Contract analysis

I. Purpose and Overview The purpose of this memorandum is to prepare you, Dr. Vasquez, for your role presenting Whitmore Valuation Group LLC's ("Whitmore") economic analyses at the IRS Appeals conference scheduled for February 28, 2024, at the IRS Appeals Office in Manhattan. As you are aware, Whitmore was retained under a Kovel arrangement (Kovel letter executed June 20, 2022, reference 1018-00009-KV) to perform ind

II. Conference Logistics and Format A. Date, Time, and Location The Appeals conference is scheduled for February 28, 2024. The conference will be held at the IRS Appeals Office in Manhattan. The precise address and conference room number will be confirmed by C&H no later than February 26, 2024. You should plan to arrive at the IRS Appeals Office no later than 9:00 AM. The conference is scheduled to begin at 9:30 AM.

1. Leonard Cross — lead counsel and lead presenter on legal arguments

2. Sylvia Hartwell — billing partner

3. Garrett Simmons — lead associate and point of contact for logistics

4. Marcus Whitfield — VP, Global Tax, PPC (client representative)

5. Deborah Staines — General Counsel, PPC

6. Dr. Helena Vasquez — Whitmore Valuation Group (economic analysis presenter) On the IRS side, the primary participant will be Appeals Officer Noreen Castañeda. Based on prior communications with the Appeals Office, it is possible that Appeals Officer Castañeda will be accompanied by IRS economist Dr. Alan Washburne and/or Attorney-Advisor Franklin Rosario, although Appeals conferences typically do not include membe

1. Leonard Cross will open with a legal overview and case framing, addressing PPC's overall transfer pricing structure, the regulatory framework under IRC § 482 and the applicable Treasury Regulations, and the legal deficiencies in the IRS's proposed adjustments. This opening segment is expected to last approximately 30–45 minutes.

2. Dr. Helena Vasquez will then present Whitmore's economic analyses, covering (a) the CUT analysis of the legacy IP royalty rate, (b) the CPM/TNMM analysis of PBI's operating margins, (c) the PCT valuation using the income method/DCF approach, (d) the WACC/Discount rate analysis, and (e) the key conclusions of Whitmore's rebuttal of Dr. Washburne's analysis. This segment is expected to last approximately 45 to 60 mi

3. Leonard Cross will then address legal arguments concerning PBI's economic substance, its DEMPE (Development, Enhancement, Maintenance, Protection, and Exploitation) contributions, and penalty protection under IRC § 6662(e).

4. Questions and answers are expected to follow each segment. Appeals Officer Castañeda will likely ask follow-up questions during and after each presentation segment. You should be prepared for interjections during your presentation as well as for a more extended Q&A session at the conclusion of the economic analysis presentation. A Northgate Services Inc. presentation has been prepared for the conference (file name

III. Summary of IRS Proposed Adjustments Under Challenge This section summarizes the IRS proposed adjustments set forth in the NOPA dated October 12, 2023, which PPC is challenging through the Appeals process. It is important that you are thoroughly familiar with these adjustments, as your economic analyses are directed at demonstrating that PPC's transfer pricing positions produce arm's-length results and that the I

IV. Summary of Whitmore Valuation Group Economic Analyses This section provides a detailed summary of each of Whitmore's economic analyses that you will be presenting at the Appeals conference. You should be prepared to discuss each analysis in depth and to respond to questions about methodology, data sources, results, and the bases for your conclusions. A. CUT Analysis — Legacy IP Royalty Rate Objective. The objecti

1. It understates the equity risk premium applicable to pharmaceutical IP with significant clinical-stage development risk.

2. It derives beta from mature, diversified pharmaceutical companies (e.g., large-cap multinationals with diversified product portfolios) rather than specialty pharmaceutical and biotechnology companies that are more comparable to the risk profile of PPC's IP portfolio at the time of the PCT.

3. It fails to include any company-specific risk premium for clinical-stage compounds, notwithstanding the significant development, regulatory, and commercialization risks associated with those compounds as of July 2012.

