PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT
INTELLECTUAL PROPERTY DUE DILIGENCE MEMORANDUM
CALISTON BIOSCIENCES, INC.
(Project Coriander).
July 21, 2023
FROM: Calderwood & Harkness LLP 1700 Market Street, Suite 3400 Philadelphia, PA 19103
TO: The Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp.
Diane Prescott, Chair James Okafor, Member Dr. Helen Ng, Member
RE: intellectual Property Due Diligence — Caliston BioSciences, Inc. (Project Coriander)
PREPARED BY: Sophie Tremblay, Lead Associate; Daniel Obi, Working Associate
REVIEWED BY: Renata Vasquez, Responsible Partner
C&H MATTER NUMBER: 1025-00006
This memorandum has been prepared by Calderwood & Harkness LLP at the request of and for the exclusive use of the Special Committee of the Board of Directors of Penterra Pharmaceuticals Corp. in connection with the Special Committee's evaluation of the proposed acquisition of Caliston BioSciences, Inc. This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP and Penterra Pharmaceuticals Corp. The opinions expressed herein are based solely upon the documents and information made available to us through the date hereof and are subject to the qualifications and limitations set forth herein.
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I. EXECUTIVE SUMMARY
A. Purpose
This memorandum summarizes the findings of the intellectual property due diligence review conducted by Calderwood & Harkness LLP ("C&H" or "we") in connection with the Special Committee's evaluation of the proposed acquisition by Penterra Pharmaceuticals Corp. ("Penterra" or the "Buyer") of one hundred percent (100%) of the outstanding equity of Caliston BioSciences, Inc. ("Caliston" or the "Company") for an aggregate equity value of Nine Hundred Twenty-Five Million Dollars ($925,000,000) (the "Base Consideration"), plus up to One Hundred Twenty-Five Million Dollars ($125,000,000) in contingent value rights ("CVRs") payable upon the achievement of a regulatory milestone—specifically, the receipt of approval from the United States Food and Drug Administration ("FDA") of CLT-4019 (as defined below) on or before December 31, 2026 (the "CVR Milestone"). The aggregate maximum consideration, inclusive of the CVR, is One Billion Fifty Million Dollars ($1,050,000,000).
The proposed transaction (the "Transaction") is being evaluated by the Special Committee pursuant to its mandate from the Board of Directors of Penterra, given the potential conflict of interest arising from Angela Whitmore's service on the Penterra Board of Directors and her spousal relationship with Dr. Evan Whitmore, Caliston's Head of Clinical Development and a member of the Caliston Board of Directors.
B. Scope of Review
Our IP due diligence review encompassed the following areas with respect to Caliston and its intellectual property portfolio:
1. Patent Portfolio. Review and analysis of all issued patents and pending patent applications owned by or licensed to Caliston, including composition of matter, methods of use, formulation, process, and related patent families across all relevant jurisdictions (United States, European Patent Office, Patent Cooperation Treaty applications, and major commercial markets including Japan, China, Canada, Australia, and South Korea).
2. Trade Secrets and Know-How. Assessment of Caliston's trade secret protection policies, procedures, and practices, including confidentiality and non-disclosure agreements, information security measures, and proprietary manufacturing processes, clinical data, and compound libraries.
3. Trademarks and Domain Names. Review of registered and pending trademarks and internet domain name registrations.
4. IP Assignment Chain. Tracing the chain of title for all material intellectual property from the original inventors (including the founders) through to Caliston, including employee and consultant assignment agreements.
5. Freedom-to-Operate Analyses. Review and assessment of Caliston's internal and externally commissioned freedom-to-operate ("FTO") analyses for CLT-4019 and, to the extent available, for the preclinical candidates.
6. License Agreements. Review and analysis of all in-license, out-license, collaboration, and research agreements that include intellectual property ownership, licensing, or encumbrance provisions.
7. Third-Party Infringement Risks. Identification and assessment of potential third-party patent infringement risks, including competitive landscape analysis in the CDK4/6 inhibitor space.
Our review addressed the intellectual property related to the following Caliston product candidates and programs:
• CLT-4019 — A selective cyclin-dependent kinase 4/6 ("CDK4/6") inhibitor being developed for the treatment of hormone receptor-positive/human epidermal growth factor receptor 2-negative ("HR+/HER2–") metastatic breast cancer. CLT-4019 is currently in Phase 2b clinical trials pursuant to Investigational New Drug Application No. 158429, filed with the FDA in March 2020. Topline data from the Phase 2b trial are expected in the fourth quarter of 2023. CLT-4019 is the lead asset of the Company and the primary driver of the Transaction valuation.
• CLT-5227 — A preclinical-stage kinase inhibitor candidate. CLT-5227 is currently in lead optimization and early IND-enabling studies.
• CLT-6034 — A preclinical-stage kinase inhibitor candidate. CLT-6034 is currently in target validation and early lead identification.
C. Company Overview
Caliston BioSciences, Inc. is a Delaware corporation with its principal office located at 88 Harbor Point Road, Cambridge, Massachusetts 02142 (EIN: 84-4219063). The Company was founded in 2017 by Dr. Nadia Sorensen (Chief Executive Officer) and Dr. Raj Malhotra (Chief Scientific Officer). As of the date of this memorandum, the Company employs ninety-four (94) full-time employees. Caliston is a pre-commercial, clinical-stage biopharmaceutical company: for the fiscal year ended December 31, 2022, the Company reported zero revenue ($0), a net cash burn of approximately $78.4 million, and cash and cash equivalents on hand as of March 31, 2023 of approximately $112.6 million. The Company's current cash runway, assuming a continuation of its recent rate of cash burn, extends into approximately the second quarter of 2024, absent additional financing or the consummation of the proposed Transaction.
D. Data Room and Materials Reviewed
Our review is based upon documents and information produced by Caliston through its outside counsel, Whitfield Graves LLP (Kenneth Pratt, Lead Partner), in response to C&H's due diligence request list dated June 9, 2023 (the "Request List"). Initial data room materials were received on June 28, 2023, and supplemental productions were received on an ongoing basis through July 18, 2023. The virtual data room was hosted on Thackeray Solutions and indexed by Caliston's counsel. A total of approximately 2,847 documents were produced to the IP-specific folders of the data room. We also conducted independent searches of the United States Patent and Trademark Office ("USPTO") database, the European Patent Office ("EPO") Espacenet database, the WIPO PatentScope database, and certain third-party patent analytics platforms (Marlowe Solutions, Pemberton Data Systems) to verify and supplement the data room materials.
