Contract analysis

1. This case arises from the catastrophic failure of a clinical-stage drug candidate and the rights of a would-be acquirer to walk away from a $900 million acquisition when the very asset it agreed to purchase has been fundamentally destroyed.

2. On June 10, 2024, Penterra entered into a Stock Purchase Agreement (the "SPA" or the "Agreement") to acquire one hundred percent (100%) of the outstanding capital stock of Veridian for $900,000,000 in cash (the "Transaction"). A true and correct copy of the SPA is attached hereto as Exhibit A and incorporated herein by reference.

3. Penterra entered into the SPA based on the commercial promise of Veridian's lead drug candidate, VRD-4187, a bispecific T-cell engager targeting DLL3-expressing tumors for the treatment of small cell lung cancer ("SCLC"). VRD-4187 was the centerpiece of Veridian's pipeline, the principal driver of the $900 million purchase price, and the foundation upon which Penterra's strategic rationale for the acquisition rest

4. Following the execution of the SPA, VRD-4187 suffered catastrophic clinical trial results. On August 14, 2024, the independent Data Monitoring Committee ("DMC") for the Phase II Marlowe Asset Management-2 clinical trial conducted a pre-specified interim analysis. The results were devastating: VRD-4187 demonstrated a statistically significant increase in serious adverse events, including Grade 3 or higher cytokine

5. On August 22, 2024, the United States Food and Drug Administration (the "FDA") imposed a partial clinical hold on VRD-4187 (IND 154832), one of the most severe regulatory actions the agency can take with respect to an investigational drug, pending investigation of the CRS-related deaths. The clinical hold prohibited new enrollment in the Marlowe Asset Management-2 trial and required Veridian to submit a complete r

6. These developments constituted a material adverse effect on Veridian's business, results of operations, financial condition, and assets, taken as a whole, within the meaning of Section 1.1 of the SPA. Veridian is a clinical-stage company with zero product revenue, a FY2023 net loss of $87.3 million, and an enterprise value derived entirely from the clinical promise of its pipeline — principally VRD-4187. The destr

7. Penterra lawfully terminated the SPA on September 30, 2024, pursuant to Section 8.1(d), on the grounds that the conditions to Penterra's obligation to close under Sections 7.2(a) and 7.2(b) were not satisfied and were incapable of being satisfied prior to the Outside Date of December 10, 2024, due to the occurrence and continuation of a material adverse effect. A true and correct copy of the Termination Notice is

8. Penterra now seeks a declaratory judgment from this Court confirming the validity of that termination and declaring that Penterra has no further obligations to Veridian or the Sellers under the SPA, including no obligation to pay the $45,000,000 reverse termination fee, no obligation to consummate the Transaction, and no obligation to pay the $900 million purchase price. NATURE OF THE ACTION

9. This is a counterclaim for declaratory relief pursuant to 10 Del. C. § 6501 et seq. (the Delaware Declaratory Judgment Act) and Court of Chancery Rule 57.

10. Penterra seeks a declaration from this Court that: (a) a material adverse effect occurred with respect to the business, results of operations, financial condition, and assets of Veridian Biosciences, Inc., taken as a whole, within the meaning of Section 1.1 of the SPA; (b) the conditions to Penterra's obligation to close under Sections 7.2(a) and 7.2(b) of the SPA were not satisfied and were incapable of being sa

11. An actual controversy exists between the parties regarding the validity of the termination. Veridian has filed a complaint in this action alleging that Penterra breached its obligations under the SPA by terminating the Agreement and seeking, among other remedies, specific performance compelling Penterra to close the Transaction. Penterra denies those allegations and affirmatively contends that its termination was

12. A judicial declaration resolving this controversy is necessary and appropriate to settle the rights and legal relations of the parties and to afford relief from the uncertainty and controversy giving rise to this proceeding. THE PARTIES A. Counterclaim Plaintiff

13. Penterra Pharmaceuticals Corp. ("Penterra") is a corporation duly organized and existing under the laws of the State of Delaware, with its principal executive office located at 1100 Meridian Boulevard, Suite 400, Princeton, New Jersey 08540.

14. Penterra is publicly traded on the Nasdaq Stock Market under the ticker symbol "PPCA." As of June 2024, Penterra had a market capitalization of approximately $14.2 billion.

15. Penterra's registered agent for service of process in the State of Delaware is Capitol Corporate Services, Inc., located at 1675 South Ashbury Asset Advisors, Suite B, Dover, Delaware 19901.

