Contract analysis

I.A. Purpose of the Report Whitmore Valuation Group LLC ("WVG") has been retained under a Kovel arrangement by Calderwood & Harkness LLP ("C&H"), outside tax counsel to Penterra Pharmaceuticals Corp. ("PPC," EIN 22-3741856), to provide independent economic analysis in connection with the Internal Revenue Service ("IRS") Large Business & International Division examination (Exam Team ID LB&I-NE-TP-2022-00641) of PPC's

I.B. Summary of Conclusion Based on the analysis described in this report, WVG identified 22 comparable independent companies functioning as distributors, IP-holding companies, and commercialization principals in the pharmaceutical and life sciences sector. These comparable companies were identified through a rigorous, multi-step quantitative and qualitative screening process applied to publicly available financial d

I.C. Overview of IRS Positions Being Addressed The IRS has proposed net adjustments totaling approximately $380.4 million across TY 2017–2020, comprising the following components: (a) CSA cost-sharing adjustments of $235.01 million. The IRS proposes to increase PBI's cost-sharing percentage by approximately 8 to 12 percentage points for each tax year, resulting in additional cost-sharing payments from PBI to PPC that

II. Background and Factual Overview

II.A. Penterra Pharmaceuticals Corp. — Overview Penterra Pharmaceuticals Corp. ("PPC") is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol PPCA. PPC is headquartered at 2200 Independence Boulevard, Princeton Junction, New Jersey 08550. PPC is a specialty pharmaceuticals and biotechnology company focused on the development, manufacture, and commercialization of innovative thera

II.B. PPC Group Structure PPC's corporate structure relevant to this analysis is as follows:

1. Penterra Pharmaceuticals Corp. ("PPC") — United States, Delaware corporation. PPC is the ultimate parent entity and the U.S. taxpayer under examination.

2. Penterra Holdings Luxembourg S.à r.l. ("PHL") — Luxembourg private limited liability company, registered at 14, rue Aldringen, L-1118 Luxembourg, Luxembourg (Luxembourg Registre de Commerce et des Sociétés Number B 168452). PHL is a wholly owned subsidiary of PPC and is treated as a disregarded entity for U.S. federal income tax purposes pursuant to Treasury Regulations § 301.7701-3. PHL serves as an intermediate

3. Penterra Biopharma International DAC ("PBI") — Ireland, Designated Activity Company. PBI is a wholly owned subsidiary of PHL and, therefore, an indirect wholly owned subsidiary of PPC. PBI is the tested party in this CPM/TNMM analysis and is described in detail in Section II.C below.

4. Penterra Manufacturing Ireland Ltd. ("PMI") — Ireland, private limited company, registered at Unit 7, Ringaskiddy Industrial Estate, Co. Cork T12 PX29, Ireland (Irish Companies Registration Office Number 512347). PMI is a wholly owned subsidiary of PBI and operates as a contract manufacturer of oncology and immunology biologics for non-Americas markets under a cost-plus 8% arrangement with PBI. PMI employs approxi

II.C. Penterra Biopharma International DAC — The Tested Party Penterra Biopharma International DAC ("PBI") is a Designated Activity Company organized under the laws of Ireland. PBI's registered office is located at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. PBI's Irish Tax Reference Number is 3218764T, and Aidan Naughton serves as Managing Director. PBI was incorporated on March 15

II.D. Intercompany Arrangements

II.D.1. Cost-Sharing Arrangement PPC and PBI entered into a Cost-Sharing Arrangement effective July 1, 2012, pursuant to Treasury Regulations § 1.482-7. Under the CSA, PBI acquired rights to develop and exploit PPC's pharmaceutical intellectual property portfolio outside the Americas (i.e., in the EMEA and APAC regions) in exchange for two forms of consideration: (a) Platform Contribution Transaction ("PCT") Payment.