We note that certain items remain outstanding as of the date of this memorandum, as set forth in Section X.A and Exhibit G hereto. Our conclusions are subject to receipt and review of these outstanding items.
E. Overall Assessment
Based on our review of the materials produced through the date hereof, and subject to the qualifications and open items described in this memorandum, we summarize our overall assessment as follows:
Strengths. Caliston has assembled a substantial and well-structured patent portfolio around its lead asset, CLT-4019, with composition of matter protection extending through at least 2038 in the United States and 2037 in the European Union (prior to any potential patent term extension or supplementary protection certificate). The IP assignment chain from founders and employees to the Company is largely complete and well-documented. The Company's internal FTO analysis, prepared by Meridian Patent Analytics LLC and dated September 2022, identified manageable third-party patent risks.
Key Concerns. We have identified the following matters warranting the Special Committee's attention:
1. Partial Assignment Chain Gap. We identified two former employees (out of nineteen former employees involved in R&D activities) for whom executed Proprietary Information and Inventions Assignment Agreements ("PIIAs") were not located in the data room. Although neither individual is a named inventor on any Caliston patent or application, one individual (Dr. Leila Farooq, former Senior Research Scientist, employed January 2019 – August 2021) was involved in synthesis work related to CLT-5227. We recommend obtaining executed confirmatory assignments or, if unavailable, appropriate representations and indemnification protections in the Merger Agreement.
2. Third-Party FTO Risk — Vantara Therapeutics Patent Family. The Meridian FTO analysis identified one patent family owned by Vantara Therapeutics, Inc. ("Vantara") (U.S. Patent No. 10,611,742 and related family members) as posing a medium risk to CLT-4019. While Caliston's outside patent counsel has opined that CLT-4019 does not infringe the asserted claims under their best reading, the breadth of certain Markush claims in the Vantara family warrants continued monitoring and, potentially, the negotiation of a license or the procurement of an inter partes review to narrow or invalidate the relevant claims.
3. Change-of-Control Provision in Westlake University License Agreement. The exclusive license agreement between Westlake University and Caliston (the "Westlake License"), which covers certain foundational platform technology patents underlying the Company's kinase inhibitor screening methodology, contains a change-of-control provision requiring thirty (30) days' prior written notice to Westlake and Westlake's consent (not to be unreasonably withheld) in the event of a change of control of Caliston. This consent must be obtained prior to closing.
4. Early-Stage Pipeline IP Uncertainty. The patent portfolios for CLT-5227 and CLT-6034 are at an early stage (provisional applications only for CLT-6034), and the ultimate scope of patent protection for these candidates remains uncertain.
Recommendation. Notwithstanding the foregoing concerns, which we believe are manageable through appropriate Transaction structuring and contractual protections, we do not believe that the identified IP risks are of a nature or magnitude that should preclude the Special Committee from proceeding with the Transaction. We recommend the adoption of the specific mitigation measures and contractual protections described in Section X.C of this memorandum, including robust IP representations and warranties, special indemnification provisions, and the procurement of all necessary consents prior to closing.
II. IP ASSIGNMENT CHAIN — FOUNDERS TO CALISTON
A. Founder Assignment Agreements
Caliston was founded in 2017 by Dr. Nadia Sorensen and Dr. Raj Malhotra. Dr. Sorensen currently serves as Chief Executive Officer and holds approximately 14.2% of the outstanding equity of the Company. Dr. Malhotra currently serves as Chief Scientific Officer and holds approximately 9.8% of the outstanding equity. Together, the founders hold approximately 24.0% of the Company's fully diluted equity.
We reviewed the following founder assignment agreements produced in the data room:
1. Invention Assignment and Confidential Information Agreement between Caliston BioSciences, Inc. and Dr. Nadia Sorensen, dated September 12, 2017 (the "Sorensen Assignment Agreement"). This agreement provides for the irrevocable, perpetual, and worldwide assignment to the Company of all of Dr. Sorensen's right, title, and interest in and to all inventions, discoveries, improvements, works of authorship, trade secrets, and other intellectual property conceived, developed, or reduced to practice by Dr. Sorensen, whether solely or jointly with others, that relate to or are useful in connection with the Company's business, including specifically all prior inventions related to novel kinase inhibitor technology, compositions of matter, methods of use, and associated know-how that form the basis of the CLT-4019, CLT-5227, and CLT-6034 programs.
2. Invention Assignment and Confidential Information Agreement between Caliston BioSciences, Inc. and Dr. Raj Malhotra, dated September 12, 2017 (the "Malhotra Assignment Agreement" and, together with the Sorensen Assignment Agreement, the "Founder Assignments"). This agreement contains substantively identical terms to the Sorensen Assignment Agreement, providing for the irrevocable, perpetual, and worldwide assignment to the Company of all of Dr. Malhotra's right, title, and interest in inventions and intellectual property on the same terms described above.
Both Founder Assignments were executed contemporaneously with the incorporation of Caliston on September 12, 2017, which is prior to the filing dates of all Caliston patent applications. Each agreement includes a schedule of prior inventions (Schedule A), which lists the foundational kinase inhibitor platform technology conceived by the founders during the period 2015–2017. The assignments are drafted in present-tense, self-executing form ("hereby assigns"), which, under Delaware law, is effective to transfer title to the inventions without the need for further documentation.
Prior Institutional IP Obligations. Prior to founding Caliston, Dr. Sorensen was a tenured Associate Professor of Chemistry at Marfield University (Marfield, Pennsylvania), where she conducted federally funded research from 2009 through 2017. Dr. Malhotra held a postdoctoral research appointment at the Holloway Institute of Molecular Biology (Boston, Massachusetts) from 2014 through 2016, followed by a position as a Research Scientist at Caspian Life Sciences, Inc. from 2016 through 2017.
