Disruptions at the FDA and other agencies may also slow the time necessary for Seelos' product candidates to be reviewed or approved by necessary government
agencies, which could adversely affect its business, financial condition and results of operations.
Seelos is 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 Seelos' business, financial condition and results of operations.
In the U.S., Seelos is 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 Seelos seeks to structure its 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 Seelos' 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, Seelos is 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.
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 Seelos fails to comply with an applicable state law requirement, it could be subject to penalties.
Neither the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to Seelos' business. Law enforcement authorities
are increasingly focused on enforcing these laws, and it is possible that some of Seelos' practices may be challenged under these laws. Efforts to ensure that Seelos' business arrangements
with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If Seelos is found in violation of one of these laws, Seelos 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 Seelos'
operations. If this occurs, Seelos' business, financial condition and results of operations may be materially adversely affected.
If Seelos faces allegations of noncompliance with the law and encounter sanctions, its reputation, revenues and liquidity may suffer, and any of Seelos'
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 Seelos 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 Seelos' ability to generate revenues from any of its product candidates that
are ultimately approved for commercialization. If regulatory sanctions are applied or if regulatory approval is withdrawn, Seelos' business, financial condition and results of operations will be
adversely affected. Additionally, if Seelos is unable to generate revenues from product sales, Seelos' potential for achieving profitability will be diminished and Seelos' need to raise capital to
fund its operations will increase.
If Seelos fails to retain current members of Seelos' senior management and scientific personnel, or to attract and keep additional key personnel, Seelos
may be unable to successfully develop or commercialize Seelos' product candidates.
Seelos' success depends on Seelos' continued ability to attract, retain and motivate highly qualified management and scientific personnel. As of October 2018,
Dr. Raj Mehra, Seelos' Chief Executive Officer, is the only employee of Seelos. Seelos has identified several individuals that are expected to become full-time employees of Seelos' and fill the
following open positions: Chief Financial Officer; Chief Science Officer, Head of Corporate Communications, Head of R&D, Head of Chemistry, Manufacturing and Control and Head of
Clinical Operations. However, Competition for qualified personnel is intense. Seelos may not be successful in