million in net sales of SLS-002, (vi) $10.0 million upon the achievement of $500.0 million in net sales of SLS-002, (vii) $15.0 million upon the achievement of $1.0 billion in net sales of SLS-002, (viii) $20.0 million upon the achievement of $1.5 billion in net sales of SLS-002, and (ix) $25.0 million upon the achievement of $2.0 billion in net sales of SLS-002. The Company will also pay to Vyera a royalty percentage in the mid-teens on aggregate annual net sales of SLS-002. Also see Note 11.

The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.March 31, 2020.

Acquisition of License from Stuart Weg, MD

On August 29, 2019, the Company entered into an amended and restated exclusive license agreement with Stuart Weg, M.D.(the (the "Weg License Agreement"), pursuant to which the Company was granted an exclusive worldwide license to certain intellectual property and regulatory materials related to SLS-002. Under the terms of the Weg License Agreement, the Company paid an upfront license fee of $75,000 upon execution of the agreement. The Company agreed to pay additional consideration to Dr. Weg as follows: (i) $0.1 million on January 2, 2020, (ii) $0.125 million on January 2, 2021, and (iii) in the event the FDA has not approved an NDA for a product containing ketamine in any dosage on or before December 31, 2021, $0.2 million on January 2, 2022. The Company paid the required $0.1 million on January 2, 2020. As further consideration, the Company agreed to pay Dr. Weg certain milestone payments consisting of (i) $0.1 million and shares of common stock equal to $0.15 million divided by the closing sales price of the Company's common stock upon the issuance of the first patent directed to an anxiety indication, (ii) $0.5 million after the locking of the database and unblinding the data for the statistically significant readout of a Phase III trial of an intranasal racemic ketamine product that has been conducted for the submission ofunder an NDA or equivalent seeking regulatory approval in the foreign equivalent to an NDAUnited States, the United Kingdom, France, Germany, Italy, Spain, China or Japan, or seeking regulatory approval from the EMA in a Major Marketthe EU, for such product (the "Milestone Product"), (iii) $3.0 million upon FDA approval of an NDA for the Milestone Product, (iv) $2.0 million upon regulatory approval by the EMA for the Milestone Product, (v) $1.5 million upon regulatory approval in Japan for the Milestone Product; provided, however, that the maximum amount to be paid by the Company under milestones (i)-(v) will be $6.6 million. The Company will also pay to Dr. Weg a royalty percentage equal to 2.25% on the sale of each product containing ketamine in any dosage.

The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at March 31, 2020.

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Acquisition of Assets from Bioblast Pharma Ltd. ("Bioblast")

On February 15, 2019, the Company entered into an Asset Purchase Agreement (the "Bioblast Asset Purchase Agreement") with Bioblast. ThePursuant to the Bioblast Asset Purchase Agreement, the Company acquired all of the assets of Bioblast relating to a therapeutic platform known as Trehalose (the "Bioblast Asset Purchase"). The Company paid to Bioblast $1.5 million in cash,February 2019 and the Company agreed to pay to Bioblast an additional $2.0 million within one-year of the closing of the Bioblast Asset Purchase.in February 2020. Accordingly, the Company recognized a $3.5 million charge to research and development expense during the ninethree months ended September 30,March 31, 2019. TheUnder the terms of the Bioblast Asset Purchase Agreement, the Company agreed to pay additional consideration to Bioblast upon the achievement of certain milestones in the future, as follows: (i) within 15 days following the completion of the Company's first Phase 2(b)II(b) clinical trial of Trehalose satisfying certain criteria, the Company will pay to Bioblast $8.5 million; and (ii) within 15 days following the approval for commercialization by the FDA or the Health Products and Food Branch of Health Canada of the first NDA or New Drug Submission, respectively, of Trehalose filed by the Company or its affiliates, the Company will pay to Bioblast $8.5 million. In addition, the Company agreed to pay Bioblast a cash royalty equal to 1% of the net sales of Trehalose. Under the terms of the Bioblast Asset Purchase, the Company assumed a collaborative agreement with Team Sanfilippo Foundation ("TSF"),TSF, a nonprofit medical research foundation founded by parents of children with Sanfilippo syndrome. TSF, upon approval by the FDA, planned to begin an open label, Phase 2(b)II(b) clinical trial in up to 20 patients with Sanfilippo syndrome, which is now known under the study name SLS-005. The Company will provide the clinical supply of Trehalose. The terms of the Bioblast Asset Purchase Agreement entitle the Company access to all clinical data from this trial. On July 15, 2019, TSF and the Company amended the agreement whereby the Company agreed to assume responsibility for the Phase 2(b)II(b)/3III clinical trial and TSF agreed to provide a grant of up to $1.5 million towards the funding of the trial.

The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.

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March 31, 2020.

Acquisition of License from The Regents of the University of California

On March 7, 2019, the Company entered into an exclusive license agreement (the "UC Regents License Agreement") with The Regents of the University of California ("The UC Regents") forpursuant to which the Company was granted an exclusive license to intellectual property owned by The UC Regents pertaining to a technology that was created by researchers at the University of California, Los Angeles (UCLA). Such technology relates to a family ofof rationally-designed peptide inhibitors that target the aggregation of alpha-synuclein (α-synuclein). The Company plans to study this initial approach in PD and will further evaluate the potential clinical approach in other disorders affecting the centralcentral nervous system ("CNS"). This program is now known as SLS-007. Upon entry into the license agreement with the UC Regents License Agreement, the Company paid to The UC Regents $0.1 million and recognized a $0.1 million charge to research and development expense during the ninethree months ended September 30,March 31, 2019. TheUnder the terms of the UC Regents License Agreement, the Company agreed to pay additional consideration upon the achievement of certain milestones in the future, as follows: (i) within 90 days following the completion of dosing of the first patient in a Phase 1I clinical trial, the Company will pay $50,000; (ii) within 90 days following dosing of the first patient in a Phase 2II clinical trial, the Company will pay $0.1 million; (iii) within 90 days following dosing of the first patient in a Phase 3III clinical trial, the Company will pay $0.3 million; (iv) within 90 days following the first commercial sales in the U.S., the Company will pay $1.0 million; (v) within 90 days following the first commercial sales in any European market, the Company will pay $1.0.million;$1.0 million; and (vi) within 90 days following $250 million in cumulative worldwide net sales of a licensed product, the Company will pay $2.5 million. The Company is also obligated to pay a single digit royalty on sales of the product, if any. In addition, if the Company fails to achieve certain milestones within a specified timeframe, The UC Regents may terminate the agreement or reduce the Company's license to a nonexclusive license.

The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.March 31, 2020.

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Acquisition of License from Duke University

On June 27, 2019, the Company entered into an exclusive license agreement (the "Duke License Agreement") with Duke University pursuant to which the Company was granted an exclusive license to a gene therapy program targeting the regulation of the SNCA gene, which encodes alpha-synuclein expression. The Company plans to study this initial approach in PD and will further evaluate the potential clinical approach in other disorders affecting the CNS. This program is now known as SLS-004. TheUpon entry into the Duke License Agreement, the Company paid to Duke University $0.1 million and recognized $0.1 million charge to research and development expense during the ninethree months ended SeptemberJune 30, 2019. The Company agreed to pay additional consideration to Duke University upon the achievement of certain milestones in the future, as follows: (i) within 30 days following filing of an IND following the completion of preclinical studies including comprehensive validation of the platform, the Company will pay $0.1 million; (ii) within 30 days following dosing of the first patient in a Phase 1I clinical trial, the Company will pay $0.2 million; (iii) within 30 days following dosing of the first patient in a Phase 2II clinical trial, the Company will pay $0.5 million; (iv) within 30 days following dosing of the first patient in a Phase 3III clinical trial, the Company will pay $1.0 million; and (v) within 30 days following an NDA approval, the Company will pay $2.0 million. The Company is also obligated to pay a single digit royalty on sales of the product, if any. In addition, if the Company fails to achieve certain milestones within a specified timeframe, Duke University may terminate the agreement.

The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.March 31, 2020.

5. Acquisition of ApricusBusiness Combination

On January 24, 2019, the CompanyApricus completed the acquisition of Apricusbusiness combination with STI in accordance with the terms of the Merger Agreement.

The Merger was accounted for as a reverse recapitalization under U.S. GAAP because the primary assets of Apricus were nominal at the close of the Merger. SeelosSTI was determined to be the accounting acquirer based upon the terms of the Merger and other factors, including: (i) SeelosSTI stockholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for SeelosSTI common stock owned the majority of the Company immediately following the effective time of the Merger, (ii) SeelosSTI holds the majority (four of five) of board seats of the combined company, and (iii) Seelos'STI's management holds all key positions in the management of the combined company.

Upon the completion of the Merger, SeelosSTI acquired no tangible assets and assumed no employees or operation from Apricus. Additionally, Apricus' intellectual property was considered to have no value. The remaining Apricus liabilities had a fair value of approximately $300 thousand.

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In connection with the Merger, SeelosSTI entered into a Contingent Value Rights Agreement (the "CVR Agreement"). Pursuant to the CVR Agreement, Apricus stockholders received one contingent value right ("CVR") for each share of Apricus common stock held of record immediately prior to the closing of the Merger. Each CVR represents the right to receive payments based on Apricus' U.S. assets related to products in development, intended for the topical treatment of erectile dysfunction, which are known as Vitaros in certain countries outside of the United States (the "CVR Product Candidate"). In particular, CVR holders will be entitled to receive 90% of any cash payments (or the fair market value of any non- cashnon-cash payments) exceeding $500,000 received, during a period of ten years from the closing of the Merger, based on the sale or out-licensing of Apricus' CVR Product Candidate intangible asset, including any milestone payments (the "Contingent Payments"), less reasonable transaction expenses. SeelosSTI is entitled to retain the first $500,000 and 10% of any Contingent Payments. SeelosSTI assigned no value to the CVR Product Candidate intangible asset as of September 30, 2019March 31, 2020 or the CVR in the acquisition accounting.

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6. Convertible Notes

From May 2017 to October 2018, the Company entered into convertible note agreements with investors.investors for the issuance of convertible notes (the "Notes"). The aggregate principal amount of the Notes was $2.3 million, whichand the Notes were due no later than April 30, 2019 with simple interest at the rate of 8% per annum. The Notes automatically converted, upon the issuance of preferred stock of the Company for capital-raising purposes occurring on or prior to the Notes' maturity date resulting in gross proceeds in excess of a specific amount, into shares of common stock of the Company by dividing the then-outstanding balance of each convertible note by 80% or 90%, depending on the terms for each note, of the lowest purchase price per share paid, or $9.70 to $10.91 per share, respectively, by another investor in the qualifying financing, which condition was satisfied by the Pre-Merger Financing.

The Notes arewere carried at fair value. The Company recognized an adjustment relating to changes in the Notes fair value of $0 and $57$109 thousand during the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and $109 thousand and $2 thousand during the nine months ended September 30, 2019 and 2018, respectively,respectively.

In connection with the closing of the Merger, the Notes plus unpaid interest were converted into 172,295172,284 shares of common stock at a price of $9.70 or $10.91 per share.

7. Stockholders' Equity

Preferred Stock

The Company is authorized to issue 10.0 million shares of preferred stock, par value $0.001. No shares of preferred stock were outstanding as of September 30, 2019March 31, 2020 or December 31, 2018.2019.