16. Penterra is a mid-cap specialty pharmaceutical company with a diversified commercial portfolio of twelve (12) marketed products across the oncology, immunology, and rare disease therapeutic areas. For the fiscal year ended December 31, 2023, Penterra reported consolidated revenue of approximately $4.87 billion and net income of approximately $612 million.

17. Penterra's Chief Executive Officer is Dr. Anand Rajagopal. Penterra's General Counsel and Secretary is Thomas F. Holbrook. B. Counterclaim Defendant

18. Veridian Biosciences, Inc. ("Veridian") is a corporation duly organized and existing under the laws of the State of Delaware, with its principal office located at 550 Gateway Drive, Cambridge, Massachusetts 02142.

19. Veridian is a privately held, clinical-stage biotechnology company focused on the development of immuno-oncology therapeutics. Veridian was founded in 2016 by Dr. Julian Marek, who serves as its Chief Executive Officer, and Dr. Priya Chandrasekaran, who serves as its Chief Scientific Officer.

20. Veridian's registered agent for service of process in the State of Delaware is Tidewater Registered Agents LLC, located at 838 Walker Road, Suite 21-2, Dover, Delaware 19904.

21. At the time of the SPA's execution, Veridian had approximately 148 employees. Veridian has no product revenue. For the fiscal year ended December 31, 2023, Veridian reported total revenue of $0 and a net loss of approximately $87.3 million. Veridian has funded its operations through private equity financing, having raised approximately $420 million across Series A through Series D funding rounds.

22. Veridian's major stockholders include Crestline Ventures, LP (approximately 28.3% of outstanding stock), Boreal Health Partners Fund III, LP (approximately 19.7% of outstanding stock), and Apex Growth Equity Fund II, LP (approximately 14.1% of outstanding stock). Together, these three stockholders hold approximately 62.1% of Veridian's outstanding capital stock. C. Non-Party Stockholder Representative

23. David Ng, Managing Partner of Crestline Ventures, LP, serves as the Stockholder Representative under the SPA on behalf of the Sellers (as defined in the SPA). Although Mr. Ng is not a party to this counterclaim, his role as Stockholder Representative is relevant to the facts and circumstances alleged herein. JURISDICTION AND VENUE

24. This Court has subject matter jurisdiction over this counterclaim pursuant to 10 Del. C. § 341, which vests the Court of Chancery with general equity jurisdiction, and pursuant to 6 Del. C. § 18-111.

25. This Court has jurisdiction over this counterclaim pursuant to Section 10.6 of the SPA, which provides, in relevant part, that the parties irrevocably submit to the exclusive jurisdiction of the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware) for the pu

26. Venue is proper in New Castle County, Delaware. Both Penterra and Veridian are corporations organized under the laws of the State of Delaware, and both parties have consented to the exclusive jurisdiction and venue of this Court under Section 10.6 of the SPA.

27. The SPA is governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice-of-law or conflict-of-law provisions, as set forth in Section 10.6 of the SPA.

28. Pursuant to Section 10.6 of the SPA, each of the parties irrevocably waived any objection that it may now or hereafter have to the laying of venue of any action, suit, or proceeding arising out of or relating to the SPA in this Court, and irrevocably waived and agreed not to plead or claim that any such action, suit, or proceeding brought in this Court has been brought in an inconvenient forum. FACTUAL BACKGROUND

29. Penterra is a mid-cap specialty pharmaceutical company with a diversified commercial portfolio of twelve (12) marketed products across the oncology, immunology, and rare disease therapeutic areas. Penterra is listed on the Nasdaq Stock Market under the ticker symbol "PPCA" and had a market capitalization of approximately $14.2 billion as of June 2024. For the fiscal year ended December 31, 2023, Penterra reported

30. In November 2023, Penterra experienced a significant setback to its internal oncology pipeline. On November 18, 2023, a pre-planned futility analysis of Penterra's Phase III clinical trial of PPC-0921, an anti-PD-L1/TIM-3 bispecific antibody, failed to demonstrate a statistically significant improvement in progression-free survival compared to the control arm. The Penterra Board of Directors and management team r

31. Veridian is a clinical-stage biotechnology company founded in 2016 by Dr. Julian Marek and Dr. Priya Chandrasekaran. Veridian has developed a proprietary technology platform known as VeriTCE (Veridian T-Cell Engager), which enables the engineering of bispecific T-cell engager molecules designed to redirect the patient's own T-cells to attack cancer cells expressing specific target antigens.