II.D.2. Legacy IP Royalty Arrangement In addition to the CSA, PBI licenses certain legacy pharmaceutical compounds from PPC. These legacy compounds are products that were developed and commercialized prior to the effective date of the CSA (July 1, 2012) and are therefore not covered by the CSA's cost-sharing provisions. Under the legacy IP license agreement, PBI pays PPC a royalty of 4.5% of net sales for the non-Ame

II.D.3. Contract Manufacturing Arrangement PBI engages Penterra Manufacturing Ireland Ltd. ("PMI") as its contract manufacturer for oncology and immunology biologics intended for non-Americas markets. Under the contract manufacturing agreement, PMI is compensated on a cost-plus basis at a markup of 8% over its fully loaded costs of production. This compensation structure reflects PMI's limited-risk contract manufactu

II.E. Key Products and Revenue Data PPC's product portfolio includes several significant pharmaceutical products that are commercialized globally. The following table summarizes the key products and their revenue contribution for FY 2020: Veritaxol is PPC's largest revenue-generating product and is classified as a "Blockbuster" therapy, having exceeded $1 billion in global annual sales since 2016. Veritaxol is a firs

II.F. PBI's Functions, Assets, and Risks The following is a summary of PBI's functions, assets, and risks relevant to the CPM/TNMM analysis. A comprehensive functional analysis has been prepared separately and is documented in the functional analysis reports prepared by WVG (functional-analysis-report.docx and functional-analysis-report-updated.docx). Functions. PBI employs regulatory, medical-affairs, commercial-str

III. Applicable Legal and Regulatory Framework

III.A. IRC § 482 and the Arm's-Length Standard

Section 482 of the Internal Revenue Code grants the Secretary of the Treasury broad authority to distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among two or more organizations, trades, or businesses (whether or not incorporated, whether or not organized in the United States, and whether or not affiliated) owned or controlled directly or indirectly by the same interests,

III.B. Comparable Profits Method — Treas. Reg. § 1.482-5 The Comparable Profits Method, as described in Treasury Regulations § 1.482-5, evaluates whether the amount charged in a controlled transaction is arm's length by reference to objective measures of profitability (profit level indicators, or "PLIs") derived from uncontrolled taxpayers that engage in similar business activities under similar circumstances. Under

III.C. Transactional Net Margin Method — OECD Guidelines The Transactional Net Margin Method ("TNMM") is described in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2017 revision, and as updated in the 2022 revision), Chapter II, paragraphs 2.58 through 2.107. The TNMM examines the net profit margin relative to an appropriate base (such as revenue, costs, or assets) that a

III.D. IRC § 6662(e) — Penalty Protection

Section 6662(e) of the Internal Revenue Code imposes a penalty for substantial valuation misstatements attributable to transfer pricing adjustments under IRC § 482. The penalty is equal to 20% of the underpayment of tax attributable to the misstatement, or 40% in the case of a gross valuation misstatement. However, under IRC § 6662(e)(3)(B), no penalty shall be imposed if the taxpayer establishes that there was reaso

IV.A. Selection of Tested Party PBI has been selected as the tested party in this CPM/TNMM analysis. The selection of the tested party is governed by Treasury Regulations § 1.482-5(b)(2), which provides that the tested party should be the controlled taxpayer whose profitability can be verified using the most reliable data and requiring the fewest and most reliable adjustments. Ordinarily, the tested party will be the

IV.B. Selection of Profit Level Indicator WVG selects operating margin (operating income divided by net revenue) as the primary PLI for this CPM/TNMM analysis. Rationale for Operating Margin. Operating margin is the most commonly used PLI for the evaluation of distribution, commercialization principal, and IP-holding companies in the pharmaceutical sector. Operating margin directly measures the relationship between t

IV.C. Comparable Company Search Strategy WVG conducted a systematic, multi-step comparable company search to identify independent companies that are functionally comparable to PBI and can serve as benchmarks for the CPM/TNMM analysis. The search process included both quantitative screening criteria (applied to commercial databases of publicly available financial data) and qualitative screening criteria (applied throu

IV.C.1. Quantitative Screening Criteria The initial universe of potential comparable companies was drawn from commercial databases containing publicly available financial data for companies worldwide. WVG applied the following quantitative screening criteria to narrow the universe to a manageable set of potential comparables: (a) Geographic Scope. The search focused on companies domiciled in Western Europe, with part

IV.C.2. Qualitative Screening Criteria Following the application of quantitative screening criteria, WVG conducted a qualitative review of the remaining companies to assess their functional, risk, and asset comparability to PBI. The qualitative screening criteria included the following: (a) Functional Comparability. Companies were evaluated based on whether they perform functions similar to those performed by PBI — s