Common Stock

The Company has authorized 120,000,000 shares of common stock as of September 30, 2019March 31, 2020 and had authorized 60,000,000 shares of common stock as of December 31, 2018.2019. Each share of common stock isentitled to one voting right. Common stock owners are entitled to dividends when funds are legally available and declared by the Board of Directors.

Warrants

August 2019 Warrants

The August 2019 Warrants are exercisable for 2,237,500 shares of common stock at an exercise price per share equal to $1.78. The August 2019 Warrants are exercisable beginning six months after the date of issuance and have a term of four years from the date of issuance.

As of September 30, 2019,March 31, 2020, 2.2 million August 2019 Warrants remain outstanding at an exercise price of $1.78 per share.

Series A Warrants

The Series A Warrants were initially exercisable for 1,463,519 shares of common stock at an exercise price per share equal to $4.15, which was adjusted several times pursuant to 2,640,128 shares of the common stock at an exercise price per share equal to $2.3005 on February 27, 2019, which was further adjustedterms thereof to 3,629,023 shares of common stock at an exercise price per share equal to $1.6736 on March 7, 2019, in each case essentially due to trading at a lower price, pursuant to the terms thereof. Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the exercise price of the Series A Warrants automatically decreased from $1.6736$0.60 per share to $0.9267 per share as a result of the announcement of the issuance of the August 2019 Warrants pursuant to the Securities Purchase Agreement.share. The Series A Warrants were immediately exercisable upon issuance and have a term of five years from the date of issuance.

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During the three and nine months ended September 30,March 31, 2020 and 2019, 0 and 2.61.6 million, respectively, Series A Warrants were exercised for approximately $0 and $4.4$2.6 million, respectively. As of September 30, 2019, 1.0March 31, 2020, 0.9 million Series A Warrants remain outstanding at an exercise price of $0.9267$0.60 per share.

Series B Warrants

The Series B Warrants were initially exercisable for no shares of common stock, which was adjusted to 7,951,090 shares of common stock on February 27, 2019 and which was further adjusted to 11,614,483 shares of common stock on March 7, 2019, in each case essentially due to trading at a lower price, pursuant to the terms thereof. The Series B Warrants had an exercise price of $0.001, were immediately exercisable upon issuance and provided for an expiration date of the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder.

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During the ninethree months ended September 30,March 31, 2019, 11.6 million Series B Warrants were exercised for approximately $11,614.$11,609. As of September 30,December 31, 2019, no Series B Warrants remain outstanding and the Series B Warrants are therefore no longer subject to any further changes in warrants or exercise price.

A summary of warrant activity during the ninethree months ended September 30, 2019March 31, 2020 is as follows (in thousands):

The August 2019 Warrants, the Series A Warrants and the Series B Warrants were each recognized as a liability at their fair value upon issuance. The warrant liability is remeasured to the then fair value prior to their exercise or at period end for warrants that are un-exercised and the gain or loss recognized in earnings during the period.

8. Stock-based Compensation

The Company has athe Amended and Restated Apricus 2012 Stock Long Term Incentive Plan (the "2012 Plan"), which provides for the issuance of incentive and non-incentive stock options, restricted and unrestricted stock awards, stock unit awards and stock appreciation rights. Options and restricted stock units granted generally vest over a period of one to four years and have a maximum term of ten years from the date of grant. As of September 30, 2019,March 31, 2020, an aggregate of 373,7981,538,582 shares of common stock were authorized under the Apricus 2012 Plan, of which no shares of common stock were available for future grants. Upon completion of the Merger, the Company assumed the Seelos Therapeutics, Inc. 2016 Equity Incentive Plan (the "2016 Plan") and awards outstanding under the 2016 Plan became awards for common stock. Effective as of the Merger, no further awards may be issued under the 2016 Plan.

On July 28, 2019, the Compensation Committee of the Board of Directors (the "Compensation Committee") of the Company adopted the Seelos Therapeutics, Inc. 2019 Inducement Plan (the "2019 Inducement Plan"), which became effective on August 12, 2019. The 2019 Inducement Plan is substantially similar to the 2016 Plan. The 2019 Inducement Plan provides for the grant of equity-based awards in the form of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units, including restricted stock units, performance units and cash awards, solely to prospective employees of the Company or an affiliate of the Company provided that certain criteria are met. Awards under the 2019 Inducement Plan may only be granted to an individual, as a material inducement to such individual to enter into employment with the Company, who (i) has not previously been an employee or director of the Company or (ii) is rehired following a bona fide period of non-employment with the Company. The maximum number of shares available for grant under the 2019 Inducement Plan is 1,000,000 shares of the Company's common stock. The 2019 Inducement Plan is administered by the Compensation Committee and expires on August 12, 2029.

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Stock options

During the ninethree months ended September 30, 2019,March 31, 2020, the Company granted 341,035631,688 incentive stock options and 449,312 non-qualified stock options to employees with a weighted average exercise price per share of $2.20$1.42 and a 10-year term, subject to the terms and conditions of the 2012 Plan above. The stock options are subject to time vesting requirements. The stock options granted to employees vest 25% on the first anniversary of the grant and monthly thereafter over the next three years.

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During the ninethree months ended September 30, 2019,March 31, 2020, the Company also granted 136,00064,000 non-qualified stock options to non-employee directors with a weighted average exercise price per share of $2.33$1.42 and a 10-year term, subject to the terms and conditions of the 2012 Plan above. 72,000 of the stock options granted to non-employee directors vest 1/3^rd on the first anniversary of the grant and monthly thereafter over the next two years. 64,000 of theThese stock options granted to non-employee directors vest monthly over the 12 months following the grant.

The fair value of stock option grants are estimated on the date of grant using the Black-Scholes option-pricing model. The Company was historically a private company and lacked sufficient company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. TheAdditionally, due to an insufficient history with respect to stock option activity and post-vesting cancellations, the expected term of stock options grantedassumption for employee grants is equal tobased on a permitted simplified method, which is based on the vesting period and contractual term for each tranche of the option award.awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

During the ninethree months ended September 30, 2019,March 31, 2020, no stock options were exercised or forfeited.

The following assumptions were used in determining the fair value of the stock options granted during the ninethree months ended September 30, 2019:March 31, 2020:

A summary of stock option activity during the ninethree months ended September 30, 2019March 31, 2020 is as follows (in thousands):

The Company recorded $133,000 and $315,000 infollowing table summarizes the total stock-based compensation expense forresulting from share-based awards recorded in the three and nine months ended September 30, 2019, respectively and $3,000 and $34,000 in stock-based compensation expense for the three and nine months ended September 30, 2018, respectively.Company's condensed consolidated statements of operations (in thousands):

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9. Related Party Transactions

IRRAS AB ("IRRAS") is a commercial stage medical technology company of which a former director of the Company is also the President, Chief Executive Officer and director. In January 2018, the Company and IRRAS entered into a Sublease, pursuant to which the Company subleased to IRRAS excess capacity in its corporate headquarters. The sublease had a term of two years. On October 30, 2018, the Company and IRRAS entered into an amended and restated sublease, commencing January 1, 2019, pursuant to which the Company agreed to sublease to IRRAS the remainder of its San Diego, California location (the "IRRAS Restated Sublease"), which satisfied a closing condition related to the Merger. The IRRAS Restated Sublease hashad a term of one year and provides for aggregate payments due to the Company of approximately $0.4 million, which approximates fair value. This sublease expired in January 2020 and has not been renewed.

10. Commitments and Contingencies

Leases

In March 2019, the Company entered into a nine-month office space rental agreement for its headquarters in New York, New York expiring November 2019. In November 2019, the Company renewed this rental agreement for an additional twelve months. The rental agreement contains a base rent of approximately $8,000$9,000 per month.

In December 2011, Apricus entered into a five-year lease agreement for its original headquarters in San Diego, California expiring December 31, 2016. In December 2015, Apricus amended the lease agreement to extend the term through January 31, 2020. The Company hashad an option to extend the lease an additional three years. The original lease term contained a base rent of approximately $24,000 per month with 3% annual escalations, plus a supplemental real estate tax and operating expense charge to be determined annually. The Company elected to not renew this lease in January 2020.

In 2018, Apricus subleased excess capacityFor the three months ended March 31, 2020 and 2019, rent expense totaled approximately $44,000 and $18,000, respectively.

Future minimum rental payments under operating leases as of March 31, 2020 are approximately $77,000 for 2020.

Contractual Commitments

The Company has entered into long-term agreements with certain manufacturers and suppliers that require it to make contractual payment to these organizations. The Company expects to enter into additional collaborative research, contract research, manufacturing, and supplier agreements in its San Diego location to a subtenant under a non-cancellable lease. The sublease had a termthe future, which may require up-front payments and long-term commitments of two years and aggregate payments due to Apricus of approximately $0.3 million. On October 30, 2018, Apricus amended and restated its sublease, commencing January 1, 2019, pursuant to which Apricus agreed to sublease the remainder of its San Diego location, which satisfied a closing condition related to the Merger. The amended and restated sublease has a term of one year and provides for aggregate payments due to the Company of approximately $0.4 million, which approximate fair value.cash.

Litigation

As of September 30, 2019,March 31, 2020, there was no material litigation against the Company.

11. Subsequent Event

On October 15, 2019, the Company and Vyera entered into an amendment (the "Amendment") to the Vyera Agreement. Pursuant to the Amendment, the Company remains obligated to use its commercially reasonable efforts to seek regulatory approval in the United States for and commercialize SLS-002. However, the Amendment eliminates the Phase III Obligation. In addition, in replacement of the Company's obligation to pay the Dosing Milestone, the Company agreed pursuant to the Amendment to (i) issue Vyera in January 2020 that number of registered shares of the Company's common stock equal to $2,250,000 divided by the 30-day volume weighted average price of the common stock calculated prior to such issuance date,provided that the Company may elect, in its sole discretion, to pay Vyera cash (in whole or in part) in lieu of any shares of the Company's common stock and (ii) make cash payments to Vyera in the amounts of $750,000, $750,000, $1.0 million and $1.0 million in October 2019, early January 2020, early April 2020 and early July 2020, respectively (each, a "Payment Obligation"). In event the Company fails to timely meet a Payment Obligation (subject to a cure period), Vyera has the right to require that all of the Vyera Assets and the Vyera Assumed Liabilities be returned to Vyera.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Disclosures Regarding Forward-Looking Statements

The following should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report as well as in conjunction with the Risk Factors section and in our Annual Report on Form 10- K for the year ended December 31, 20182019 as filed with the United States Securities and Exchange Commission ("SEC") on March 28, 2019.17, 2020. This report and our Form 10-K include forward-looking statements made based on current management expectations pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.

This report includes "forward-looking statements" within the meaning of Section 21E of the Exchange Act. Those statements include statements regarding the intent, belief or current expectations of Seelos Therapeutics, Inc. and its subsidiaries ("we," "us," "our," the "Company" or "Seelos") and our management team. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in the forward-looking statements. These risks and uncertainties include but are not limited to those risks and uncertainties set forth in Item 1A of this Report. In light of the significant risks and uncertainties inherent in the forward-looking statements included in this Report, the inclusion of such statements should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. Further, these forward-looking statements reflect our view only as of the date of this report. Except as required by law, we undertake no obligations to update any forward-looking statements and we disclaim any intent to update forward-looking statements after the date of this report to reflect subsequent developments. Accordingly, you should also carefully consider the factors set forth in other reports or documents that we file from time to time with the SEC.

