Contract analysis

I. Executive Summary This memorandum presents a comprehensive functional analysis of Penterra Biopharma International DAC ("PBI"), the Irish intellectual property holding and commercialization subsidiary of Penterra Pharmaceuticals Corp. ("PPC"), for tax years 2017, 2018, 2019, and 2020 (collectively, the "Examination Years"). These are the years currently under examination by the Internal Revenue Service ("IRS"), La

II.A. Scope of Analysis This functional analysis covers the four tax years currently under examination: TY 2017, TY 2018, TY 2019, and TY 2020. The analysis focuses primarily on the functional profile of Penterra Biopharma International DAC ("PBI"), the entity whose economic substance and DEMPE contributions are at the center of the IRS's challenge. However, where relevant for comparative purposes and to place PBI's

II.B. Regulatory and Legal Framework This functional analysis is prepared against the backdrop of the following legal and regulatory authorities, which govern the transfer pricing treatment of the intercompany transactions at issue: United States Authorities: • IRC § 482 — The Commissioner's authority to allocate income, deductions, credits, or allowances among organizations, trades, or businesses that are owned or c

II.C. Methodology and Sources The analysis presented in this memorandum is based on a comprehensive review of documentary evidence, structured interviews with PBI personnel, and analysis of the intercompany transactions and arrangements between PBI and other entities within the PPC Group. Employee Interviews A total of 24 in-person interviews were conducted with PBI personnel at PBI's offices in Sandyford Business Pa

III. Background on PBI and the PPC Group IP Structure

III.A. Incorporation and Establishment of PBI Penterra Biopharma International DAC ("PBI") was incorporated on March 15, 2012, as a Designated Activity Company under Irish law. The decision to establish PBI in Ireland reflected a strategic determination by PPC's senior management and board of directors to create a substantive operating platform for the commercialization of PPC's pharmaceutical product portfolio outsi

III.B. Cost-Sharing Arrangement The CSA between PPC and PBI was executed effective July 1, 2012. The CSA was structured to comply with the requirements of Treas. Reg. § 1.482-7 for qualified cost-sharing arrangements. Under the CSA, PBI acquired the right to co-develop and exploit PPC's pharmaceutical intellectual property portfolio outside the Americas, defined in the CSA as North America, Central America, South Ame

III.C. Legacy IP Royalty Arrangement Separate from the CSA, PBI licenses certain legacy compounds from PPC under a separate intercompany license agreement. These legacy compounds are pre-2012 vintage compounds that were already approved and commercially available at the time the CSA was executed on July 1, 2012. Because these compounds were not included in the CSA's scope (which covers only post-July 1, 2012 developm

III.D. Contract Manufacturing — PMI Penterra Manufacturing Ireland Ltd. ("PMI") is an Irish limited liability company, with Irish Companies Registration Office ("CRO") Number 512347, and its registered office at Unit 7, Ringaskiddy Industrial Estate, Co. Cork T12 PX29, Ireland. PMI operates as a contract manufacturer of PPC's oncology and immunology biologics for non-Americas markets. PMI operates under a contract ma

III.E. Key Products PBI's non-Americas commercialization activity during the Examination Years centered on three key products: Veritaxol (Oncology): Veritaxol is PPC's blockbuster oncology compound and the single largest revenue contributor within the PPC Group. Veritaxol is indicated for the treatment of several types of solid tumors and has achieved widespread adoption across global markets. For fiscal year 2020, V

IV. PBI Organizational Structure and Personnel

IV.A. Headcount Growth and Composition PBI's workforce has grown steadily since the entity's establishment in 2012, reflecting the expansion of non-Americas commercialization activities and the development of PBI's operational capabilities. At inception in 2012, PBI employed 52 individuals. By the end of TY 2020, PBI's headcount had grown to 185 employees, representing a compound annual growth rate of approximately 1

IV.B. Key Personnel The following key personnel were identified through the interview program and documentary analysis as performing critical functions within PBI during the Examination Years: Managing Director — Aidan Naughton: Mr. Naughton has served as Managing Director of PBI since the entity's inception in March 2012. He bears overall responsibility for PBI's operations, commercial strategy, regulatory affairs,

IV.C. Employee Interview Program The employee interview program was designed to provide direct, first-hand evidence of the functions performed by PBI personnel, the nature and scope of their decision-making authority, and the extent to which PBI operates as a genuinely independent and substantive entity. The program consisted of two phases: Phase 1 — Original Interviews (August–September 2022): Twelve key PBI employe

IV.D. Physical Presence and Infrastructure PBI occupies approximately 18,000 square feet of dedicated office space at 4th Floor, Claremont House, Sandyford Business Park, Dublin D18 K7T4, Ireland. The lease for this space has been documented and produced to the IRS under IDR No. 12 (response received October 12, 2022). The leased premises house all 185 PBI employees and contain: • Dedicated conference rooms for board

V.A. Framework The OECD Transfer Pricing Guidelines, Chapter VI (Special Considerations for Intangibles), introduced the DEMPE framework as a structured approach for analyzing the functions performed, risks assumed, and assets used in connection with intangible property. DEMPE stands for Development, Enhancement, Maintenance, Protection, and Exploitation — the five categories of functions that contribute to the creat

V.B. Development Functions PBI performs meaningful Development functions in connection with PPC's pharmaceutical intellectual property portfolio for non-Americas territories. Financial Contribution to R&D: PBI co-funds PPC's qualified research and development costs under the CSA. During the Examination Years, PBI's annual cost-sharing payments ranged from $186.15 million (2017) to $255.52 million (2020), for a cumula

V.C. Enhancement Functions PBI performs substantial Enhancement functions that increase the value of PPC's pharmaceutical IP in non-Americas territories. Product Enhancement Opportunities: PBI personnel in Dublin identify and pursue product enhancement opportunities specifically for non-Americas markets, including: • Formulation requirements: PBI's supply chain and regulatory teams identify formulation adaptations re

V.D. Maintenance Functions PBI performs critical Maintenance functions that preserve and sustain the commercial value of PPC's pharmaceutical IP in non-Americas territories. Key Opinion Leader Relationships: PBI's medical affairs team maintains ongoing relationships with KOLs in EMEA and APAC. These relationships are essential to maintaining the scientific and clinical reputation of PPC's products in non-Americas mar

V.E. Protection Functions PBI manages the protection of PPC's intellectual property in non-Americas territories, performing functions that safeguard the legal and commercial value of the IP. Patent Management: PBI coordinates patent filings, enforcement, and defense in EMEA and APAC jurisdictions. This includes managing national-phase patent applications, opposing generic patent challenges, and enforcing patent right

V.F. Exploitation Functions PBI is the exclusive principal for the commercialization of PPC's pharmaceutical products outside the Americas. PBI's Exploitation functions are the most visible manifestation of its economic substance and operational independence. Exclusive Commercialization Principal: PBI holds the exclusive right — under the CSA (for post-2012 IP) and the legacy license (for pre-2012 IP) — to exploit PP

V.G. Comparative DEMPE Assessment: PBI vs. PPC The following summary matrix provides a high-level comparison of the DEMPE functions performed by PBI (Ireland) and PPC (United States) during the Examination Years. A more detailed product-specific DEMPE breakdown is provided in the DEMPE Functions Matrix workbook (see Appendix G). Conclusion: The DEMPE functions are genuinely divided between PPC and PBI consistent with

VI.A. Risks Borne by PBI PBI bears a comprehensive range of economic risks associated with its role as the exclusive non-Americas commercialization principal. The significance and scope of these risks directly support PBI's entitl