32. At the time of the SPA's execution, Veridian had three immuno-oncology candidates leveraging the VeriTCE platform in various stages of clinical and preclinical development. Veridian has never generated product revenue. For the fiscal year ended December 31, 2023, Veridian reported total revenue of $0 and a net loss of approximately $87.3 million. Veridian had approximately $112.4 million in cash and cash equivale

33. Veridian's lead and most advanced clinical candidate was VRD-4187, a bispecific T-cell engager targeting DLL3-expressing tumors, principally for the treatment of small cell lung cancer ("SCLC"). VRD-4187 was Veridian's flagship product, the most advanced candidate in its pipeline, and the primary asset underpinning Veridian's enterprise value.

34. At the time of the SPA's execution, VRD-4187 was in Phase II clinical trials. The pivotal trial, known as Marlowe Asset Management-2 (ClinicalTrials.gov Identifier NCT05837291), was a randomized, open-label study designed to evaluate the safety and efficacy of VRD-4187 in combination with standard chemotherapy compared to standard chemotherapy alone in patients with previously treated SCLC. The Marlowe Asset Mana

35. On February 12, 2024, the Penterra Board of Directors held a special meeting at which management presented a strategic assessment of potential acquisition targets in the immuno-oncology space. Following discussion and deliberation, the Board authorized Dr. Rajagopal and the management team to explore an acquisition of Veridian, subject to Board approval of any definitive agreement.

36. On March 1, 2024, Penterra submitted a non-binding indication of interest to Veridian and its financial advisor, Ridgeway Partners LLC, expressing Penterra's interest in acquiring all of the outstanding capital stock of Veridian at an indicative enterprise value of $850 million to $950 million, subject to satisfactory completion of due diligence and negotiation and execution of a definitive agreement.

37. On March 4, 2024, Penterra and Veridian executed a mutual Confidentiality Agreement governing the exchange of non-public information in connection with the potential transaction.

38. Commencing on March 11, 2024, Penterra conducted extensive due diligence on Veridian's business, operations, financial condition, intellectual property, regulatory affairs, and clinical programs. As part of this process, Penterra retained Broadleaf Scientific Consulting LLC, led by Dr. Raymond Kapoor, to conduct a clinical due diligence review of Veridian's pipeline, with particular emphasis on the VRD-4187 progr

39. The due diligence process extended over approximately three months. During this period, Penterra's advisors reviewed clinical data, regulatory filings, manufacturing agreements, intellectual property portfolios, employment matters, and financial projections provided by Veridian and its advisors. The clinical due diligence conducted by Broadleaf Scientific Consulting was based on the data available as of that time

40. On June 9, 2024, Garrison Zanthor & Co., LLC delivered a fairness opinion to Penterra's Board of Directors, opining that, as of that date and based upon and subject to the assumptions, qualifications, and limitations set forth therein, the $900 million purchase price to be paid by Penterra pursuant to the SPA was fair, from a financial point of view, to Penterra.

41. The SPA was fully negotiated, executed, and delivered on June 10, 2024. Dr. Anand Rajagopal executed the SPA on behalf of Penterra, Dr. Julian Marek executed the SPA on behalf of Veridian, and David Ng executed the SPA in his capacity as Stockholder Representative on behalf of the Sellers.

42. The SPA contains the following key terms, among others: (a) Purchase Price. Penterra agreed to pay $900,000,000 in cash (the "Purchase Price") in exchange for one hundred percent (100%) of the outstanding capital stock of Veridian. (SPA § 2.1.) The SPA did not provide for any purchase price adjustment based on the cash on Veridian's balance sheet at closing. (b) Escrow Arrangements. At closing, $180,000,000 (repr

43. The term "Material Adverse Effect" (or "MAE") is defined in Section 1.1 of the SPA. The MAE definition is central to this counterclaim and is quoted in relevant part below: "'Material Adverse Effect' means any event, change, development, occurrence, condition or effect that, individually or in the aggregate, has had or would reasonably be expected to have a material adverse effect on (a) the business, results of

44. The MAE definition includes certain carveouts, which exclude from the definition of Material Adverse Effect changes arising from or relating to: (i) general economic or political conditions; (ii) conditions affecting the biotechnology or pharmaceutical industries generally; (iii) changes in applicable law or United States generally accepted accounting principles ("GAAP"); (iv) pandemics, including COVID-19 and an