We have common law trademark rights in the unregistered marks "Seelos Therapeutics, Inc.," "Seelos," and the Seelos logo in certain jurisdictions. Vitaros is a registered trademark of Ferring International Center S.A. ("Ferring") in certain countries outside of the United States. Solely for convenience, trademarks and tradenames referred to in this Quarterly Report on Form 10-Q appear without the ^® and^™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.

Overview

We are a clinical-stage biopharmaceutical company focused on developing novel technologies and therapeutics for the treatment of central nervous system, respiratory and other disorders.

We plan on developing our clinical and regulatory strategy with our internal research and development team with a view toward prioritizing market introduction as quickly as possible. Our lead programs following the completion of the merger are currently SLS-002 for the potential treatment of suicidality in post-traumatic stress disorder,Major Depressive Disorder ("MDD") and in major depressive disorder,Post-Traumatic Stress Disorder ("PTSD"), and SLS-005 for Sanfilippo syndrome and SLS-006 for the potential treatment of Parkinson's Disease ("PD").Sanfilippo syndrome. Additionally, we are developing several preclinical programs, most of which have well-defined mechanisms of action, including: SLS-004, licensed from Duke University, and SLS-007, licensed from The Regents of the University of California, for the potential treatment of PD,Parkinson's Disease ("PD"), SLS-008, targeted at chronic inflammation in asthma and orphan indications such as pediatric esophagitis, SLS-010 in narcolepsy and related disorders and SLS-012, an injectable therapy for post-operativepost- operative pain management.

MergerRecent Developments

Coronavirus (COVID-19)

In March 2020, we began taking precautionary measures to protect the health and safety of our employees and contractors and further assessing the actual and potential impact of the coronavirus ("COVID-19") pandemic on our business, financial condition and operations. COVID-19 infections have been reported throughout the United States, along with Apricus Biosciences, Inc.other jurisdictions in which our suppliers, partners and collaborators operate. In addition, COVID-19 has caused disruption and volatility in the global capital markets, and has led to an economic slowdown. Certain national, provincial, state and local governmental authorities have issued proclamations and/or directives aimed at minimizing the spread of COVID-19 and additional, more restrictive proclamations and/or directives may be issued in the future. Before the recent COVID-19 outbreak, most of our employees worked remotely. In addition, our ongoing clinical trial for SLS-002 in suicidality in MDD and PTSD completed the clinical testing phase in February 2020 and is currently in the data review and report writing stage. Accordingly, the impact of the travel restrictions and shelter-in-place orders have not had a material impact on our operations to date. Additionally, the pandemic has not affected our liquidity as we maintain our resources in the form of cash.

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In addition, although we do not expect the preventative measures taken to date to have a material adverse impact on our business for the second quarter of 2020, the ultimate impact of the COVID-19 pandemic on our business, financial condition and results of operations is unknown and will depend on future developments and risks, which are highly uncertain and cannot be predicted. These developments and risks include, among others, the duration and severity of the COVID-19 outbreak, the impact on capital markets, the impact on our partners and the regulatory agencies that oversee our sector and any additional preventative and protective actions that governmental authorities, or we, may implement, any of which may result in an extended period of business disruption, including potential delays in commencing future clinical trials or delays in completing enrollment for any clinical trials we may commence. Any resulting financial impact cannot be reasonably estimated at this time, but the COVID-19 pandemic may force us to make adjustments to our business, our plans and our timeline for developing assets, including our programs. In addition, the pandemic is anticipated to have a material adverse impact on our business, financial condition and results of operations, including our ability to raise additional capital, if the pandemic continues at its current rate into the third quarter of 2020. See Part II, Item 1A, Risk Factors, for an additional discussion of risks related to COVID-19.

Merger

On January 24, 2019, Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), completed a business combination with Seelos Therapeutics, Inc., a Delaware corporation ("Seelos"STI"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the "Merger Agreement") entered into on July 30, 2018. Pursuant to the Merger Agreement, (i) a subsidiary of Apricus merged with and into Seelos,STI, with SeelosSTI (renamed as "Seelos Corporation") continuing as a wholly-ownedwholly owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger").

All share information has been retroactively restated to reflect Upon completion of the issuanceMerger, we focused on the development and commercialization of stock to Seelos' pre-Merger stockholders by Apricuscentral nervous system ("CNS") therapeutics with known mechanisms of action in the Merger.

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areas with a highly unmet medical need.

We intend to become a leading biopharmaceutical company focused on neurological and psychiatric disorders, including orphan indications. Our business strategy includes:

• Advancing SLS-002 in suicidality in PTSDMDD and in major depressive disorder;PTSD;
• Advancing SLS-004 in PD;
• Advancing SLS-005 in Sanfilippo syndrome;
• Advancing SLS-007 in PD as a monotherapy
• Filing an IND for SLS-008 in pediatric esophagitis and another undisclosed indication;
• Forming strategic collaborations in the European Union and Asian markets; and
• Acquiring synergistic assets in the central nervous system therapy space through licensing and partnerships.

Pre-Merger Financing

On October 16, 2018, we entered into a Securities Purchase Agreement by and among us, Apricus and the investors listed on the Schedule of Buyers attached thereto (the "Buyers"), as amended (the "Pre-Merger SPA").  Pursuant to the Pre-Merger SPA, among other things, we issued to the Buyers (i) an aggregate of 1,829,406 shares of our common stock and (ii) two series warrants to purchase shares of common stock (the "Series A Warrants" and the "Series B Warrants" and together, the "Pre-Merger Warrants") for an aggregate purchase price of approximately $18.0 million, or $16.5 million net of financing fees. The Pre-Merger Warrants were recorded at fair value of $21.5 million upon issuance and given the liability exceed the proceeds received, a loss of $5.0 million was recognized.

We issued the Pre-Merger Warrants on January 31, 2019 and on February 14, 2019, we registered the resale of the shares of common stock underlying the Pre-Merger Warrants as required by the Registration Rights Agreement that we entered into on October 16, 2018 in connection with the Pre-Merger SPA. 

The Series A Warrants were initially exercisable for 1,463,519 shares of common stock at an exercise price per share equal to $4.15, which was adjusted to 2,640,128 shares of common stock at an exercise price per share equal to $2.3005 on February 27, 2019, which was further adjusted to 3,629,023 shares of common stock at an exercise price per share equal to $1.6736 on March 7, 2019, in each case, pursuant to the terms thereof. Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the exercise price of the Series A Warrants automatically decreased from $1.6736 per share to $0.9267 per share as a result of the announcement of the issuance of warrants pursuant to a Securities Purchase Agreement, dated August 23, 2019. The Series A Warrants were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series B Warrants were initially exercisable for no shares of common stock, which was adjusted to 7,951,090 shares of our common stock on February 27, 2019 and which was further adjusted to 11,614,483 shares of common stock on March 7, 2019, in each case, pursuant to the terms thereof. The Series B Warrants had an exercise price of $0.001, were immediately exercisable upon issuance and provided for an expiration date of the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder.

At September 30, 2019, 1.0 million Series A Warrants remain unexercised. As of September 30, 2019, no Series B Warrants remain outstanding.

Liquidity, Capital Resources and Financial Condition

Liquidity

We have nogenerated limited revenues, other than non-recurring grant revenue related to our agreement with Team Sanfilippo Foundation ("TSF"), incurred operating losses since inception, and we expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2019,March 31, 2020, we had $15.3$12.7 million in cash and an accumulated deficit of $45.4$60.9 million.

On August 23, 2019, we entered into a Securities Purchase Agreement with certain institutional investors (the "Securities Purchase Agreement"), pursuant to which we agreed to issue and sell an aggregate of 4,475,000 shares of common stock, resulting in total gross proceeds of approximately $6.7 million, before deducting the placement agents' fees and other estimated offering expenses. The shares were offered by us pursuant to our shelf registration statement on Form S-3 filed with the Securities and Exchange Commission (the "SEC") on November 2, 2017, as amended (see Note 3). We also agreed to issue to the investors unregistered warrants to purchase up to 2,237,500 shares of common stock in a concurrent private placement (the "August 2019 Warrants"). The August 2019 Warrants have an exercise price of $1.78 per share of common stock, will be exercisable six months from the date of issuance and will expire four years following the date of issuance. The combined purchase price for one share and one warrant to purchase half of a share of common stock in the offerings was $1.50.

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On June 17, 2019, we entered into an Equity Distribution Agreement (the "Equity Distribution Agreement") with Piper Jaffray & Co., as sales agent ("Piper Jaffray"), pursuant to which we may offer and sell, from time to time, through Piper Jaffray up to $50,000,000 in shares of our common stock. Any shares offered and sold in the offering will be issued pursuant to our registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended. Under the Equity Distribution Agreement, Piper Jaffray may sell the shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), including sales made directly on the Nasdaq Capital Market ("Nasdaq") or on any other existing trading market for the shares. Subject to our prior written consent, Piper Jaffray may also sell shares by any other method permitted by law, including but not limited to privately negotiated transactions. We have no obligation to sell any of the shares, and may at any time suspend offers under the Equity Distribution Agreement. The offering will terminate upon the earlier of (i) the sale of all of the shares or (ii) the termination of the Equity Distribution Agreement according to its terms by either us or Piper Jaffray. We and Piper Jaffray may each terminate the Equity Distribution Agreement at any time by giving advance written notice to the other party as required by the Equity Distribution Agreement. Under the terms of the Equity Distribution Agreement, Piper Jaffray will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Equity Distribution Agreement. We will also reimburse Piper Jaffray for certain expenses incurred in connection with the Equity Distribution Agreement, and agreed to provide indemnification and contribution to Piper Jaffray with respect to certain liabilities, including liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). During the three and nine months ended September 30, 2019, we sold 1,197,676 shares for net proceeds of approximately $2.6 million pursuant to the Equity Distribution Agreement. On August 23, 2019, we suspendedhistorically funded our continuous offering under the Equity Distribution Agreement.

Through October 31, 2018, we obtained proceeds of $2.3 million fromoperations through the issuance of convertible notes (the "Notes"). These Notes accrued 8% interest and would have matured on April 30, 2019. The Notes were convertible into shares (see Note 6 to our condensed consolidated financial statements), the sale of common stock upon a preferred stock equity raise(see Note 3 to our condensed consolidated financial statements) and the exercise of greater than $1,000,000 at 80% or 90% of the lowest purchase price per share paid by another investor in a qualified financing.  The Notes were converted into 172,284warrants (see Note 7 to our condensed consolidated financial statements).

On March 16, 2020, we completed an underwritten public offering pursuant to which we sold 7,500,000 shares of our common stock on January 24, 2019at a price to the public of $0.60 per share. The net proceeds to us from this offering were approximately $4.0 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

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On February 13, 2020, we completed an underwritten public offering, pursuant to which we sold 6,666,667 shares of our common stock at a price to the public of $0.75 per share. On February 19, 2020, we sold an additional 999,999 shares of our common stock at a price to the public of $0.75 per share pursuant to the closingfull exercise of the Merger.