We reviewed the following agreements to assess whether either founder retained obligations to a prior institution that could cloud Caliston's title to the assigned inventions:
• Marfield University intellectual Property Policy (2016 revision) and Separation and IP Release Agreement between Marfield University and Dr. Nadia Sorensen, dated August 31, 2017. Under the Marfield IP Policy, inventions conceived or first reduced to practice using university resources are owned by the university. However, the Separation and IP Release Agreement specifically releases and disclaims any interest Marfield might have in inventions conceived by Dr. Sorensen after January 1, 2016, provided that such inventions were not made using Marfield facilities, funding, or resources. Dr. Sorensen's Schedule A to the Sorensen Assignment Agreement states that the foundational kinase inhibitor platform technology was conceived independently and without the use of Marfield resources. We note, however, that the Marfield release is limited to inventions conceived "after January 1, 2016," leaving a theoretical gap for any inventions conceived prior to that date. Based on our review of the patent prosecution files, including inventor declarations, the relevant inventions appear to have been conceived in the period 2016–2017, within the scope of the Marfield release. We nonetheless recommend obtaining a confirmatory representation from Dr. Sorensen in the Merger Agreement.
• Holloway Institute Postdoctoral Appointment Agreement for Dr. Raj Malhotra, dated June 1, 2014. This agreement contains a standard academic IP assignment clause vesting in the Institute all inventions made using Institute resources. However, the agreement expired by its terms upon the conclusion of Dr. Malhotra's appointment on May 31, 2016, and does not contain a post-termination assignment tail. We confirmed that Dr. Malhotra's kinase inhibitor research commenced after his departure from the Holloway Institute.
• Caspian Life Sciences, Inc. Employment Agreement and Proprietary Information Agreement for Dr. Raj Malhotra, dated July 11, 2016. The Caspian PIIA contains a broad assignment clause covering inventions conceived during the term of employment. However, we reviewed the Separation Agreement and General Release between Caspian Life Sciences, Inc. and Dr. Malhotra, dated August 25, 2017, which includes a mutual release of IP claims and a specific acknowledgment by Caspian that the kinase inhibitor technology described in Schedule A to the separation agreement is the sole property of Dr. Malhotra. This release adequately addresses the chain-of-title concern.
Assessment. Based on our review, the Founder Assignments are properly executed, irrevocable, perpetual, and worldwide in scope, and are sufficient to vest in Caliston all of the founders' right, title, and interest in the foundational intellectual property underlying the Company's programs. The prior institutional obligations of both founders have been adequately addressed through separation agreements and IP releases. We recommend, as noted above, that the Merger Agreement include a confirmatory representation from Dr. Sorensen regarding the temporal scope of the Marfield University release.
B. Employee and Consultant IP Assignment Agreements
1. Employee PIIAs
Caliston utilizes a standard form Proprietary Information and Inventions Assignment Agreement ("PIIA") for all of its employees. We reviewed the current form of the PIIA (rev. March 2019) and confirmed that it contains the following provisions:
• Assignment of all inventions, discoveries, improvements, works of authorship, trade secrets, and other intellectual property conceived, developed, or reduced to practice during the term of employment, whether or not made during working hours, that relate to or are useful in connection with the Company's business or that are made using Company resources.
• A present-tense, self-executing assignment clause ("Employee hereby assigns").
• An obligation to cooperate with the Company in the prosecution and enforcement of patents and other IP rights.
• A perpetual confidentiality obligation with respect to the Company's proprietary information and trade secrets, surviving termination of employment.
• A carve-out for inventions listed on a schedule of prior inventions (Schedule A to the PIIA), consistent with applicable state law.
• Non-solicitation provisions (12-month post-termination non-solicitation of employees and consultants).
• Choice of law: Massachusetts.
We assessed the PIIA compliance rate across the Company's workforce. Of the ninety-four (94) current employees of Caliston:
• Ninety-two (92) employees (97.9%) have executed the current form of the PIIA (rev. March 2019) or a substantially similar earlier version.
• Two (2) employees in non-technical, administrative roles (an Office Manager hired in June 2022 and a Human Resources Coordinator hired in November 2022) have executed an at-will employment offer letter that references the PIIA but for whom executed copies of the PIIA itself were not located in the data room. We have requested that Caliston's counsel confirm whether executed PIIAs exist for these individuals and, if not, that Caliston promptly obtain them. Given that neither individual is involved in research and development activities or is a named inventor on any Caliston patent or application, we assess this gap as low risk.
With respect to former employees, we reviewed the personnel files and PIIA execution records for the nineteen (19) former employees identified by Caliston as having been involved in research and development activities during their employment:
• Seventeen (17) of these former employees have executed PIIAs on file.
• Two (2) former employees do not have executed PIIAs on file:
(a) Dr. Leila Farooq, former Senior Research Scientist (January 2019 – August 2021). Dr. Farooq was involved in the synthesis of intermediate compounds related to the CLT-5227 program. While Dr. Farooq is not a named inventor on any Caliston patent or application, her involvement in CLT-5227 synthesis work raises a potential inventorship and assignment risk. We recommend that Caliston use commercially reasonable efforts to obtain a confirmatory assignment from Dr. Farooq prior to closing. In the event that a confirmatory assignment cannot be obtained, we recommend that this risk be addressed through specific representations, warranties, and indemnification provisions in the Merger Agreement.
(b) Mark Ellison, former Research Associate (March 2018 – October 2019). Mr. Ellison was a junior research associate who, based on our review of laboratory notebooks and project records, performed routine experimental work under the supervision of senior scientists. Mr. Ellison is not a named inventor on any Caliston patent or application. We assess this gap as low risk but recommend that Caliston attempt to obtain a confirmatory assignment.
2. Treatment of Dr. Evan Whitmore
We specifically reviewed the employment records and PIIA for Dr. Evan Whitmore, Caliston's Head of Clinical Development and a member of the Caliston Board of Directors. Dr. Whitmore's situation warrants particular attention because his spouse, Angela Whitmore, serves on the Board of Directors of Penterra, which is among the reasons the Special Committee was constituted to evaluate the Transaction.
Dr. Whitmore joined Caliston in February 2020 and executed the standard form PIIA (rev. March 2019) on February 10, 2020. The PIIA is complete, properly executed, and covers the full scope of inventions and intellectual property described above. Dr. Whitmore's Schedule A (Prior Inventions) lists no excluded prior inventions. Dr. Whitmore is a named inventor on one pending U.S. patent application (U.S. Application No. 17/458,291, directed to methods of dosing CLT-4019 in combination with endocrine therapy), which has been duly assigned to Caliston pursuant to the PIIA and a recorded assignment document (USPTO Assignment Recordation No. 062477-0042). We confirmed that the assignment is of record at the USPTO.
