MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
This memorandum is protected by the attorney-client privilege and constitutes attorney work product. It is intended solely for the use of the individual(s) to whom it is addressed and may contain information that is privileged, confidential, and exempt from disclosure under applicable law. Any dissemination, distribution, or copying of this memorandum by anyone other than the intended recipient(s) is strictly prohibited.
TO: Miriam Calloway, Partner, Calderwood & Harkness LLP
FROM: Sean Morrissey, Associate; Christopher Aiken, Associate
DATE: March 29, 2023
RE: Subject-Injury Indemnification Standards in Phase III Multi-Site Clinical Trial Agreements — Analysis for Penterra Pharmaceuticals Corp. / Veridian Health Research Network, Inc. MCTA Negotiation
MATTER NO.: 1018-00004
CLIENT: Penterra Pharmaceuticals Corp.
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I. EXECUTIVE SUMMARY
This memorandum is prepared to inform the negotiation team of prevailing market standards for subject-injury indemnification provisions in sponsor–site master clinical trial agreements ("MCTAs") for Phase III oncology trials. The analysis is undertaken in connection with the forthcoming MCTA between our client, Penterra Pharmaceuticals Corp. ("Penterra" or "Sponsor"), and Veridian Health Research Network, Inc. ("Veridian" or "Site Network") for Protocol PPC-4871-III, known as the CLARION trial (Clinical Assessment of Response with Longitudinal Investigation in ONcology).
Penterra is sponsoring a Phase III, randomized, double-blind, placebo-controlled trial of penterafenib (PPC-4871), an oral multi-kinase inhibitor, for the treatment of advanced hepatocellular carcinoma ("HCC") in patients who have received and progressed on prior systemic therapy. The investigational new drug application is maintained under IND 157823, and the trial is registered on ClinicalTrials.gov under identifier NCT05928174. The trial is projected to enroll 1,200 subjects across 38 Veridian Network academic medical center sites located in 14 states, with a 2:1 randomization scheme (800 treatment : 400 placebo). The projected enrollment period is 42 months, with a total study duration of 60 months. The total deal value of the Penterra–Veridian MCTA is approximately $80,000,000.
Following an extensive review of comparable agreements in the Calderwood & Harkness proprietary database, publicly filed clinical trial agreements available through SEC filings, and applicable legal authorities, we conclude that the indemnification structure recommended in this memorandum is consistent with prevailing market standards and appropriately balances risk allocation for a trial of this size, scope, and therapeutic area. Specifically, we recommend:
• A per-subject medical care cap of $500,000 for reasonable and customary costs of treating study-related injuries not covered by the subject's own insurance;
• An aggregate medical care cap of $15,000,000 across all 38 Veridian sites;
• Uncapped product-defect indemnification, consistent with the strong market consensus that sponsors bear full risk for defects in the investigational product they manufacture and control;
• Standard carve-outs from Sponsor indemnification for investigator negligence or willful misconduct, unauthorized protocol deviations (excluding emergency safety deviations), and site breach of the MCTA or applicable law; and
• A 30-day notice period with a "material prejudice" standard for the effect of late notice.
We note that Veridian, as a 501(c)(3) multi-site research network with approximately $1.4 billion in annual sponsored research revenue, will likely negotiate aggressively for broad indemnification coverage. We anticipate that Veridian's counsel — Whitmore, Jansen & Callahan LLP ("WJC"), led by Allison Whitmore and David Kesselman — will push for uncapped indemnification for all subject injuries (not merely product-defect claims), higher insurance requirements, and other terms favorable to the Site Network. Our recommended fallback positions and negotiation authority parameters will be addressed in a separate negotiation strategy memorandum.
II. BACKGROUND
A. The CLARION Trial
Penterafenib (PPC-4871) is a next-generation oral multi-kinase inhibitor being developed by Penterra for the treatment of advanced hepatocellular carcinoma in patients who have received and progressed on at least one prior line of systemic therapy. Hepatocellular carcinoma is the most common form of primary liver cancer and represents a significant unmet medical need, particularly in the second-line setting where treatment options remain limited and overall survival rates are poor.