On October 16, 2018, we entered into the Pre-Merger SPA. Pursuantunderwriters' option to the Pre-Merger SPA, among other things, we issuedcover over-allotments. The net proceeds to the Buyers (i) an aggregate of 1,829,406 shares of common stock and (ii) the Pre-Merger Warrants for an aggregate purchase price ofus from this offering were approximately $18.0 million. We issued the Pre-Merger Warrants on January 31, 2019 and on February 14, 2019, we registered the resale of common stock underlying the Pre-Merger Warrants as required by the registration rights agreement that we entered into on October 16, 2018 in connection with the Pre-Merger SPA. The Series A Warrants were initially exercisable for 1,463,519 shares of common stock at an exercise price per share equal to $4.15, which was adjusted to 2,640,128 shares of common stock at an exercise price per share equal to $2.3005 on February 27, 2019 and which was further adjusted to 3,629,023 shares of common stock at an exercise price per share equal to $1.6736 on March 7, 2019, in each case, pursuant to the terms thereof. Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the exercise price of the Series A Warrants automatically decreased from $1.6736 per share to $0.9267 per share as a result of the announcement of the issuance of the August 2019 Warrants pursuant to the Securities Purchase Agreement. The Series A Warrants were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series B Warrants were initially exercisable for no shares of common stock, which was adjusted to 7,951,090 shares of common stock on February 27, 2019 and which was further adjusted to 11,614,483 shares of common stock on March 7, 2019, in each case, pursuant to the terms thereof. The Series B Warrants had an exercise price of $0.001, were immediately exercisable upon issuance and had an expiration date of the day following the later to occur of (i) the Reservation Date (as defined therein) and (ii) the date on which the Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder.

During the nine months ended September 30, 2019, we received approximately $4.4 million in proceeds from the exercise of approximately 14.3 million Series A Warrants and Series B Warrants.

In connection with the closing of the Merger, we raised $18.0 million in gross proceeds from the Pre-Merger SPA financing (net proceeds of $16.5$4.8 million, after payment of transaction expenses).deducting underwriting discounts and commissions and other offering expenses payable by us.

We expect to use the net proceeds from the above transactiontransactions primarily for general corporate purposes, which may include financing our normal business operations, developing new or existing product candidates and funding capital expenditures, acquisitions and investments. In addition, pursuant

Pursuant to the asset purchase agreement, as amended, with Phoenixus AG f/k/a Vyera Pharmaceuticals, AG and Turing Pharmaceuticals AG ("Vyera"), we will be required to make a cash paymentspayment to Vyera in the amountsamount of $750,000, $750,000, $1.0 million and $1.0 million in October 2019, early January 2020, earlyeach of April 2020 and early July 2020, respectively.2020. Pursuant to the amended and restated license agreement with Stuart Weg, M.D., we will be required to make a cash paymentspayment to Dr. Weg in the amountsamount of $0.1 million and $0.125 million in January 20202021 and, January 2021, respectively, and will be required toif certain conditions are not met, make an additional cash payment of $0.2 million in January 2022 if certain conditions are not met.2022. We believe that in order for us to meet our obligations arising from normal business operations for the next twelve months, we require additional capital either in the form of equity, debt or debt.both. Without additional capital, our ability to continue to operate will be limited. These financial statements do not include any adjustments to the recoverability and classification of recorded assets amounts and classification of liabilities that might be necessary should we not be able to continue as a going concern.

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We currently do not have an effective shelf registration statement on Form S-3 filed with the SECSEC. As further discussed in the risk factor "As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we are currently ineligible to file new short form registration statements on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.", we are no longer permitted to use our existing registration statements on Form S-3, including our shelf registration statement on Form S-3, as of March 17, 2020 with the filing date of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Absent a waiver of the Form S-3 eligibility requirements and assuming we continue to timely file our required reports under whichthe Securities Exchange Act of 1934, as amended (the "Exchange Act"), the earliest we maywould regain the ability to use Form S-3 is June 1, 2020. At that time, provided that we are otherwise current in our Exchange Act reporting obligations, we would become eligible to use the shelf registration statement on Form S-3 to offer from time to time any combination of debt securities, common and preferred stock and warrants. As of September 30, 2019,May 1, 2020, we had approximately $87.0$83.8 million available under our Form S-3 shelf registration statement. However if, and/or when, we regain eligibility to use our shelf registration statement on Form S-3, under current SEC regulations, in the event the aggregate market value of our common stock held by non-affiliates ("public float") is less than $75.0 million, the amount we can raise through primary public offerings of securities, including sales under thean Equity Distribution Agreement with Piper Jaffray & Co., in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float. SEC regulations permit us to use the highest closing sales price of our common stock (or the average of the last bid and last ask prices of our common stock) on any day within 60 days of sales under the shelf registration statement. As of September 30, 2019,May 1, 2020, our public float was approximately $39.1$35.5 million based on 26.944.0 million shares of our common stock outstanding at a price of $1.78$0.87 per share, which was the closing sale price of our common stock on August 22, 2019.March 9, 2020. As our public float was less than $75.0 million as of September 30, 2019,May 1, 2020, and because we sold securities pursuant to our previously effective shelf registration statement in the last twelve months, our usage of our S-3 shelf registration statement is limited. We still maintain the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements. The rules and regulations of the SEC or any other regulatory agencies may restrict our ability to conduct certain types of financing activities, or may affect the timing of and amounts we can raise by undertaking such activities.

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We evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and our current plans, which are subject to change, management believes that our existing cash and cash equivalents as of March 31, 2020 are not sufficient to satisfy its operating cash needs for the year after the filing of this Quarterly Report on Form 10-Q.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.

Our future liquidity and capital funding requirements will depend on numerous factors, including:

• our ability to raise additional funds to finance our operations;
• our ability to regain and maintain compliance with the listing requirements of Nasdaq;The Nasdaq Capital Market;
• the outcome, costs and timing of any clinical trial results for our current or future product candidates;
• the extent and amount of any indemnification claims, including any made by Ferring International Center S.A. ("Ferring") under the asset purchase agreement with Ferring, entered into on March 8, 2017, pursuant to which we sold to Ferring our ex-U.S. assets and rights related to products in development, intended for the topical treatment of erectile dysfunction, which are known as Vitaros in certain countries outside of the United States;
• potential litigation expenses;
• the emergence and effect of competing or complementary products or product candidates;
• our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
• our ability to retain our current employees and the need and ability to hire additional management and scientific and medical personnel;
• the terms and timing of any collaborative, licensing or other arrangements that we have or may establish;
• the trading price of our common stock;
• our ability to secure a development partner for theour product candidate in the United States for the treatment of erectile dysfunction (the "CVR Product Candidate") in order to overcome deficiencies raised in the 2018 complete response letter issued by the U.S. Food and Drug Administration (the "FDA")FDA related to the CVR Product Candidate; and
• our ability to increase the number of authorized shares outstanding to facilitate future financing events.

On April 14, 2020, the Company received written notice (the "Notice") from Nasdaq indicating that, for the last thirty consecutive business days, the bid price for its common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days, or until October 12, 2020, to regain compliance. The Notice stated that the Nasdaq staff (the "Nasdaq Staff") would provide written notification that the Company has achieved compliance with Rule 5550(a)(2) if at any time before October 12, 2020, the bid price of the Company's common stock closes at $1.00 per share or more for a minimum of ten consecutive business days. On April 17, 2020, the Company received a subsequent written notice from Nasdaq, indicating that Nasdaq filed an immediately effective rule change with the SEC on April 16, 2020. Pursuant to the rule change, Nasdaq tolled the compliance period for bid price and market value of publicly held shares requirements (collectively, "Price-based Requirements") through June 30, 2020. As a result, companies presently in compliance periods for any Price-based Requirements will not be subject to being delisted for these concerns, and starting on July 1, 2020, companies will receive the balance of any compliance period in effect at the start of the tolling period to regain compliance. Accordingly, since the Company had 178 calendar days remaining in our compliance period as of April 16, 2020, the Company will, upon reinstatement of the Price-based Requirements, have 178 calendar days from July 1, 2020, or until December 28, 2020, to regain compliance.

On April 21, 2020, the Company received an additional written notice from Nasdaq (the "MVLS Notice") indicating that, for the last thirty consecutive business days, the market value of its listed securities has been below the minimum requirement of $35 million for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company has been provided a period of 180 calendar days, or until October 19, 2020, to regain compliance. The MVLS Notice states that the Nasdaq Staff will provide written notification that the Company has achieved compliance with Rule 5550(b)(2) if at any time before October 19, 2020, the market value of its common stock closes at $35 million or more for a minimum of ten consecutive business days.

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We will need to raise substantial additional funds through one or more of the following: issuance of additional debt, equity, or equity, including pursuant to the Equity Distribution Agreement with Piper Jaffray,both and/or the completion of a licensing or other commercial transaction for one or more of our product candidates. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. This could adversely affect future development and business activities, operations and business plan,plans, such as future clinical studies and/or other future ventures. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings may have a dilutive effect on the holdings of our existing stockholders. No assurances can be given that we will be able to obtain additional financings.

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Critical Accounting Estimates and Policies

The preparation of financial statements in accordance with United States generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience, market and other conditions, and various other assumptions it believes to be reasonable. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our unaudited condensed consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which may also have a material effect in our unaudited condensed consolidated financial statements. We review our estimates, judgments, and assumptions used in our accounting practices periodically and reflect the effects of revisions in the period in which they are deemed to be necessary. We believe that these estimates are reasonable; however, our actual results may differ from these estimates.

Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 and there have been no material changes to such policies or estimates during the ninethree months ended September 30, 2019.March 31, 2020.

Recent Accounting Pronouncements

Please refer to the notes to unaudited condensed consolidated financial statements (unaudited) for a discussion of recent accounting pronouncements.

Comparison of the Three Months Ended September 30,March 31, 2020 and 2019 and 2018

Revenues

We recorded $375,000 and $0 in grant revenue during the three months ended September 30, 2019 and 2018, respectively. The $375,000 increase in revenue in 2019 was related to our amended agreement with TSF.

Operating Expense

Operating expense was as follows (in thousands):

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Research and Development Expenses

Research and development expenses were as follows (in thousands):

Research and development ("R&D") costs are expensed as they are incurred and include the cost of compensation and related expenses, as well as expenses for third parties who conduct R&D on our behalf. The $2.5$5.3 million increasedecrease in R&D expense during the three months ended September 30, 2019,March 31, 2020, as compared to the same period in 2018,2019, resulted primarily from clinical trial costs anda decrease in license fees of approximately $1.1$7.4 million and $500,000, respectively, and employee relatedapproximately $476,000 in manufacturing costs. These decreases were partially offset by increases in clinical trial costs of approximately $413,000.$2.1 million and approximately $325,000 in external consulting costs.

General and Administrative Expenses

General and administrative ("G&A") costs include expenses for personnel, finance, legal, business development and investor relations. General and administrative expenses increaseddecreased by $500,000$1.5 million during the three months ended September 30, 2019,March 31, 2020, as compared to the same period in 2018.2019. This increasedecrease was primarily due to $2.0 million for costs associated with becoming a publicly traded company on January 24, 2019,the Merger for legal and administrative costs associated with the Merger incurred during the three months ended March 31, 2019. This decrease was partially offset by increases in costs including by not limited to, legal,patent maintenance, insurance, investor relations, accountinginternal control compliance and Nasdaq costsstock-based compensation, of approximately $400,000. The increase was also related to increased employee related costs of approximately $93,000 as compared to the same period last year.$482,000.

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Other Income and Expense

Other income and expense were as follows (in thousands):

Interest Income

Interest income was $46,000$27,000 and $0$25,000 for the three months ended SeptemberMarch 30, 2020 and 2019, and 2018, respectively. The increase is due to investing excess cash during the three months ended September 30, 2019.

Interest Expense

Interest expense was $1$4,000 and $67,000$16,000 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively. The decrease is due to the conversion of all the outstanding convertible notes on January 24, 2019.