3. Consultant and Contractor IP Assignments
Caliston engages a number of scientific advisors, consultants, and contract research organizations ("CROs") in connection with its research and clinical development programs. We reviewed the IP assignment and ownership provisions in the following categories of agreements:
• Scientific Advisory Board Agreements. Caliston's Scientific Advisory Board currently comprises seven (7) members. We reviewed the Consulting and Confidentiality Agreements for all seven SAB members and confirmed that each agreement contains a present-tense assignment of inventions clause, vesting in Caliston all right, title, and interest in inventions conceived or reduced to practice in the course of the consultant's engagement. All seven agreements are properly executed and on file.
• Individual Consultant Agreements. We reviewed twelve (12) individual consultant agreements with scientists and clinical development professionals engaged by Caliston over the period 2017–2023. Eleven (11) of these agreements contain appropriate IP assignment clauses. One consultant agreement (with Dr. Yusuf Karim, a computational chemistry consultant engaged from April to September 2021) contains a license-back rather than an assignment clause, granting Caliston an exclusive, perpetual, royalty-free license rather than outright ownership of inventions. Dr. Karim is not a named inventor on any Caliston patent or application, and his work product related to computational modeling for CLT-5227 target selection. We assess this as low risk but recommend that Caliston seek to convert the license to an outright assignment prior to closing.
• CRO Master Service Agreements. We reviewed CRO agreements with four (4) contract research organizations: Paragon Clinical Research, Inc. (Phase 2b clinical operations for CLT-4019), Nexagen Laboratories LLC (preclinical toxicology studies), BioHorizon Analytics, Inc. (bioanalytical services), and Clearfield Pharmaceutical Services, Inc. (CMC and formulation development). All four CRO agreements contain work-for-hire and IP assignment provisions vesting in Caliston all right, title, and interest in inventions, data, and work product generated in the course of the engagement. We identified no material deficiencies in these agreements.
C. Academic and Government-Funded IP Considerations
1. Bayh-Dole Act Analysis
We analyzed whether any Caliston intellectual property originated from or was derived from research funded by the United States federal government, which would implicate the Bayh-Dole Act (35 U.S.C. §§ 200–212) and potentially subject the intellectual property to federal government rights, including march-in rights.
Dr. Sorensen's prior research at Marfield University was funded in part by grants from the National Institutes of Health ("NIH") and the National Science Foundation ("NSF"). However, as described in Section II.A above, the Marfield Separation and IP Release Agreement confirms that the foundational kinase inhibitor technology assigned to Caliston was conceived independently and without the use of Marfield resources or federal funding. We reviewed the relevant NIH and NSF grant abstracts (NIH Grant Nos. R01-CA198312 and R21-CA207445; NSF Grant No. CHE-1507693) and confirmed that the subject matter of these grants (broadly, computational approaches to receptor tyrosine kinase inhibition) is related to but distinct from the kinase inhibitor platform technology assigned to Caliston, which is directed to CDK4/6 inhibition through a different structural and mechanistic approach.
We confirmed with Caliston management that the Company has not received any direct federal funding (NIH, NSF, BARDA, DARPA, or otherwise) for any of its programs. Caliston's funding has been derived exclusively from private venture capital financing (Series A, Series B, and Series C rounds) and has not been supplemented by federal grants, cooperative agreements, or contracts.
Assessment. We did not identify any Bayh-Dole Act obligations or federal government march-in rights applicable to Caliston's intellectual property portfolio. However, given the proximity of Dr. Sorensen's prior NIH-funded research to the Caliston platform technology, we recommend that the Merger Agreement include a specific representation and warranty from the sellers that no Caliston IP was conceived, developed, or reduced to practice with the use of federal government funding or resources.
2. University License-In Agreements
As described in greater detail in Section VI.A below, Caliston holds an exclusive license from Westlake University (the "Westlake License") covering certain foundational platform technology patents related to kinase inhibitor screening methodology. These patents (U.S. Patent Nos. 9,845,271 and 10,202,394, along with corresponding foreign family members) were developed at Westlake's Department of Molecular Pharmacology and subsequently licensed to Caliston under an exclusive license agreement dated January 15, 2018. The Westlake License includes customary provisions requiring Caliston to use commercially reasonable efforts to develop and commercialize products incorporating the licensed technology, as well as milestone payments and running royalties. The change-of-control implications of this license are discussed in Section VI.A below.
We confirmed that Westlake University has complied with applicable Bayh-Dole requirements with respect to these patents, including the filing of an invention disclosure with the relevant federal funding agency (NIH) and the election to retain title. The Westlake License includes a clause acknowledging the federal government's nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention under 35 U.S.C. § 202(c)(4). This government license is a customary feature of university-originated IP subject to the Bayh-Dole Act and does not, in our assessment, materially diminish the commercial value of the Westlake License for Caliston's purposes, as the government license is limited to government use and does not extend to commercial competitors.
III. CLT-4019 PATENT PORTFOLIO ANALYSIS
A. Overview of CLT-4019
CLT-4019 is a selective CDK4/6 inhibitor being developed for the treatment of HR+/HER2– metastatic breast cancer. CLT-4019 is designed to offer an improved selectivity profile relative to existing approved CDK4/6 inhibitors (palbociclib, ribociclib, and abemaciclib), potentially resulting in reduced hematologic toxicity while maintaining or improving efficacy.
The clinical development program for CLT-4019 is currently in Phase 2b. IND Application No. 158429 was filed with the FDA in March 2020, and the Phase 2b trial (Study CLT-4019-201, a randomized, double-blind, placebo-controlled study evaluating CLT-4019 in combination with fulvestrant in patients with HR+/HER2– metastatic breast cancer who have progressed on or after prior CDK4/6 inhibitor therapy) is currently enrolling at approximately sixty clinical sites across the United States and Europe. Topline data from this trial are expected in the fourth quarter of 2023.
CLT-4019 is the lead asset of Caliston and the primary driver of the Transaction valuation. Thorngate Partners LLC, the Special Committee's independent financial advisor, has prepared a discounted cash flow analysis for CLT-4019 alone yielding a range of $780 million to $1,020 million (midpoint: $900 million). The CVR Milestone — payment of $125 million contingent on FDA approval of CLT-4019 by December 31, 2026 — is directly linked to the successful clinical development and regulatory approval of this asset. The strength, breadth, and enforceability of the CLT-4019 patent portfolio are therefore critical to the Transaction and to the Special Committee's evaluation of the consideration being paid.
