Contract analysis

I. Executive Summary The purpose of this memorandum is to provide our final legal analysis under Accounting Standards Codification Topic 740-10, Income Taxes (formerly FASB Interpretation No. 48, "FIN 48") regarding the appropriate uncertain tax position ("UTP") reserve for Penterra Pharmaceuticals Corp. ("PPC" or the "Company") following the execution of an IRS Appeals settlement on March 29, 2024. This memorandum s

II. Background and Procedural History A. PPC's Irish IP-Holding Structure Penterra Pharmaceuticals Corp. is a Delaware corporation headquartered in Princeton Junction, New Jersey. PPC is a publicly traded pharmaceutical company listed on the Nasdaq Stock Market under the ticker symbol "PPCA." For its fiscal year ended December 31, 2020, PPC reported consolidated revenue of approximately $6.82 billion and consolidated

1. Contemporaneous Transfer Pricing Documentation. PPC maintained comprehensive contemporaneous transfer pricing documentation for all relevant intercompany transactions during TY 2017–2020, prepared by Crestfield & Associates (Susan Lam, Transfer Pricing Partner). This documentation was prepared on a timely basis and met the requirements of Treasury Regulations § 1.482-7 (for the CSA) and § 1.482-4 (for the legacy I

2. Whitmore CUT Analysis. Dr. Vasquez of Whitmore Valuation Group prepared a comprehensive comparable uncontrolled transaction analysis supporting PPC's 4.5% royalty rate on the legacy IP license. The analysis identified 14 comparable license agreements, with an interquartile range ("IQR") of 3.1% to 6.8% and a median of 4.4%. PPC's 4.5% royalty rate fell within the IQR and was closely aligned with the median, provid

3. CPM/TNMM Analysis. Whitmore also prepared a comparable profits method / transactional net margin method analysis identifying 22 comparable companies, demonstrating that PBI's profit margins fell within the IQR in all four examined years. This analysis provided corroborative support for the arm's-length nature of the overall intercompany arrangements.

4. PCT discounted Cash Flow Valuation. Whitmore's discounted cash flow analysis of the PCT payment supported a valuation range of $278 million to $361 million, using a weighted average cost of capital ("WACC") of 9.8%. PPC's actual PCT payment of $312 million fell within this range. The IRS had used a WACC of 7.2%, which Whitmore demonstrated was inappropriately low given the risk profile of early-stage pharmaceutica

5. Functional Analysis of PBI's DEMPE Functions and Economic Substance. Calderwood & Harkness and Whitmore prepared a detailed functional analysis demonstrating PBI's significant contributions to the development, enhancement, maintenance, protection, and exploitation of PPC's pharmaceutical intangibles in non-Americas markets. This analysis emphasized PBI's substantial headcount growth (from 52 to 185 employees), its

III. ASC 740-10 Framework — Summary of Applicable Standards This Section provides an overview of the accounting standards applicable to PPC's uncertain tax position analysis. The analysis is governed by ASC Topic 740-10, Income Taxes — Overall, which codifies the provisions formerly set forth in FIN 48, Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109. A. Two-Step Analysis ASC

IV. Prior Reserve Positions A. Initial Reserve (September 2022 Analysis) In our initial FIN 48 reserve analysis dated September 20, 2022, prepared in connection with PPC's response to the opening of the IRS examination, we analyzed PPC's uncertain tax positions related to its Irish IP-holding structure and the associated intercompany transfer pricing arrangements. At that time, PPC maintained a pre-examination FIN 48

V. Post-Settlement Reserve Analysis A. Resolution of TY 2017–2020 Positions

1. Impact of the Closing Agreement The Form 906 Closing Agreement, executed on March 29, 2024, conclusively resolves all transfer pricing issues raised in the IRS examination for Tax Years 2017, 2018, 2019, and 2020. A Form 906 Closing Agreement is a binding contract between the taxpayer and the IRS that, once executed, is final and conclusive as to the matters covered therein. See IRC § 7121(b); Rev. Proc. 68-16, 19

2. Allocation of Settlement to Prior Reserve The allocation of the settlement to PPC's prior FIN 48 reserve is as follows: Pre-settlement UTP reserve: $62.4 million Settlement adjustment recognized (TY 2017–2020): • 2017: $11.2 million • 2018: $12.4 million • 2019: $12.8 million • 2020: $11.2 million • Total settlement adjustment: $47.6 million Tax cost of settlement: $10.0 million ($47.6M × 21% statutory rate) Under

3. De-Recognition of TY 2017–2020 Reserve Component The portion of the $62.4 million UTP reserve attributable to TY 2017–2020 transfer pricing exposure is now fully resolved by the Closing Agreement. Under ASC 740-10-25-14, this portion of the reserve must be de-recognized effective as of the settlement date of March 29, 2024. The difference between the reserved amount attributable to TY 2017–2020 and the actual sett

1. Basis for $14.8 Million Remaining Reserve The adjusted UTP reserve of $14.8 million reflects PPC's continuing uncertain tax positions related to the Irish IP-holding structure for tax years not covered by the Closing Agreement — specifically, TY 2021 and all subsequent tax years for which PPC's federal income tax returns have been or will be filed. PPC continues to operate the CSA and the legacy IP license with PB

2. Step 1 — Recognition Analysis for Remaining Positions Calderwood & Harkness's assessment is that PPC's transfer pricing positions for TY 2021 and subsequent tax years remain "more likely than not" sustainable on their technical merits under ASC 740-10-25. This conclusion is based on the following favorable and risk factors. Favorable Factors: (a) Settlement Validation. The settlement at 12.51% of the IRS's propose

3. Step 2 — Measurement of Remaining Reserve Having concluded that PPC's positions meet the Step 1 recognition threshold, we turn to the Step 2 measurement analysis under ASC 740-10-30. The $14.8 million remaining reserve reflects the largest amount of tax benefit that is greater than 50% likely to be realized upon ultimate settlement for the continuing positions. The measurement analysis employs a probability-weight

VI. Interest and Penalty Considerations A. Interest The settlement requires PPC to pay estimated underpayment interest of approximately $2.84 million. This interest is computed at the applicable federal underpayment rate under IRC § 6621 for each calendar quarter from the original due dates of PPC's federal income tax returns for TY 2017 through TY 2020 through the anticipated settlement payment date. The applicable

VII. Impact on Financial Statements and Reporting A. Income Tax Provision The settlement-related reserve release will generate a net benefit to PPC's income tax provision in the reporting period that includes the settlement date (March 29, 2024). The benefit is quantified as follows: Gross reserve release (net reduction in UTP reserve): $47.6 million Less: Interest expense accrual: ($2.84 million) Net pre-tax benefit

VIII. State Tax Implications The federal settlement adjustment of $47.6 million may have state income tax consequences in the states in which PPC files income tax returns. To the extent that PPC's state income tax returns incorporate federal taxable income as a starting point (as is the case in most states, including New Jersey, PPC's state of headquarters), the federal adjustment will flow through to the state level

IX. Coordination with Independent Auditor This memorandum should be transmitted to Crestfield & Associates LLP (Martin Ogilvy, Engagement Partner) for use in connection with Crestfield's audit of PPC's income tax provision and FIN 48 disclosures for the fiscal year ending December 31, 2024, and any prior-period adjustments that may be required. Calderwood & Harkness has previously provided FIN 48 support letters to C