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Loss on warrant issuance

Loss on warrant issuance was $0 and $5.0 million for the three months ended March 31, 2020 and 2019, respectively. The loss was due to the fair value of the warrants exceeding the net cash proceeds from the Merger.

Change in Fair Value of Warrant Liability

The fair value of warrant liability was $690,000$309,000 at September 30, 2019. TheMarch 31, 2020. For the three months ended March 31, 2020, the change in fair value of warrant liabilities of $415,000 iswas $654,000, which income was due to revaluation of the Series A WarrantsWarrant during such period. For the three months ended September 30, 2019.March 31, 2019, the change in fair value of warrant liabilities was $18.1 million, which expenses was due to revaluation of the Series A Warrant and Series B Warrant during such period.

Change in Fair Value of Convertible Notes Payable

The convertible notes were converted into common stock pursuant to the Merger on January 24, 2019. The change in fair value of convertible notes was $0 and $57,000$109,000 during the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively.

Comparison of the Nine Months Ended September 30, 2019 and 2018

Revenues

We recorded $375,000 and $0 in grant revenue during the nine months ended September 30, 2019 and 2018, respectively. The $375,000 increase in revenue in 2019 was related to our amended agreement with TSF.

Operating Expense

Operating expense was as follows (in thousands):

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Research and Development Expenses

Research and development ("R&D") costs are expensed as they are incurred and include the cost of compensation and related expenses, as well as expenses for third parties who conduct R&D on our behalf. The $12.9 million increase in R&D expense during the nine months ended September 30, 2019, as compared to the same period in 2018, resulted primarily from the $2.2 million in non-cash charge for common stock issued for in-licensed intellectual property, $1.5 million for cash consideration and $2.0 million accrued for cash payment due in the first quarter of 2020 for the acquisition of Trehalose. The increase was also due to clinical trial costs of approximately $1.2 million, manufacturing costs approximately $1.7 million and approximately $1.1 million in employee related costs for personnel that were hired during the year.

General and Administrative Expenses

General and administrative ("G&A") costs include expenses for personnel, finance, legal, business development and investor relations. General and administrative expenses increased by $4.7 million during the nine months ended September 30, 2019, as compared to the same period in 2018. This increase was primarily due to $2.0 million for costs associated with the Merger for legal and administrative costs which we do not expect to continue going forward. This increase was also due to costs associated with becoming a publicly traded company on January 24, 2019, including by not limited to, legal, insurance, investor relations, accounting and Nasdaq listing fee costs of approximately $1.2 million and approximately $500,000 in employee-related costs for personnel that were hired during the year.

Other Income and Expense

Other income and expense were as follows (in thousands):

Interest Income

Interest income was $110,000 and $0 for the nine months ended September 30, 2019 and 2018, respectively. The increase is due to investing excess cash during the nine months ended September 30, 2019.

Interest Expense

Interest expense was $28,000 and $113,000 for the nine months ended September 30, 2019 and 2018, respectively. The decrease is due to the conversion of all the outstanding convertible notes on January 24, 2019, offset partially by interest expense for the financing of our director and officer liability insurance policies during 2019.

Loss on warrant issuance

Loss on warrant issuance was $5.0 million and $0 for the nine months ended September 30, 2019 and 2018, respectively. The loss was due to the fair value of the warrants exceeding the net cash proceeds from the Merger.

Change in Fair Value of Warrant Liability

The fair value of warrant liability was $690,000 at September 30, 2019. The change in fair value of warrant liabilities of $16.1 million is due to revaluation of the Series A Warrants and Series B Warrants during the nine months ended September 30, 2019.

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Change in Fair Value of Convertible Notes Payable

The convertible notes were converted into common stock pursuant to the Merger on January 24, 2019. The change in fair value of convertible notes was an expense of $109,000 and income of $2,000 during the nine months ended September 30, 2019 and 2018, respectively.

Cash Flow Summary

The following table summarizes selected items in our unaudited condensed consolidated statements of cash flows (in thousands):

Operating Activities

Cash used in operating activities of $14.2$6.4 million during the three months ended March 31, 2020 was primarily due to a net loss of $4.8 million, and changes in operating assets and liabilities of $1.4 million.

Cash used in operating activities of $7.9 million in the ninethree months ended September 30,March 31, 2019 was primarily due to the net loss of $40.6$35.5 million, which were partially offset by changes in the fair value of the warrant liabilities of $16.1$18.1 million, the loss on warrant issuance of $5.0 million, $3.0 million for the acquisition of licenses for research and development and changes in operating assets and liabilities of $1.8 million.

Cash used in operating activities of $1.2 million during the nine months ended September 30, 2018 was primarily due to a net loss of $2.3 million, net of adjustments to net loss for changes in accounts payable and accrued expenses of $1.1$1.4 million.

Financing Activities

Cash provided by financing activities of $29.5$8.9 million during the three months ended March 31, 2020 was due to proceeds from the issuance of common stock, pursuant to Securities Purchase Agreements, net of costs during the first quarter of 2020.

Cash provided by financing activities of $19.2 million in the ninethree months ended September 30,March 31, 2019 was primarily due to the proceeds from the exercise of warrants and the issuance and sale of common stock pursuant to the Securities Purchase Agreement.

Cash provided by financing activities of $1.3 million during the nine months ended September 30, 2018 was due to proceeds of $1.3 million from the issuance of convertible notes during the nine months ended September 30, 2018.stock.

Off-Balance Sheet Arrangements

As of September 30, 2019,March 31, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, communicated to our management to allow timely decisions regarding required disclosure, summarized and reported within the time periods specified in the SEC's rules and forms.

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Under the supervision and with the participation of our management, including the Chief Executive Officer ("CEO"), who serves as the principal executive officer and the principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2019.March 31, 2020. Based on this evaluation, our CEO concluded that our disclosure controls and procedures were effective as of September 30, 2019March 31, 2020 at the reasonable assurance level.

Management's Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a15(f). Our internal control over financial reporting is a process designed, under the supervision and, with the participation of our CEO who serves as our principal executive officer and principal financial officer, overseen by our Board of Directors and implemented by our management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that:

• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. 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. Management performed an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2019March 31, 2020 using criteria established in theInternal Control-Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that, as of September 30, 2019,March 31, 2020, our internal control over financial reporting was effective. Because we are a smaller reporting company, KPMG, an independent registered public accounting firm, is not required to attest to or issue a report on the effectiveness of our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure system are met. 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.

Changes in Internal Control over Financial Reporting

Upon completion of the Merger, all remaining Apricus employeesThere were terminated and all internal controls over financial reporting were assumed by the new accounting staff of Seelos and therefore, there wereno significant changes in our internal control structure over financial reporting during the three and nine months ended September 30, 2019.March 31, 2020.

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PART II.

ITEM 1. LEGAL PROCEEDINGS

We are not currently party to, and none of our property is currently the subject of, any material legal proceedings. We may be a party to certain litigation that is either judged to be not material or that arises in the ordinary course of business from time to time. We intend to vigorously defend our interests in these matters. We expect that the resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations. However, due to the uncertainties inherent in litigation, no assurance can be given as to the outcome of these proceedings.

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ITEM 1A. RISK FACTORS

We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Quarterly Report on Form 10-Q and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018,2019, as filed with the SEC on March 28, 2019:17, 2020:

Risks Related to the Company

*We are a clinical-stage company, the company under new management has a very limited operating history, are not currently profitable, do not expect to become profitable in the near future and may never become profitable.

We are a clinical-stage biopharmaceutical company. Since our incorporation, we have focused primarily on the development and acquisition of clinical-stage therapeutic candidates, which willhas not changechanged as a result of the completion of the business combination between Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), and Seelos Therapeutics, Inc., a Delaware corporation ("Seelos"STI"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization entered into on July 30, 2018, pursuant to which (i) a subsidiary of Apricus merged with and into Seelos,STI, with SeelosSTI (renamed as "Seelos Corporation") continuing as a wholly owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger"). All of our therapeutic candidates are in the clinical development stage and none of our new pipeline therapeutic candidates have been approved for marketing or are being marketed or commercialized.

As a result, we have no meaningful historical operations upon which to evaluate our business and prospects and have not yet demonstrated an ability to obtain marketing approval for any of our product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in the biopharmaceutical industry. We also have not generated anyminimal revenues from collaboration and licensing agreements orand no revenues from product sales to date and continue to incur significant research and development and other expenses. As a result, we have not been profitable and have incurred significant operating losses in every reporting period since our inception. We have never been profitable and have incurred an accumulated deficit of $45.4$60.9 million from our inception through September 30, 2019.March 31, 2020.

For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand our drug development activities, seek partnering and/or regulatory approvals for our product candidates and begin to commercialize them if they are approved by the U.S. Food and Drug Administration (the "FDA") the European Medicines Agency (the "EMA") or comparable foreign authorities. Even if we succeed in developing and commercializing one or more product candidates, we may never become profitable.

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We are dependent on the success of one or more of our current product candidates and we cannot be certain that any of them will receive regulatory approval or be commercialized.

Prior to the Merger, weWe have spent significant time, money and effort on the licensing and development of our core assets, SLS-002, SLS-005 and SLS-006 and itsour other earlier-stage assets, SLS-004, SLS-007, SLS-008, SLS-010 and SLS-012. To date, no pivotal clinical trials designed to provide clinically and statistically significant proof of efficacy, or to provide sufficient evidence of safety to justify approval, have been completed with any of our new pipeline product candidates. All of our product candidates will require additional development, including clinical trials as well as further preclinical studies to evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, and regulatory clearances before they can be commercialized. Positive results obtained during early development do not necessarily mean later development will succeed or that regulatory clearances will be obtained. Our drug development efforts may not lead to commercial drugs, either because our product candidates may fail to be safe and effective or because we have inadequate financial or other resources to advance our product candidates through the clinical development and approval processes. If any of our product candidates fail to demonstrate safety or efficacy at any time or during any phase of development, we would experience potentially significant delays in, or be required to abandon, development of the product candidate.

We do not anticipate that any of our current product candidates will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin commercialization for a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we or our potential future partners, if any, may be unable to commercialize them successfully for a variety of reasons. These include, for example, the availability of alternative treatments,

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lack of cost-effectiveness, the cost of manufacturing the product on a commercial scale and competition with other drugs. The success of our product candidates may also be limited by the prevalence and severity of any adverse side effects. If we fail to commercialize one or more of our current product candidates, we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial condition and stock price may decline.

*If development of our product candidates does not produce favorable results, we and our collaborators, if any, may be unable to commercialize these products.

To receive regulatory approval for the commercialization of our core assets, SLS-002, SLS-005 and SLS-006 and our earlier-stage assets, SLS-004, SLS-007, SLS-008, SLS-010 and SLS- 012,SLS-012, or any other product candidates that we may develop, adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the FDA, the EMA and comparable foreign authorities. In order to support marketing approval, these agencies typically require successful results in one or more Phase 3III clinical trials, which our current product candidates have not yet reached and may never reach. The development process is expensive, can take many years and has an uncertain outcome. Failure can occur at any stage of the process. We may experience numerous unforeseen events during, or as a result of, the development process that could delay or prevent commercialization of our current or future product candidates, including the following:

• clinical trials may produce negative or inconclusive results;
• preclinical studies conducted with product candidates during clinical development to, among other things, evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation may produce unfavorable results;
• patient recruitment and enrollment in clinical trials may be slower than we anticipate;
• costs of development may be greater than we anticipate;
• our product candidates may cause undesirable side effects that delay or preclude regulatory approval or limit their commercial use or market acceptance, if approved;
• collaborators who may be responsible for the development of our product candidates may not devote sufficient resources to these clinical trials or other preclinical studies of these candidates or conduct them in a timely manner; or
• we may face delays in obtaining regulatory approvals to commence one or more clinical trials.