B. Composition of Matter Patents
The CLT-4019 composition of matter patent portfolio consists of the following issued patents and pending applications:
Issued Patents:
Pending Applications:
A complete schedule of CLT-4019 patents and applications is attached hereto as Exhibit A.
Claims Analysis. The core composition of matter patent (U.S. 10,287,304) contains both genus and species claims. Claim 1 recites a Markush genus of substituted pyridopyrimidinone compounds defined by a core scaffold with variable substituents at specified positions. Claim 12 recites the specific compound CLT-4019 (by its chemical name and structural formula). Claims 1 through 11 cover the broader genus, providing a protective moat around the specific compound and capturing potential competitors' attempts to design around the specific CLT-4019 structure. The genus claims are supported by extensive examples in the specification, including synthesis and biological activity data for over forty (40) exemplified compounds, which we believe provides adequate written description and enablement support.
The continuation patent (U.S. 11,034,692) includes additional species claims directed to specific pharmaceutically acceptable salt forms and stereoisomers of CLT-4019, as well as claims directed to pharmaceutical compositions comprising CLT-4019 and one or more pharmaceutically acceptable excipients. These claims complement the parent patent by providing additional layers of protection.
The European granted patent (EP 3,697,781 B1) was granted following opposition proceedings (discussed below in Section III.E) and contains claims of similar scope to the U.S. patents, appropriately tailored to European Patent Convention practice.
Patent Term Adjustments. U.S. 10,287,304 received a patent term adjustment ("PTA") of zero (0) days, based on the USPTO's calculation that no unreasonable delays occurred during prosecution. U.S. 11,034,692, as a continuation, shares the same expiration date as the parent patent. We confirmed that no terminal disclaimers were filed that would limit the enforceability of these patents.
Patent Term Extension. Upon FDA approval of CLT-4019, Caliston (or Penterra, post-closing) would be eligible to apply for a patent term extension under 35 U.S.C. § 156, which permits extension of one patent claiming the approved product by a period equal to one-half of the IND testing phase plus the full NDA review phase, subject to a maximum extension of five (5) years and a total post-approval patent term not exceeding fourteen (14) years. Assuming an NDA filing in mid-2025 and FDA approval in late 2026, and based on the Phase 1 start date of the CLT-4019 clinical program, we estimate a potential patent term extension of approximately three (3) to four (4) years for U.S. 10,287,304, which would extend the expiration date to approximately 2041 or 2042. This analysis will need to be refined upon the actual NDA filing and approval dates.
C. Methods of Use Patents
The CLT-4019 methods of use patent portfolio includes the following:
1. U.S. Patent No. 10,842,776 — "Methods of Treating HR+/HER2– Breast Cancer with Substituted Pyridopyrimidinone CDK4/6 Inhibitors." Filed January 22, 2019; priority date October 20, 2017. Issued November 24, 2020. Claims directed to methods of treating HR+/HER2– metastatic breast cancer by administering a therapeutically effective amount of CLT-4019 to a patient in need thereof. Additional claims cover specific dosing regimens (200 mg, 300 mg, and 400 mg once daily) and co-administration with endocrine therapy agents (fulvestrant, letrozole, anastrozole).
2. U.S. Application No. 17/458,291 — "Combination Therapy with CLT-4019 and Endocrine Agents." Filed August 26, 2021. Pending. Claims directed to methods of treating HR+/HER2– metastatic breast cancer using CLT-4019 in combination with specific endocrine therapy agents, including methods for patients who have progressed on prior CDK4/6 inhibitor therapy. This is the application on which Dr. Evan Whitmore is a named inventor. A non-final office action was received on March 14, 2023, and a response is currently being prepared by Caliston's prosecution counsel. The examiner cited three prior art references and issued rejections under 35 U.S.C. §§ 102 and 103. We reviewed the cited art and believe that the rejections are addressable through claim amendment and argument without unduly narrowing the claims.
3. EP Application No. 19 703 482.6 — Methods of use claims corresponding to U.S. 10,842,776, currently pending before the EPO. Examination is ongoing; a communication under Article 94(3) EPC was received in February 2023.
Assessment. The methods of use patents and applications provide an additional layer of protection for CLT-4019, complementing the composition of matter portfolio. Methods of use patents are particularly valuable in the oncology space where specific patient populations, dosing regimens, and combination therapies may be differentiated from prior art. The pending applications, if issued with claims of adequate scope, will extend the overall IP protection for CLT-4019's specific clinical indications and treatment methods.
D. Formulation and Process Patents
Caliston has filed the following patent applications directed to formulations and manufacturing processes for CLT-4019:
1. U.S. Application No. 17/122,844 — "Pharmaceutical Formulations Comprising Substituted Pyridopyrimidinone CDK4/6 Inhibitors." Filed December 15, 2020. Pending. Claims directed to oral dosage forms (tablets and capsules), including specific excipient compositions, dissolution profiles, and stability characteristics. A non-final office action was received on October 3, 2022, and a response was filed on January 3, 2023. An examiner interview is scheduled for August 2023.
2. U.S. Application No. 17/389,207 — "Polymorphic Forms of CLT-4019 and Processes for Preparation Thereof." Filed July 29, 2021. Pending. Claims directed to specific crystalline polymorphs (Form I and Form II) of CLT-4019, characterized by X-ray powder diffraction patterns, differential scanning calorimetry data, and infrared spectroscopy data, and processes for their preparation. This application is at an early stage of prosecution; no substantive office action has yet been received.
3. PCT/US2022/038471 — "Processes for Large-Scale Manufacture of Substituted Pyridopyrimidinone Compounds." Filed July 27, 2022. Currently in the international phase; national phase entries are expected to be filed in the first quarter of 2024 in the United States, Europe, Japan, China, and other key markets.
Assessment. The formulation and process patent applications, if granted, will provide important supplemental protection for CLT-4019. Polymorph patents are particularly valuable as they can be used to protect the specific crystalline form used in the commercial product and may provide patent life beyond the expiration of the core composition of matter patents. The large-scale manufacturing process application, currently in the PCT international phase, covers the Company's planned commercial manufacturing process and could serve as an additional barrier to generic competition. We note that all three applications remain pending and that the ultimate scope of granted claims is uncertain.