45. Carveouts (i) through (vi) are subject to a "disproportionate impact" exception. Specifically, the SPA provides that the foregoing carveouts shall not apply to the extent that the relevant event, change, development, occurrence, condition, or effect disproportionately affects the Company (Veridian) relative to other comparably situated companies operating in the biotechnology industry. The disproportionate-impact

46. Critically, the MAE carveouts enumerated in the SPA do not include any carveout for (a) company-specific clinical trial results, (b) regulatory actions directed at the Company's products, or (c) adverse changes to the Company's product pipeline. The absence of such carveouts is significant and reflects the parties' deliberate allocation of the risk of clinical trial failure and adverse regulatory action to the Se

47. Article VII of the SPA sets forth the conditions to each party's obligation to consummate the Transaction. Section 7.2 specifies the conditions to Penterra's obligation to close, including, among others: (a) Bring-Down of Representations and Warranties (§ 7.2(a)). The representations and warranties of the Sellers set forth in the SPA must be true and correct in all respects (except where qualified by materiality

48. Section 7.2 also conditions closing on compliance by the Company and the Sellers with their respective covenants and agreements, delivery of officer's certificates confirming satisfaction of conditions, delivery of customary closing deliverables, and certain other conditions. These conditions are not at issue in this counterclaim. E. Regulatory Approvals Obtained

49. On April 22, 2024, Penterra filed the required pre-merger notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), with the Federal Trade Commission (the "FTC") and the Antitrust Division of the United States Department of Justice. The HSR Act filing fee was $280,500.

50. On May 20, 2024, the FTC granted early termination of the waiting period under the HSR Act, and the antitrust condition to closing was fully satisfied. No second request for additional information or documentary material was issued by either the FTC or the Antitrust Division.

51. On June 14, 2024, Veridian obtained the required stockholder approval of the Transaction through execution of a written consent by stockholders holding more than ninety percent (90%) of Veridian's outstanding capital stock, in accordance with Section 228 of the Delaware General Corporation Law and Section 5.2 of the SPA.

52. As of the date of this Verified Counterclaim, all regulatory approvals necessary for the consummation of the Transaction had been obtained. The failure of the Transaction was not attributable to any regulatory impediment. F. Financing Arrangements

53. At all relevant times, Penterra had ample financial resources to consummate the Transaction. As of the end of the second fiscal quarter of 2024, Penterra had approximately $2.1 billion in unrestricted cash and cash equivalents on its balance sheet.

54. On June 7, 2024, Penterra entered into a committed term loan facility in the amount of $500,000,000 (the "Commitment Letter," Ref. CL-2024-PPCA-0607), with Summit Ridge Capital Partners, LP as lead arranger and Ironclad Trust Company, N.A. as administrative agent. The term loan bore interest at SOFR plus 225 basis points, with a commitment fee of 0.35% per annum and a ticking fee of 0.175% per annum commencing Se

55. Penterra's intended funding plan for the Transaction was to draw $500 million from the committed term loan facility and to fund the remaining $400 million from Penterra's existing cash on hand.

56. At no point during the period between the execution of the SPA and Penterra's termination of the SPA did Penterra's financing fail, become unavailable, or become subject to any condition that was not capable of being satisfied. Penterra had the financial ability to close the Transaction at all times. The termination of the SPA was not caused by or related to any financing failure, and the reverse termination fee

57. On June 12, 2024, in connection with the Transaction, Penterra caused to be bound a buyer-side representation and warranty insurance policy (the "R&W Policy") issued by Atlas Indemnity Insurance Co. (Policy No. AIC-RWI-2024-07892). The R&W Policy was brokered by Prescott Whitfield Insurance Brokers, Inc.

58. The R&W Policy had a policy limit of $180,000,000, matching the general indemnification cap under the SPA, and a self-insured retention of $9,000,000, matching the indemnification tipping basket. The total premium for the R&W Policy was $3,960,000, plus an underwriting fee of $75,000.

59. On October 3, 2024, following the termination of the SPA, Penterra notified Atlas Indemnity Insurance Co. that the Transaction would not close. The $3,960,000 premium was non-refundable under the terms of the R&W Policy. H. The Catastrophic Marlowe Asset Management-2 Clinical Trial Results

60. As described in paragraphs 33 and 34 above, VRD-4187 was in the Marlowe Asset Management-2 Phase II clinical trial at the time of the SPA's execution. Marlowe Asset Management-2 was a randomized, open-label study conducted across 42 clinical sites in the United States and European Union, with a total enrollment of 387 patients: 194 patients randomized to the VRD-4187 treatment arm and 193 patients randomized to t