Success in early development does not mean that later development will be successful because, for example, product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy despite having progressed through initial clinical trials.

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We have licensed or acquired all of the intellectual property related to our product candidates from third parties. All clinical trials, preclinical studies and other analyses performed to date with respect to our product candidates have been conducted by their original owners. Therefore, as a company, we have limited experience in conducting clinical trials for our product candidates. Since our experience with our product candidates is limited, we will need to train our existing personnel and hire additional personnel in order to successfully administer and manage our clinical trials and other studies as planned, which may result in delays in completing such planned clinical trials and preclinical studies. Moreover, to date our product candidates have been tested in less than the number of patients that will likely need to be studied to obtain regulatory approval. The data collected from clinical trials with larger patient populations may not demonstrate sufficient safety and efficacy to support regulatory approval of these product candidates.

We currently do not have strategic collaborations in place for clinical development of any of our current product candidates, except for our collaborative agreement with Team Sanfilippo Foundation ("TSF"), which we assumed in connection with the asset purchase agreement with Bioblast Pharma Ltd., for IV Trehalose, which is now known as SLS-005. Therefore, in the future, we or any potential future collaborative partner will be responsible for establishing the targeted endpoints and goals for development of our product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy levels required for regulatory approvals. Even if we believe data collected during the development of our product candidates are promising, such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable foreign authorities. Further, data generated during development can be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities may interpret such data in different ways than us or our collaborators. Our failure to adequately demonstrate the safety and efficacy of our product candidates would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these product candidates.

Since we do not currently possess the resources necessary to independently develop and commercialize our product candidates or any other product candidates that we may develop, we may seek to enter into collaborative agreements to assist in the development and potential future commercialization of some or all of these assets as a component of our strategic plan. However, our discussions with potential collaborators may not lead to the establishment of collaborations on acceptable terms, if at all, or it may take longer than expected to establish new collaborations, leading to development and potential commercialization delays, which would adversely affect our business, financial condition and results of operations.

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We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability.

We expect to expend substantial funds in research and development, including preclinical studies and clinical trials of our product candidates, and to manufacture and market any product candidates in the event they are approved for commercial sale. We also may need additional funding to develop or acquire complementary companies, technologies and assets, as well as for working capital requirements and other operating and general corporate purposes. Moreover, our planned increases in staffing will dramatically increase our costs in the near and long- term.

However, our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Due to our limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.

Because the successful development of our product candidates is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we may not be able to generate sufficient revenue, even if we are able to commercialize any of our product candidates, to become profitable.

*Given our lack of current cash flow, we will need to raise additional capital; however, it may be unavailable to us or, even if capital is obtained, may cause dilution or place significant restrictions on our ability to operate our business. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization of our product candidates, or continue orour development programs.

Since we will be unable to generate sufficient, if any, cash flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide the capital required to maintain or expand our operations.

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As of September 30, 2019,March 31, 2020, we had a cash balance of approximately $15.3$12.7 million. On February 13, 2020, we completed an underwritten public offering pursuant to which we sold 6,666,667 shares of our common stock at a price to the public of $0.75 per share. On February 19, 2020, we sold an additional 999,999 shares of our common stock at a price to the public of $0.75 per share pursuant to the full exercise of the underwriters' option to purchase additional shares to cover over-allotments. The net proceeds to us from the offering were approximately $4.8 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. On March 16, 2020, we completed an additional underwritten public offering pursuant to which we sold 7,500,000 shares of our common stock at a price to the public of $0.60 per share. The net proceeds to us from the offering were approximately $4.0 million, after deducting underwriting discounts and commissions and other offering expenses payable by us.

As a result of our recurring losses from operations, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial statements for the year ended December 31, 20182019 included a "going concern" explanatory paragraph indicating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern.

We currently do not have an effective shelf registration statement on Form S-3 filed with the SECSEC. As further discussed in the risk factor "As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we are currently ineligible to file new short form registration statements on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.", we are no longer permitted to use our existing registration statements on Form S-3, including our shelf registration statement on Form S-3, as of March 17, 2020, the filing date of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Absent a waiver of the Form S-3 eligibility requirements and assuming we continue to timely file our required reports under whichthe Securities Exchange Act of 1934, as amended (the "Exchange Act"), the earliest we would regain the ability to use Form S-3 is June 1, 2020. At that time, we may use the shelf registration statement on Form S-3 to offer from time to time any combination of debt securities, common and preferred stock and warrants. UnderIn addition, if, and/or when, we regain eligibility to use our shelf registration statement on Form S-3, under current SEC regulations, in the event that the aggregate market value of our common stock held by non-affiliates ("public float") is less than $75.0 million, the amount we can raise through primary public offerings of securities, including sales under an Equity Distribution Agreement with Piper Jaffray & Co. (the "Equity Distribution Agreement") (if we determine to un-suspend the continuous offering thereunder), in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float. SEC regulations permit us to use the highest closing sales price of our common stock (or the average of the last bid and last ask prices of our common stock) on any day within 60 days of sales under the shelf registration statement. As of September 30, 2019,May 1, 2020, our public float was approximately $39.1$35.5 million based on 26.944.0 million shares of our common stock outstanding at a price of $1.78$0.87 per share, which was the closing sale price of our common stock on August 22, 2019. As ourMarch 9, 2020.Our public float was less than $75.0 million as of September 30, 2019, our usageMay 1, 2020, therefore we are limited to an aggregate of one-third of our S-3public float in the amount we could raise through primary public offerings of securities in any twelve-month period using shelf registration statement is limited.statements. Although we would still maintain the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements, the rules and regulations of the SEC or any other regulatory agencies may restrict our ability to conduct certain types of financing activities, or may affect the timing of and amounts we can raise by undertaking such activities.

In addition, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively affect our liquidity and ability to continue as a going concern.

There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. If such additional financing is not available on satisfactory terms, or is not available in sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness, and our business, financial condition and results of operations will be materially adversely affected. In addition, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our inability to fund our business could lead to the loss of your investment.

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Our future capital requirements will depend on many factors, including, but not limited to:

• the scope, rate of progress, results and cost of our clinical trials, preclinical studies and other related activities;
• our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;

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• the timing of, and the costs involved in, obtaining regulatory approvals for any of our current or future product candidates;
• the number and characteristics of the product candidates we seek to develop or commercialize;
• the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates;
• the cost of commercialization activities if any of our current or future product candidates are approved for sale, including marketing, sales and distribution costs;
• the expenses needed to attract and retain skilled personnel;
• the costs associated with being a public company;
• the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; and
• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.

If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity issuances are the most common type of fundraising for similarly situated companies, the risk of dilution is particularly significant for our stockholders. Our inability to raise capital when needed would harm our business, financial condition and results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.

*As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we are currently ineligible to file new short form registration statements on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.

Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future filings and reports made under the Securities Exchange Act of 1934, as amended (the "Exchange Act").Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings "off the shelf" under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). The shelf registration process, combined with the ability to forward incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditions and efficient manner than raising capital in a standard registered offering pursuant to a Registration Statement on Form S-1. The ability to register securities for resale may also be limited as a result of the loss of Form S-3 eligibility.

The significant changes to the results of operations and presentation of financial statements required to account for the Merger in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and the significant turnover in key personnel in connection with the Merger combined to cause a delay in the completion of our financial statements as of, and for the period ended, March 31, 2019. In particular, because the warrants issued in the Merger were subsequently amended on multiple occasions in the first quarter, and a number of warrants were exercised during the quarter, we were required to remeasure the value of the warrants at multiple points during the quarter. This, in turn, resulted in a non-cash modification of the fair value of the warrants during the quarter. Accordingly, we were unable to complete the compilation, analysis and review of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 until May 21, 2019, one day after the deadline for such filing.

As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we are currently ineligible to file new short form registration statements on Form S-3 and, absent a waiver of the Form S-3 eligibility requirements, we willare no longer be permitted to use our existing registration statements on Form S-3 uponas of March 17, 2020, the earlier to occur of the filing date of our Annual Report on Form 10-K for the fiscal year endingended December 31, 2019 or the occurrence of a fundamental change which would require a post-effective amendment to any such registration statements pursuant to Item 512 of Regulation S-K and Section 10(a)(3) of the Securities Act.2019. As a consequence, absent a waiver of the Form S-3 eligibility requirements, we mightare not be permitted to sell all of the amount of common stock we could otherwise sell, prior to such time, subject to the limits of General Instruction I.B.6 of Form S-3, under the Equity Distribution Agreement (if we determine to un-suspend the continuous offering thereunder), which could adversely affect our ability to run our operations and progress our product development programs. We will not be permitted to conduct an "at the market offering" pursuant to the Equity Distribution Agreement absent an effective primary registration statement on Form S-3.

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Our inability to use Form S-3 may significantly impair our ability to raise necessary capital to run our operations and progress our product development programs. If we seek to access the capital markets through a registered offering during the period of time that we are unable to use Form S-3, we may be required to publicly disclose the proposed offering and the material terms thereof before the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement and we may incur increased offering and transaction costs and other considerations. Disclosing a public offering prior to the formal commencement of an offering may result in downward pressure on our stock price. If we are unable to raise capital through a registered offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing, size and other limitations imposed under the rules of The Nasdaq Stock Market LLC, or seek other sources of capital.

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Absent a waiver of the Form S-3 eligibility requirements and assuming we continue to timely file our required Exchange Act reports, the earliest we would regain the ability to use Form S-3 is June 1, 2020.

Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization or have other significant adverse implications on our business, financial condition and results of operations.

Undesirable side effects observed in clinical trials or in supportive preclinical studies with our product candidates could interrupt, delay or halt their development and could result in the denial of regulatory approval by the FDA, the EMA or comparable foreign authorities for any or all targeted indications or adversely affect the marketability of any such product candidates that receive regulatory approval. In turn, this could eliminate or limit our ability to commercialize our product candidates.

Our product candidates may exhibit adverse effects in preclinical toxicology studies and adverse interactions with other drugs. There are also risks associated with additional requirements the FDA, the EMA or comparable foreign authorities may impose for marketing approval with regard to a particular disease.

Our product candidates may require a risk management program that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post- marketingpost-marketing observational study, and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician specialists or physicians trained in the use of the drug, or could be limited to a more restricted patient population. Any risk management program required for approval of our product candidates could potentially have an adverse effect on our business, financial condition and results of operations.

Undesirable side effects involving our product candidates may have other significant adverse implications on our business, financial condition and results of operations. For example:

• we may be unable to obtain additional financing on acceptable terms, if at all;
• our collaborators may terminate any development agreements covering these product candidates;
• if any development agreements are terminated, we may determine not to further develop the affected product candidates due to resource constraints and may not be able to establish additional collaborations for their further development on acceptable terms, if at all;
• if we were to later continue the development of these product candidates and receive regulatory approval, earlier findings may significantly limit their marketability and thus significantly lower our potential future revenues from their commercialization;
• we may be subject to product liability or stockholder litigation; and
• we may be unable to attract and retain key employees.

In addition, if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:

• regulatory authorities may withdraw their approval of the product, or we or our partners may decide to cease marketing and sale of the product voluntarily;
• we may be required to change the way the product is administered, conduct additional clinical trials or preclinical studies regarding the product, change the labeling of the product, or change the product's manufacturing facilities; and
• our reputation may suffer.