Freedom to Manufacture. Based on our review of the manufacturing process descriptions provided by Caliston and the CRO agreement with Clearfield Pharmaceutical Services, Inc., we do not believe that Caliston's current or planned manufacturing processes infringe any third-party process patents. This assessment is consistent with the Meridian FTO analysis.
E. Prosecution History Review
We conducted a detailed review of the prosecution histories for the key CLT-4019 patent families. Our findings are summarized below:
U.S. 10,287,304 (Core Composition of Matter). The application was filed on October 18, 2018, claiming priority to Provisional Application No. 62/575,118, filed October 20, 2017. A restriction requirement was issued on April 9, 2019, requiring election between claims directed to different groups of compounds within the Markush genus. Caliston elected the group encompassing CLT-4019 and related analogs. A non-final office action was issued on July 22, 2019, citing three prior art references (Sec. 102/103 rejections). The applicant responded with claim amendments narrowing certain substituent definitions at two positions on the pyridopyrimidinone core and submitted declarations under 37 C.F.R. § 1.132 presenting unexpected results data showing CLT-4019's superior CDK4/6 selectivity relative to the prior art compounds. A notice of allowance was issued on January 14, 2020. The patent issued on May 14, 2020.
Narrowing Amendments and Prosecution History Estoppel. The amendments made during prosecution of U.S. 10,287,304 narrowed the Markush genus at two substituent positions (R2 and R5 on the core scaffold). Under the doctrine of prosecution history estoppel, the scope of equivalents available under the doctrine of equivalents may be narrowed with respect to the subject matter surrendered by these amendments. However, the specific CLT-4019 compound (Claim 12) was not amended during prosecution and remains a broad species claim. The amendments to the genus claims are unlikely to affect the enforceability of the species claims against exact copies of CLT-4019. We note that the continuation patent (U.S. 11,034,692) includes claims that were not subject to the same narrowing amendments, potentially preserving broader equivalents coverage.
EP 3,697,781 B1 (European Composition of Matter). The European patent was granted on June 2, 2021. An opposition was filed on March 1, 2022, by an anonymous third party (widely believed to be acting on behalf of a competitor, though the identity has not been confirmed). The opposition alleged lack of novelty and lack of inventive step based on a combination of prior art references. Oral proceedings before the Opposition Division were held on November 15, 2022. The Opposition Division upheld the patent in amended form, with minor claim amendments that do not affect the coverage of CLT-4019 itself. The opponent filed a notice of appeal on January 20, 2023, and the appeal is currently pending before the EPO Boards of Appeal. We assess the risk of the European patent being revoked on appeal as low, based on the strong prior art record and the reasoned decision of the Opposition Division.
Inter Partes Review (IPR) / Post-Grant Review (PGR). No IPR or PGR petitions have been filed against any of the issued CLT-4019 U.S. patents. The one-year window for PGR petitions against U.S. 10,287,304 has expired. IPR petitions remain available at any time. We are not aware of any anticipated IPR challenges, though we note that competitors in the CDK4/6 inhibitor space may seek to challenge the Caliston patents as CLT-4019 advances toward regulatory approval and commercialization. We recommend that Penterra maintain vigilance regarding potential IPR filings post-closing.
F. Patent Term and Exclusivity Analysis
The following table summarizes the expected patent and regulatory exclusivity timelines for CLT-4019, based on currently available information:
Assessment. Assuming CLT-4019 receives FDA approval and Caliston (or Penterra) timely applies for patent term extension, the core U.S. composition of matter patent protection for CLT-4019 could extend to approximately 2041–2042. In the European Union, a supplementary protection certificate ("SPC") could extend protection to approximately 2042–2043. The combination of patent protection and regulatory exclusivity provides a robust commercial exclusivity window. The New Chemical Entity exclusivity under the Hatch-Waxman Act would provide five years of data exclusivity from the date of NDA approval, which, assuming approval in late 2026, would extend to approximately 2031 — well within the patent exclusivity window.
CLT-4019 does not appear to qualify for orphan drug exclusivity (seven years under 21 U.S.C. § 360cc), as HR+/HER2– metastatic breast cancer does not meet the prevalence threshold for orphan drug designation. Pediatric exclusivity (an additional six months of patent and regulatory exclusivity under 21 U.S.C. § 355a) may be available if the FDA issues a Written Request for pediatric studies, but this is speculative at this stage.
IV. FREEDOM-TO-OPERATE ANALYSIS — CLT-4019
A. Landscape Assessment
We reviewed Caliston's internal FTO analysis, which was prepared by Meridian Patent Analytics LLC ("Meridian") under the direction of Caliston's outside patent prosecution counsel, Brookhaven IP Group LLP ("Brookhaven"), and is dated September 15, 2022 (the "Meridian FTO Report"). The Meridian FTO Report analyzed the third-party patent landscape as of August 31, 2022, with respect to the manufacture, use, sale, offer for sale, and importation of CLT-4019 in the United States and the following key global markets: European Union (Germany, France, United Kingdom, Italy, Spain), Japan, China, Canada, Australia, and South Korea.
The Meridian FTO Report identified approximately 147 third-party patent families with at least some relevance to the CDK4/6 inhibitor space. Of these, Meridian classified:
• 132 families as no risk (claims clearly do not cover CLT-4019's structure, mechanism, or clinical use)
• 12 families as low risk (claims are potentially relevant but are unlikely to cover CLT-4019 based on structural differences, claim limitations, or prior art available for invalidity challenge)
• 2 families as medium risk (claims are sufficiently broad that CLT-4019 could fall within their literal or equivalent scope, but defenses are available)
• 1 family as high risk (subsequently downgraded to medium risk upon further analysis, as described below)
The competitive patent landscape in the CDK4/6 inhibitor space is crowded, reflecting the significant commercial success of first-generation CDK4/6 inhibitors. The following table summarizes the major competitors and their patent positions:
CLT-4019 is structurally distinct from all approved CDK4/6 inhibitors, being based on a substituted pyridopyrimidinone scaffold rather than the pyrido[2,3-d]pyrimidinone (palbociclib), pyrrolopyrimidine (ribociclib), or aminobenzimidazole (abemaciclib) scaffolds used by existing drugs. This structural differentiation reduces the likelihood of literal infringement of competitors' composition of matter patents.