IV.C.3. Final Comparable Set Following the application of the quantitative and qualitative screening criteria described above, WVG identified a final comparable set of 22 independent companies. These 22 companies represent a cross-section of the pharmaceutical and life sciences industry and include the following types of entities: • Pharmaceutical distribution principals that hold distribution rights for specific geo

IV.D. Adjustments to Comparable Data To enhance the comparability of the financial data used in this analysis, WVG applied certain adjustments to the operating margins of the 22 comparable companies: Working Capital Adjustments. WVG applied working capital adjustments to normalize for differences in accounts receivable, accounts payable, and inventory levels between the comparable companies and PBI. Differences in wo

IV.E. Determination of Arm's-Length Range Consistent with the guidance in Treasury Regulations § 1.482-1(e)(2)(iii)(C) and OECD Transfer Pricing Guidelines paragraph 3.57, WVG uses the interquartile range ("IQR") as the arm's-length range for this CPM/TNMM analysis. The IQR is defined as the range of results between the 25th percentile and the 75th percentile of the comparable company operating margins. The use of th

IV.F. Testing PBI's Operating Margin WVG compared PBI's actual operating margins for TY 2017, 2018, 2019, and 2020 to the IQR of the comparable set for the corresponding periods. PBI's operating margins were derived from PBI's Irish statutory financial statements, which report revenue, cost of sales, operating expenses, and operating income in accordance with Irish Generally Accepted Accounting Principles ("Irish GAA

V. Functional Analysis of PBI (Summary)

V.A. Overview A comprehensive functional analysis of PBI has been prepared separately and is documented in the functional analysis reports prepared by WVG under the direction of counsel (functional-analysis-report.docx and functional-analysis-report-updated.docx). The functional analysis describes in detail PBI's functions performed, assets employed, and risks assumed in connection with its role as IP-holding company

V.B. Key Functions Performed by PBI PBI performs the following key functions in connection with its role as IP-holding company and non-Americas commercialization principal: Regulatory Affairs. PBI manages regulatory submissions and marketing authorization applications across 68 non-Americas country markets, including the centralized European Medicines Agency ("EMA") procedure for EU-wide approvals, national marketing

V.C. Key Assets Held by PBI PBI holds the following key categories of assets: • Intangible Assets: Rights under the CSA to exploit PPC's pharmaceutical IP portfolio in non-Americas territories; licensed rights to legacy compounds under the 4.5% royalty arrangement; marketing intangibles developed through PBI's commercialization activities (including customer relationships, distribution networks, and market knowledge)

V.D. Key Risks Borne by PBI PBI bears the following key categories of risk in connection with its operations: • Market Risk: PBI bears the risk of demand fluctuations, competitive pressures, and pricing/reimbursement changes in 68 non-Americas country markets. Market risk includes the risk that PBI's products may lose market share to competing therapies, biosimilars, or generic alternatives, and the risk that governm

V.E. Characterization of PBI for CPM/TNMM Purposes Based on the functional analysis summarized above, PBI is characterized as an IP-holding/commercialization principal performing significant DEMPE functions. PBI is not a limited-risk distributor, commissionnaire, or conduit entity. Rather, PBI is an entrepreneurial entity that bears genuine economic risks — including market risk, regulatory risk, and foreign exchange

VI. Results of the CPM / TNMM Analysis

VI.A. Comparable Company Operating Margin Results The following table presents the summary statistics of operating margins for the 22 comparable companies for each year in the analysis period and the multi-year weighted average. The underlying operating margin data for each individual comparable company, together with the financial data from which those margins were derived, is provided in the benchmarking workbook (

VI.B. PBI's Operating Margins (2017–2020) The following table presents PBI's operating margins for each year in the analysis period, derived from PBI's Irish statutory financial statements: Table VI-2: PBI Operating Margins (2017–2020) PBI's operating expenses include cost-sharing payments under the CSA, royalty payments for legacy IP, selling and marketing expenses, regulatory affairs expenditures, general and admin

VI.C. Comparison: PBI Margins vs. Arm's-Length Range The following table compares PBI's operating margins to the IQR of the comparable company set for each year and the multi-year weighted average: Table VI-3: PBI Operating Margin vs. Arm's-Length Range (IQR) For each of the four tax years at issue, and for the multi-year weighted average, PBI's operating margin falls within the IQR of the comparable company set. PBI