4. The cumulative effect of these errors is to substantially overstate the present value of the projected cash flows, yielding the inflated $852 million valuation. You should be prepared to walk through the WACC build-up in detail and to explain each component in accessible terms for Appeals Officer Castañeda. E. Rebuttal of IRS Economist Dr. Washburne's Analysis Whitmore (prepared by Dr. Vasquez and Dr. Rohan Chakra

1. CUT Selection. Dr. Washburne's comparable license agreements include agreements with materially different terms from the PPC-PBI legacy IP license. Specifically, several of Dr. Washburne's selected CUTs involve different therapeutic areas, include non-exclusive licenses (whereas PBI's license is exclusive), cover different geographic scopes, and bundle ancillary services (such as manufacturing, distribution, and c

3. Revenue Projections. Dr. Washburne's analysis incorporated actual (realized) revenues as proxies for projected revenues at the time of the CSA, introducing impermissible hindsight bias. Transfer pricing analysis must be based on the information and projections that were reasonably available at the time of the controlled transaction. The use of actual performance data from 2013 through 2020 to value a 2012 PCT and

4. Cost-Sharing Ratio. Dr. Washburne's reasonably anticipated benefit calculation did not properly weight the risks borne by PBI in non-Americas markets. PBI bore genuine market risk, regulatory risk, and pricing risk in 68 country markets — risks that should be reflected in a lower cost-sharing percentage for PBI (not a higher one as proposed by the IRS). Dr. Washburne's analysis treats PBI as if it were a passive p

V. Key Messages for Dr. Vasquez The following key messages should inform your presentation and responses to questions throughout the conference. These messages are designed to frame the economic analysis in a manner that is persuasive and consistent with PPC's overall position, while maintaining the objectivity and credibility expected of an independent economist. A. Overarching Theme PPC's transfer pricing methodolo

VI. Anticipated Questions from Appeals Officer Castañeda This section sets forth the questions we anticipate Appeals Officer Castañeda may ask during the conference, along with suggested responses. These suggested responses are intended to serve as frameworks for your answers; you should adapt them as appropriate based on the specific context of each question and the flow of the conference discussion. Please review t

VII. Topics to Avoid or Redirect The following topics should be avoided during your presentation and responses to questions. If any of these topics arise, you should redirect the question as described below. A. Legal Conclusions You should not offer legal opinions on the application of IRC § 482, the economic substance doctrine, the step transaction doctrine, or penalty provisions, including reasonable cause or good

VIII. Presentation Style and Demeanor Guidance A. Tone Your tone throughout the conference should be professional, measured, and objective. You are presenting as an independent economist retained to perform rigorous economic analyses, not as an advocate for PPC. While your analyses support PPC's positions, your credibility depends on being perceived as a careful, data-driven analyst whose conclusions are the product

IX. Pre-Conference Preparation Schedule The following preparation schedule has been established to ensure that you are fully prepared for the February 28 conference: February 23–24 (Friday–Saturday): Review all Whitmore reports (CUT Analysis, CPM/TNMM Analysis, PCT Valuation/DCF, WACC/Discount Rate Analysis), the January 2024 Rebuttal Memorandum of Dr. Washburne's analysis, and this Witness Preparation Memorandum. En

X. Key Financial Figures for Quick Reference The following table summarizes the key financial figures, rates, and data points that may be referenced during the conference. This table is intended as a quick-reference resource; you should be familiar with all figures and their sources.

XI. Contact Information for Day-of Coordination The following contact information should be used for day-of coordination on February 28, 2024. Please save these numbers in your mobile phone prior to the conference. Calderwood & Harkness LLP — New York Office 600 Lexington Avenue New York, NY 10022 Whitmore Valuation Group LLC 200 Ashbury Asset Advisors, Suite 700 Boston, MA 02109 Garrett Simmons is the primary point

XII. Conclusion Your presentation at the February 28 Appeals conference is critical to demonstrating the economic rigor and reliability of PPC's transfer pricing positions. The Whitmore economic analyses — the CUT analysis, the CPM/TNMM analysis, the PCT valuation, and the WACC analysis — are the foundation of PPC's substantive defense against the IRS's $380.4 million proposed adjustment. Your ability to present thes