B. Potential Third-Party Infringement Risks
The Meridian FTO Report identified the following patent families as posing potential infringement risk at the medium level or above:
1. Vantara Therapeutics Patent Family (Medium Risk)
Patent Family: U.S. Patent No. 10,611,742 ("Heterocyclic Compounds as Kinase Inhibitors"); corresponding family members EP 3,412,668 B1 (granted, validated in DE, FR, GB), JP 7,052,881 (granted), and WO 2017/162873 (PCT).
Owner: Vantara Therapeutics, Inc. (San Diego, CA), a privately held clinical-stage biopharmaceutical company developing kinase inhibitors for oncology and inflammatory disease indications.
Relevant Claims: Claim 1 of U.S. 10,611,742 recites a Markush genus of heterocyclic compounds defined by a broad core structure with variable substituents, claimed as kinase inhibitors. The genus is defined with considerable breadth at three variable positions. Claim 14 specifies a subgenus of compounds with a pyrimidinone core. The CLT-4019 pyridopyrimidinone scaffold is structurally related to the subgenus defined in Claim 14, and Caliston's analysis acknowledges that CLT-4019 falls within the literal scope of the Markush genus of Claim 1 if the claim is read broadly.
Caliston's Position: Brookhaven, Caliston's patent prosecution counsel, has provided an internal memorandum (dated October 28, 2022) opining that CLT-4019 does not infringe Claim 1 of U.S. 10,611,742 under a proper claim construction that limits the Markush genus to compounds within the scope of the specification's written description. Brookhaven argues that the Vantara patent specification does not adequately describe or enable the full breadth of the Markush genus and that the genus should be construed narrowly based on the disclosed examples, none of which include a pyridopyrimidinone compound structurally similar to CLT-4019. Brookhaven further identifies multiple prior art references that could be used to challenge the validity of the Vantara claims in an IPR proceeding.
C&H Assessment: We concur with Brookhaven's analysis that strong non-infringement and invalidity arguments are available. However, we note that Markush claim construction in the CDK4/6 inhibitor space is an area of evolving case law, and a court may not adopt Brookhaven's narrow construction. We rate this risk as medium and recommend the following mitigation strategies:
(a) Continued monitoring of the Vantara patent family, including any prosecution activity on related pending applications; (b) Proactive outreach to Vantara regarding a potential license or cross-license, which may be commercially advantageous if Vantara's own development programs do not directly compete with CLT-4019; (c) Preparation of an IPR petition challenging the validity of U.S. 10,611,742 Claims 1 and 14, to be held in reserve and filed if necessary; and (d) Inclusion of a specific indemnification provision in the Merger Agreement to address potential costs and liabilities arising from the Vantara patent family.
2. Arisawa Chemical Industries Patent Family (Medium Risk)
Patent Family: U.S. Application No. 16/989,773 (pending, published as US 2021/0047298 A1); corresponding PCT Application WO 2021/024107.
Owner: Hollowell Industries (Osaka, Japan), a diversified chemical company with a pharmaceutical intermediates division.
Relevant Claims: The published claims are directed to intermediate compounds and processes for their preparation, including a genus of pyridopyrimidinone intermediates. One pending claim (Claim 8 as published) recites an intermediate compound that is structurally identical to a key synthetic intermediate used in Caliston's manufacturing process for CLT-4019.
Assessment: This family presents a medium risk specifically to Caliston's manufacturing process, as the pending claims, if granted in their current form, could be infringed by the synthesis of CLT-4019 in the United States. However, we note that: (i) the application remains pending and may be narrowed during prosecution; (ii) the prior art record includes publications by Caliston scientists predating the Arisawa priority date that may be used to challenge the novelty of the claimed intermediates; and (iii) Caliston's manufacturing is currently conducted by Clearfield Pharmaceutical Services in its facility in Ireland, which may limit U.S. exposure. We recommend monitoring this application closely and, if the claims are granted in their current form, evaluating design-around options for the synthesis route or seeking a license from Arisawa.
3. Other Identified Families (Low Risk)
The remaining twelve (12) families classified by Meridian as low risk involve patents and applications owned by major pharmaceutical companies and academic institutions covering various aspects of CDK4/6 inhibition, kinase inhibitor formulations, and combination therapy methods. In each case, we concur with Meridian's assessment that the claims are unlikely to cover CLT-4019 based on structural distinctions, claim limitations, or the availability of strong invalidity arguments. These families are summarized in Exhibit E (Third-Party Patent Risk Matrix).
4. Litigation History
We confirmed with Caliston management and through a review of the legal due diligence report prepared by C&H's Litigation Due Diligence team that Caliston has not received any cease-and-desist letters, demand letters, or threats of patent infringement litigation from any third party as of the date of this memorandum. Caliston is not a party to any pending or threatened IP litigation. No third-party patent holder has contacted Caliston to assert infringement of any patent with respect to CLT-4019 or any other Caliston program.
C. Design-Around Options and Mitigation Strategies
In the event that any of the identified third-party patent risks materialize into actual infringement claims, we have assessed the availability of design-around strategies and other mitigation options:
1. Structural Design-Around (Vantara Family). CLT-4019 is a specific compound that has been the subject of extensive clinical development and cannot be structurally modified without restarting the clinical program. Accordingly, a structural design-around for CLT-4019 itself is not feasible. However, for future analogs and next-generation compounds (including potential follow-on candidates from the CLT-4019 series), Caliston's medicinal chemistry team has identified structural modifications at the R2 position that would clearly fall outside the scope of the Vantara claims.
2. Process Design-Around (Arisawa Family). If the Arisawa claims are granted in their current form, Caliston's process chemistry team has identified at least two alternative synthetic routes for CLT-4019 that do not employ the intermediate claimed in the Arisawa application. These alternative routes would require process development and validation but are technically feasible and could be implemented within approximately twelve (12) months.
3. Licensing. We recommend exploring the availability of licenses from both Vantara and Arisawa as a potential cost-effective mitigation strategy, particularly given that neither party's core business directly competes with CLT-4019's target indication.
4. Invalidity Defenses. As noted above, strong invalidity arguments are available against the Vantara patent (lack of written description and enablement for the full Markush genus; anticipation and obviousness based on prior art) and potentially against the Arisawa application (anticipation based on Caliston's own publications). These defenses could be asserted in litigation or in IPR proceedings.