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Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs and expenses of commercializing the product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.

Our efforts to discover product candidates beyond our current product candidates may not succeed, and any product candidates we recommend for clinical development may not actually begin clinical trials.

We intend to use our technology, including our licensed technology, knowledge and expertise to develop novel drugs to address some of the world's most widespread and costly central nervous system, respiratory and other disorders, including orphan indications. We intend to expand our existing pipeline of core assets by advancing drug compounds from current ongoing discovery programs into clinical development. However, the process of researching and discovering drug compounds is expensive, time-consuming and unpredictable. Data from our current preclinical programs may not support the clinical

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development of our lead compounds or other compounds from these programs, and we may not identify any additional drug compounds suitable for recommendation for clinical development. Moreover, any drug compounds we recommend for clinical development may not demonstrate, through preclinical studies, indications of safety and potential efficacy that would support advancement into clinical trials. Such findings would potentially impede our ability to maintain or expand our clinical development pipeline. Our ability to identify new drug compounds and advance them into clinical development also depends upon our ability to fund our research and development operations, and we cannot be certain that additional funding will be available on acceptable terms, or at all.

Delays in the commencement or completion of clinical trials could result in increased costs to us and delay our ability to establish strategic collaborations.

Delays in the commencement or completion of clinical trials could significantly impact our drug development costs. We do not know whether planned clinical trials will begin on time or be completed on schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including, but not limited to, delays related to:

• obtaining regulatory approval to commence one or more clinical trials;
• reaching agreement on acceptable terms with prospective third-party contract research organizations ("CROs") and clinical trial sites;
• manufacturing sufficient quantities of a product candidate or other materials necessary to conduct clinical trials;
• obtaining institutional review board approval to conduct one or more clinical trials at a prospective site;
• recruiting and enrolling patients to participate in one or more clinical trials; and
• the failure of our collaborators to adequately resource our product candidates due to their focus on other programs or as a result of general market conditions.

In addition, once a clinical trial has begun, it may be suspended or terminated by us, our collaborators, the institutional review boards or data safety monitoring boards charged with overseeing our clinical trials, the FDA, the EMA or comparable foreign authorities due to a number of factors, including:

• failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;
• inspection of the clinical trial operations or clinical trial site by the FDA, the EMA or comparable foreign authorities resulting in the imposition of a clinical hold;
• unforeseen safety issues; or
• lack of adequate funding to continue the clinical trial.

If we experience delays in the completion, or termination, of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development and approval process. Delays in completing our clinical trials could also allow our competitors to obtain marketing approval before we do or shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may harm our business, financial condition and prospects significantly. 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 our product candidates.

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*A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.

On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic is affecting the United States and global economies and may affect our operations and those of third parties on which we rely, including by causing disruptions in the supply of our product candidates and the conduct of future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. In addition, the loss of any of our employees as a result of COVID-19 or another pandemic, may have a material adverse effect on our operations. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely.

Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.

The results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial results may not be successful for these or other reasons.

This product candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through preclinical to early to late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes carry the risk that they will not achieve these intended objectives.

Any of these changes could make the results of our planned clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and generate revenues.

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* If we experience delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory authorities. In addition, the COVID-19 pandemic may result in a reduction of patient enrollment, a loss of patient enrollment and other delays affecting our clinical trials. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.

If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.

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We intend to rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business, financial condition and results of operations could be substantially harmed.

We intend to rely upon third-party CROs, medical institutions, clinical investigators and contract laboratories to monitor and manage data for our ongoing preclinical and clinical programs. Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with current requirements on good manufacturing practices ("cGMP"), good clinical practices ("GCP") and good laboratory practice ("GLP"), which are a collection of laws and regulations enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign authorities may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory approval processes.

We may not be able to enter into arrangements with CROs on commercially reasonable terms, or at all. In addition, our CROs will not be our employees, and except for remedies available to us under our agreements with such CROs, we will not be able to control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs 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 data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be delayed.

Switching or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition or results of operations.

Our product candidates are subject to extensive regulation under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.

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The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities in foreign markets. In the U.S., neither we nor our collaborators are permitted to market our product candidates until we or our collaborators receive approval of a new drug application ("NDA") from the FDA or receive similar approvals abroad. The process of obtaining these approvals is expensive, often takes many years, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Approval policies or regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult for us to achieve such approval in a timely manner or at all. Any guidance that may result from recent FDA advisory panel discussions may make it more expensive to develop and commercialize such product candidates. In addition, as a company, we have not previously filed NDAs with the FDA or filed similar applications with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency approval in a timely manner, if at all, for our product candidates for which development and commercialization is our responsibility.

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Despite the time and expense invested, regulatory approval is never guaranteed. The FDA, the EMA or comparable foreign authorities can delay, limit or deny approval of a product candidate for many reasons, including:

• a product candidate may not be deemed safe or effective;
• agency officials of the FDA, the EMA or comparable foreign authorities may not find the data from non-clinical or preclinical studies and clinical trials generated during development to be sufficient;
• the FDA, the EMA or comparable foreign authorities may not approve our third-party manufacturers' processes or facilities; or
• the FDA, the EMA or a comparable foreign authority may change its approval policies or adopt new regulations.

Even if our product candidates receive regulatory approval in the U.S., we may never receive approval or commercialize our products outside of the U.S.

In order to market any products outside of the U.S., we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the U.S. as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay seeking or obtaining such approval would impair our ability to develop foreign markets for our product candidates.

Even if any of our product candidates receive regulatory approval, our product candidates may still face future development and regulatory difficulties.

If any of our product candidates receive regulatory approval, the FDA, the EMA or comparable foreign authorities may still impose significant restrictions on the indicated uses or marketing of the product candidates or impose ongoing requirements for potentially costly post-approval studies and trials. In addition, regulatory agencies subject a product, our manufacturer and the manufacturer's facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our collaborators or us, including requiring withdrawal of the product from the market. Our product candidates will also be subject to ongoing FDA, the EMA or comparable foreign authorities' requirements for the labeling, packaging, storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. If our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:

• issue warning letters or other notices of possible violations;
• impose civil or criminal penalties or fines or seek disgorgement of revenue or profits;
• suspend any ongoing clinical trials;
• refuse to approve pending applications or supplements to approved applications filed by us or our collaborators;
• withdraw any regulatory approvals;
• impose restrictions on operations, including costly new manufacturing requirements, or shut down our manufacturing operations; or
• seize or detain products or require a product recall.

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The FDA, the EMA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.

The FDA, the EMA and comparable foreign authorities strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or comparable foreign authorities as reflected in the product's approved labeling. If we receive marketing approval for our product candidates for our proposed indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved label, if the physicians personally believe in their professional medical judgment that our products could be used in such manner. However, if we are found to have promoted our products for any off-label uses, the federal government could levy civil, criminal or administrative penalties, and seek fines against us. Such enforcement has become more common in the industry. The FDA, the EMA or comparable foreign authorities could also request that we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business, financial condition and results of operations.

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If our competitors have product candidates that are approved faster, marketed more effectively, are better tolerated, have a more favorable safety profile or are demonstrated to be more effective than ours, our commercial opportunity may be reduced or eliminated.

The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including commercial biopharmaceutical enterprises, academic institutions, government agencies and private and public research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.

Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, clinical trials, regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our competitors may succeed in developing technologies and therapies that are more effective, better tolerated or less costly than any which we are developing, or that would render our product candidates obsolete and noncompetitive. Even if we obtain regulatory approval for any of our product candidates, our competitors may succeed in obtaining regulatory approvals for their products earlier than we do. We will also face competition from these third parties in recruiting and retaining qualified scientific and management personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs or advantageous to our business.

The key competitive factors affecting the success of each of our product candidates, if approved, are likely to be its efficacy, safety, tolerability, frequency and route of administration, convenience and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party payors.

The pharmaceutical market for the treatment of major depressive disorder includes selective serotonin reuptake inhibitors ("SSRIs"), serotonin and norepinephrine reuptake inhibitors ("SNRIs") and atypical antipsychotics. A number of these marketed antidepressants will be generic, and would be key competitors to SLS-002. These products include Forest Laboratory's Lexapro/Cipralex (escitalopram) and Viibryd (vilazodone), Pfizer, Inc.'s Zoloft (sertraline), Effexor (venlafaxine) and Pristiq (desvenlafaxine), GlaxoSmithKline plc's Paxil/Seroxat (paroxetine), Eli Lilly and Company's Prozac (fluoxetine) and Cymbalta (duloxetine), AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify (aripiprazole), among others.

Patients with treatment-resistant depression often require treatment with several antidepressants, such as an SSRI or SNRI, combined with an "adjunct" therapy such as an antipsychotic compound, such as AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify (aripiprazole), or mood stabilizers, such as Janssen Pharmaceutica's Topamax (topiramate). In addition, Janssen's intranasal esketamineSpravato (intranasal esketamine), which has recently shown a successful Phase 3 clinical trial inbeen approved for treatment-resistant depression, and along with Allergan's rapastinel (formerly Naurex), both of which targettargets the NMDA receptor and areis expected to have a faster onset of therapeutic effect as compared to currently available therapies.

Current treatments for Parkinson's Disease ("PD") are intended to improve the symptoms of patients. The cornerstone of PD therapy is levodopa, as it is the most effective therapy for reducing symptoms of PD. There are other drug therapies in development that will target the disease, such as gene and stem cell therapy and A2A receptor agonists. Currently, the majority of products in development for PD are still in the pre-clinical stage.

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We, or any future collaborators, may not be able to obtain orphan drug designation or orphan drug exclusivity for our product candidates.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the 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. In the United States and Europe, obtaining orphan drug approval may allow us to obtain financial incentives, such as an extended period of exclusivity during which only we are allowed to market the orphan drug. While we plan to seek orphan drug designation from the FDA for SLS-005 for Sanfilippo syndrome and SLS-008 for the treatment of a pediatric indication, we, or any future collaborators, may not be granted orphan drug designations for our product candidates in the U.S. or in other jurisdictions.

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Even if we, or any future collaborators, obtain orphan drug designation for a product candidate, we, or they, may not be able to obtain orphan drug exclusivity for that product candidate. Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation, in which case the FDA or the EMA will be precluded from approving another marketing application for the same drug for that indication for the applicable exclusivity period. The applicable exclusivity period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.

Even if we, or any future collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because FDA has taken the position that, under certain circumstances, another drug with the same active chemical and pharmacological characteristics, or moiety, can be approved for the same condition. Specifically, the FDA's regulations provide that it can approve another drug with the same active moiety for the same condition if the 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.

We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our product candidates.

The process of manufacturing our product candidates is complex, highly regulated, and subject to several risks. For example, the process of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes for any of our product candidates could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. In addition, the manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures, labor shortages, natural disasters, public health crises, pandemics and epidemics, such as the recent coronavirus disease 2019 (COVID-19), power failures and numerous other factors.

In addition, any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls or other interruptions in the supply of our product candidates. We also may need to take inventory write-offs and incur other charges and expenses for product candidates that fail to meet specifications, undertake costly remediation efforts or seek costlier manufacturing alternatives.

We rely completely on third parties to manufacture our preclinical and clinical drug supplies, and our business, financial condition and results of operations could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.