V. PRECLINICAL CANDIDATES — CLT-5227 AND CLT-6034
A. CLT-5227
CLT-5227 is a preclinical-stage kinase inhibitor candidate targeting a distinct kinase target (identity withheld at Caliston's request; designated internally as "Target X"). CLT-5227 is currently in lead optimization and early IND-enabling studies. Caliston anticipates filing an IND for CLT-5227 in the second half of 2024.
Patent Portfolio. Caliston has filed the following patent applications covering CLT-5227 and related compounds:
• U.S. Application No. 17/512,093 — "Compounds as Inhibitors of [Target X] Kinase and Uses Thereof." Filed October 27, 2021. Pending; no substantive office action received. Claims directed to a genus of compounds encompassing CLT-5227 and methods of treating cancers expressing [Target X].
• PCT/US2021/056789 — Corresponding PCT application filed October 27, 2021. National phase entries were filed in April 2023 in the United States (as a continuation), Europe, Japan, China, and Canada.
• U.S. Provisional Application No. 63/329,847 — Filed April 11, 2022. Directed to additional analogs and salt forms of CLT-5227.
IP Assignment Chain. The inventors listed on the CLT-5227 patent applications are Dr. Raj Malhotra, Dr. Sarah Lindgren (Senior Medicinal Chemist), and Dr. James Okigbo (Research Scientist). All three inventors are current Caliston employees with executed PIIAs on file. The assignment from each inventor to Caliston has been recorded at the USPTO. As noted in Section II.B, Dr. Leila Farooq, a former Senior Research Scientist involved in CLT-5227 synthesis work, is not a named inventor on any CLT-5227 application, but the absence of an executed PIIA for Dr. Farooq represents a residual risk that should be addressed through a confirmatory assignment.
FTO Assessment. Given the early stage of CLT-5227's development, Caliston has not yet commissioned a comprehensive FTO analysis for this candidate. Caliston's patent prosecution counsel at Brookhaven conducted a preliminary patent landscape search in June 2022, which identified several third-party patent families with potential relevance to the [Target X] kinase inhibitor space. However, the search was not a formal FTO opinion and was limited in scope. We recommend that a comprehensive FTO analysis be conducted for CLT-5227 prior to IND filing or, at the latest, prior to the initiation of Phase 1 clinical trials.
B. CLT-6034
CLT-6034 is a preclinical-stage kinase inhibitor candidate targeting a second distinct kinase target (identity withheld at Caliston's request; designated internally as "Target Y"). CLT-6034 is in early-stage target validation and lead identification and is the least mature of Caliston's three programs.
Patent Portfolio. Caliston has filed the following provisional patent application covering CLT-6034:
• U.S. Provisional Application No. 63/401,228 — "Inhibitors of [Target Y] Kinase." Filed August 26, 2022. This provisional application will expire on August 26, 2023, and Caliston will need to file a non-provisional application (or PCT application) prior to that date to preserve the priority date. We have confirmed with Caliston's counsel that a PCT application is being prepared for filing in August 2023.
No non-provisional patents or applications have been filed for CLT-6034 as of the date of this memorandum. The patent portfolio for this candidate is at a very early stage, and the ultimate scope of protection will depend on the prosecution outcomes of the forthcoming non-provisional and national phase applications.
IP Assignment Chain. The sole inventor listed on the CLT-6034 provisional application is Dr. Raj Malhotra. Dr. Malhotra's PIIA and Founder Assignment Agreement are on file, and the assignment to Caliston has been confirmed.
FTO Assessment. No FTO analysis has been conducted for CLT-6034, which is appropriate given the early stage of the program. We recommend that an FTO analysis be initiated once the lead compound has been identified and the program has progressed to the lead optimization stage.
C. Pipeline Valuation Relevance
The Thorngate Partners full-pipeline discounted cash flow analysis, which includes risk-adjusted net present values for CLT-5227 and CLT-6034 in addition to CLT-4019, yields a range of $870 million to $1,180 million (midpoint: $1,025 million). The incremental value attributed to the preclinical candidates (approximately $90 million to $160 million) reflects significant risk adjustments for the probability of technical success, regulatory approval, and commercial viability at these early stages. The IP associated with these candidates is inherently less mature and more uncertain than the CLT-4019 portfolio, which is the primary driver of the Transaction valuation.
We note that Thorngate's full-pipeline valuation is somewhat above the Base Consideration of $925 million, suggesting that the preclinical candidates contribute a modest but meaningful portion of the total valuation. The Special Committee should consider the early-stage nature of the preclinical IP when evaluating the allocation of Transaction value and the design of indemnification and escrow provisions.
We recommend continued monitoring of the preclinical patent portfolios and the prompt conduct of comprehensive FTO analyses as these programs advance, with updates provided to Penterra's IP counsel on a quarterly basis post-closing.
VI. KEY LICENSE AGREEMENTS
A. In-License Agreements
We identified two license agreements under which Caliston is a licensee of third-party intellectual property:
1. Westlake University Exclusive License Agreement
Parties: Westlake University ("Westlake" or "Licensor") and Caliston BioSciences, Inc. ("Licensee")
Date: January 15, 2018 (as amended by First Amendment dated March 22, 2020)
Licensed Technology: U.S. Patent No. 9,845,271, U.S. Patent No. 10,202,394, and corresponding foreign family members (EP, JP, CN), directed to methods and compositions for high-throughput screening of kinase inhibitor candidates using a proprietary cell-based assay platform.
Scope: Exclusive license, with right to sublicense (subject to Westlake's prior written consent, not to be unreasonably withheld), in the field of human oncology therapeutics, worldwide.
Financial Terms:
• Upfront license fee: $750,000 (paid)
• Annual license maintenance fee: $50,000 (paid through 2023)
• Milestone payments: $250,000 upon IND filing for first licensed product (paid; triggered by CLT-4019 IND filing in March 2020); $500,000 upon initiation of Phase 2 clinical trial (paid; triggered May 2021); $1,000,000 upon NDA/BLA filing; $2,500,000 upon FDA approval
• Running royalty: 2.0% of net sales of licensed products, subject to a $10,000,000 cumulative royalty cap
• Minimum annual royalty: $100,000 per year following first commercial sale
Term: The license extends for the life of the last-to-expire licensed patent, unless earlier terminated.