We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies for use in our clinical trials, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our product candidates, and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete such clinical trial, any significant delay or discontinuity in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory approval of our product candidates, which could harm our business, financial condition and results of operations.

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We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements.

All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of an NDA or marketing authorization application ("MAA") on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA, the EMA or comparable foreign authorities through their facilities inspection program. Some of our contract manufacturers may not have produced a commercially approved pharmaceutical product and therefore may not have obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or any of our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we plan to oversee the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.

The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business, financial condition and results of operations.

If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA, the EMA or comparable foreign authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval or suspension of production. As a result, our business, financial condition and results of operations may be materially and adversely affected.

Additionally, if supply from one manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.

Any collaboration arrangement that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential future product candidates.

We may seek collaboration arrangements with biopharmaceutical companies for the development or commercialization of our current and potential future product candidates. To the extent that we decide to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, execute and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we choose to enter into such arrangements, and the terms of the arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.

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Disagreements between parties to a collaboration arrangement can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a mutually beneficial manner. In some cases, collaborations with biopharmaceutical companies and other third parties are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect our business, financial condition and results of operations.

If we are unable to develop our own commercial organization or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate significant revenues.

We do not have a sales and marketing organization, and we have no experience as a company in the sales, marketing and distribution of pharmaceutical products. If any of our product candidates are approved for commercialization, we may be required to develop our sales, marketing and distribution capabilities, or make arrangements with a third party to perform sales and marketing services. Developing a sales force for any resulting product or any product resulting from any of our other product candidates is expensive and time consuming and could delay any product launch. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable of generating sufficient demand for our product candidates. To the extent that we enter into arrangements with collaborators or other third parties to perform sales and marketing services, our product revenues are likely to be lower than if we marketed and sold our product candidates independently. If we are unable to establish adequate sales and marketing capabilities, independently or with others, we may not be able to generate significant revenues and may not become profitable.

The commercial success of our product candidates depends upon their market acceptance among physicians, patients, healthcare payors and the medical community.

Even if our product candidates obtain regulatory approval, our products, if any, may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including:

• the effectiveness of our approved product candidates as compared to currently available products;
• patient willingness to adopt our approved product candidates in place of current therapies;
• our ability to provide acceptable evidence of safety and efficacy;
• relative convenience and ease of administration;
• the prevalence and severity of any adverse side effects;
• restrictions on use in combination with other products;
• availability of alternative treatments;
• pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements, based on the profile of our product candidates and target markets;
• effectiveness of us or our partners' sales and marketing strategy;
• our ability to obtain sufficient third-party coverage or reimbursement; and
• potential product liability claims.

In addition, the potential market opportunity for our product candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. Independent sources have not verified all of our assumptions. If any of these assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of the potential market opportunity. If the actual market for our product candidates is smaller than we expect, our product revenue may be limited, it may be harder than expected to raise funds and it may be more difficult for us to achieve or maintain profitability. If we fail to achieve market acceptance of our product candidates in the U.S. and abroad, our revenue will be limited and it will be more difficult to achieve profitability.

If we fail to obtain and sustain an adequate level of reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.

There will be no viable commercial market for our product candidates, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform measures. We cannot be certain that reimbursement will be available for our current product candidates or any other product candidate we may develop. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.

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Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.

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Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for our drugs, which would significantly reduce the likelihood of our products gaining market acceptance.

We expect that private insurers will consider the efficacy, cost-effectiveness, safety and tolerability of our potential products in determining whether to approve reimbursement for such products and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our potential products from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition and results of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product candidates or other potential products.

Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.

If the prices for our potential products are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue, cash flows and prospects for profitability will suffer.

Current and future legislation may increase the difficulty and cost of commercializing our product candidates and may affect the prices we may obtain if our product candidates are approved for commercialization.

In the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay regulatory approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell any of our product candidates for which we obtain regulatory approval.

In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA") changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved products. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

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In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the "PPACA"), was enacted. The PPACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The PPACA increased manufacturers' rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of "average manufacturer price," ("AMP")price", which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services, which administers the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the "donut hole." Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.

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There have been recent public announcements by members of the U.S. Congress, President Trump and his administration regarding their plans to repeal and replace the PPACA and Medicare. For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not 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 marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.

In Europe, the United Kingdom has indicated its intent to withdrawwithdrew from the European Union in the future.on January 31, 2020. A significant portion of the regulatory framework in the United Kingdom is derived from the regulations of the European Union, and the EMA is currently located inEuropean Union pharmaceutical law remains applicable to the United Kingdom.Kingdom until December 31, 2020. We cannot predict what consequences the withdrawal of the United Kingdom from the European Union if it occurs, might have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions.

Changes in government funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, properly administer drug innovation, or prevent our product candidates from being developed or commercialized, which could negatively impact our business, financial condition and results of operations.

The ability of the FDA to review and approve new products can be affected by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

In December 2016, the 21^st Century Cures Act was signed into law. This new legislation is designed to advance medical innovation and empower the FDA with the authority to directly hire positions related to drug and device development and review. However, government proposals to reduce or eliminate budgetary deficits may include reduced allocations to the FDA and other related government agencies. These budgetary pressures may result in a reduced ability by the FDA to perform their respective roles; including the related impact to academic institutions and research laboratories whose funding is fully or partially dependent on both the level and timing of funding from government sources.

Disruptions at the FDA and other agencies may also slow the time necessary for our product candidates to be reviewed or approved by necessary government agencies, which could adversely affect our business, financial condition and results of operations.

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We are subject to "fraud and abuse" and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business, financial condition and results of operations.

In the U.S., we are subject to various federal and state healthcare "fraud and abuse" laws, including anti-kickback laws, false claims laws and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer, or a party acting on its behalf, to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute.

The federal False Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services to obtain money or property of any healthcare benefit program. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including penalties, fines or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.

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Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers of America's Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties.

Neither the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If we are found in violation of one of these laws, we could be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from governmental funded federal or state healthcare programs and the curtailment or restructuring of our operations. If this occurs, our business, financial condition and results of operations may be materially adversely affected.

If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and any of our product candidates that are ultimately approved for commercialization could be subject to restrictions or withdrawal from the market.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product candidates that are ultimately approved for commercialization. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business, financial condition and results of operations will be adversely affected. Additionally, if we are unable to generate revenues from product sales, our potential for achieving profitability will be diminished and our need to raise capital to fund our operations will increase.

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*If we fail to retain current members of our senior management and scientific personnel, or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize our product candidates.

Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. As of October 31, 2019,May 1, 2020, we have 6 employees. Our organization will rely primarily on outsourcing research, development and clinical trial activities, and manufacturing operations, as well as other functions critical to our business. We believe this approach enhances our ability to focus on our core product opportunities, allocate resources efficiently to different projects and allocate internal resources more effectively. We have filled several key open positions and are currently recruiting for a few remaining positions. However, competition for qualified personnel is intense. We may not be successful in attracting qualified personnel to fulfill our current or future needs and there is no guarantee that any of these individuals will join us on a full-time employment basis, or at all. In the event we are unable to fill critical open employment positions, we may need to delay our operational activities and goals, including the development of our product candidates, and may have difficulty in meeting our obligations as a public company. We do not maintain "key person" insurance on any of our employees.

In addition, competitors and others are likely in the future to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring such personnel, particularly senior management and other technical personnel, could materially and adversely affect our business, financial condition and results of operations. In addition, the replacement of key personnel likely would involve significant time and costs, and may significantly delay or prevent the achievement of our business objectives.

From time to time, our management seeks the advice and guidance of certain scientific advisors and consultants regarding clinical and regulatory development programs and other customary matters. These scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our scientific advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with us.

We will need to increase the size of our organization and may not successfully manage our growth.

We are a clinical-stage biopharmaceutical company with a small number of planned employees, and our management system currently in place is not likely to be adequate to support our future growth plans. Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise by our senior management personnel. Hiring a significant number of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we fail

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to expand and enhance our operational, financial and management systems in conjunction with our potential future growth, it could have a material adverse effect on our business, financial condition and results of operations.

Our management's lack of public company experience could put us at greater risk of incurring fines or regulatory actions for failure to comply with federal securities laws and could put us at a competitive disadvantage, and could require our management to devote additional time and resources to ensure compliance with applicable corporate governance requirements.

Our executive officers doofficer does not have experience in managing and operating a public company, which could have an adverse effect on theirhis ability to quickly respond to problems or adequately address issues and matters applicable to public companies. Any failure to comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, financial condition and results of operations. Further, since our executive officers doofficer does not have experience managing and operating a public company, we may need to dedicate additional time and resources to comply with legally mandated corporate governance policies relative to our competitors whose management teams have more public company experience.

*We are exposed to product liability, non-clinical and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.

Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. In addition, the use in our clinical trials of pharmaceutical products and the subsequent sale of these products by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.

Because we do not currently have any clinical trials ongoing, we do not45

We currently carry product liability insurance. We anticipate obtaining such insurance upon initiation offor our clinical development activities; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts.activities. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

Our research and development activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.

Our research and development activities involve the controlled use of hazardous materials chemicals and various radioactive compounds,chemicals, and we will need to develop additional safety procedures for the handling and disposing of hazardous materials. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of these laws or regulations.

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 effectively.

Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our operations, and could result in a material disruption of our drug development and clinical activities and business operations, in addition to possibly requiring substantial expenditures of resources to remedy. The loss of drug development or clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and our development programs and the development of our product candidates could be delayed.

Our employees and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of employee or consultant fraud or other misconduct. Misconduct by our employees or consultants could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial

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information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended 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 commissions, customer incentive programs and other business arrangements. Employee and consultant misconduct also could involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter such misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a material adverse effect on our business, financial condition and results of operations, and result in the imposition of significant fines or other sanctions against us.

Business disruptions such as natural disasters could seriously harm our future revenues and financial condition and increase our costs and expenses.

We and our suppliers may experience a disruption in our and their business as a result of natural disasters. A significant natural disaster, such as an earthquake, hurricane, flood or fire, could severely damage or destroy our headquarters or facilities or the facilities of our manufacturers or suppliers, which could have a material and adverse effect on our business, financial condition and results of operations. In addition, terrorist acts or acts of war targeted at the U.S., and specifically the greater New York, New York region, could cause damage or disruption to us, our employees, facilities, partners and suppliers, which could have a material adverse effect on our business, financial condition and results of operations.

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We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.

From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our business, financial condition and results of operations. For example, these transactions may entail numerous operational and financial risks, including:

• exposure to unknown liabilities;
• disruption of our business and diversion of our management's time and attention in order to develop acquired products, product candidates or technologies;
• incurrence of substantial debt or dilutive issuances of equity securities to pay for any of these transactions;
• higher-than-expected transaction and integration costs;
• write-downs of assets or goodwill or impairment charges;
• increased amortization expenses;
• difficulty and cost in combining the operations and personnel of any acquired businesses or product lines with our operations and personnel;
• impairment of relationships with key suppliers or customers of any acquired businesses or product lines due to changes in management and ownership; and
• inability to retain key employees of any acquired businesses.

Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks, and could have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Intellectual Property

We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.

Because several of our programs require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to maintain and exploit these proprietary rights. In addition, we may need to acquire or in-license additional intellectual property in the future. We may be unable to acquire or in-license any compositions, methods of use, processes or other intellectual property rights from third parties that we identify as necessary for our product candidates. We face competition with regard to acquiring and in-licensing third-party intellectual property rights, including from a number of more established companies. These established companies may have a competitive advantage over us due to their size, cash resources