Penterra completed a Phase II clinical trial of penterafenib in January 2023, which demonstrated a 38% objective response rate ("ORR") across the evaluable patient population — a clinically meaningful result that provided the scientific and regulatory basis for advancement into Phase III. The Phase II data also established a manageable, though clinically significant, safety profile consistent with the multi-kinase inhibitor class of compounds, which is discussed in further detail in Section X.A of this memorandum.
The Phase III trial is designated as Protocol PPC-4871-III and is known by the acronym CLARION — Clinical Assessment of Response with Longitudinal Investigation in ONcology. The key features of the trial design are as follows:
• Study Design: Randomized, double-blind, placebo-controlled, multi-center
• Randomization: 2:1 (penterafenib : placebo)
• Planned Enrollment: 1,200 subjects (800 treatment arm; 400 placebo arm)
• Primary Endpoint: Overall survival ("OS")
• Key Secondary Endpoints: Progression-free survival ("PFS"); objective response rate ("ORR"); duration of response ("DOR")
• Target First Patient In ("FPI"): August 14, 2023
• Projected Study Completion: August 2028
• Enrollment Period: Approximately 42 months
• Total Study Duration: Approximately 60 months
• IND Holder: Penterra Pharmaceuticals Corp. (IND 157823)
The CLARION trial is a pivotal registrational study. A positive outcome in the Phase III trial is expected to support a New Drug Application ("NDA") submission to the U.S. Food and Drug Administration ("FDA"). The strategic importance of penterafenib to Penterra's development pipeline underscores the need for a carefully constructed MCTA that facilitates efficient trial execution while providing appropriate indemnification protections.
B. The Parties and Transaction Structure
Sponsor. Penterra Pharmaceuticals Corp. is a Delaware corporation publicly traded on the Nasdaq Stock Market under the ticker symbol PTRA. Penterra is headquartered at 200 Biopharma Boulevard, Suite 1400, Princeton, New Jersey 08540. As of the most recently reported quarter (Q1 2023), Penterra has an approximate market capitalization of $4.2 billion, with fiscal year 2022 revenue of $1.87 billion, fiscal year 2022 research and development expenditure of $612 million, and cash and cash equivalents of approximately $890 million. Penterra's financial profile is relevant to the indemnification analysis insofar as it demonstrates the Sponsor's ability to backstop the indemnification obligations recommended herein.
Site Network. Veridian Health Research Network, Inc. is a Delaware 501(c)(3) not-for-profit corporation headquartered at 750 Research Parkway, 8th Floor, Philadelphia, Pennsylvania 19104. Veridian operates a network of 38 academic medical centers and affiliated research sites across 14 states and employs approximately 6,200 individuals. Veridian's Employer Identification Number is 23-4178205. As one of the largest nonprofit clinical research site networks in the United States, Veridian conducts approximately $1.4 billion in annual sponsored research and has established institutional processes and legal positions that we should anticipate encountering in the MCTA negotiation.
Lead Site. The lead clinical site for the CLARION trial is Graystone University Medical Center ("GUMC"), designated as Site 001, located at 1200 University Avenue, Philadelphia, Pennsylvania 19104. The Global Principal Investigator for the trial is Dr. Catherine Aldridge, M.D., Ph.D., who holds appointments in the Division of Medical Oncology and the Department of Medicine at Graystone University School of Medicine. Dr. Aldridge is a recognized expert in hepatocellular carcinoma and has served as a principal investigator on multiple Phase II and Phase III clinical trials in gastrointestinal oncology.
Key Site. A significant secondary enrollment site is Lakemont Medical Center, designated as Site 002, located at 4400 North Michigan Drive, Chicago, Illinois 60611. The Co-Principal Investigator at Lakemont is Dr. Howard Matsuoka, M.D., who leads the liver cancer program at that institution.
Contract Research Organization. Meridian Contract Research Organization, Inc. ("Meridian") is serving as the contract research organization for the CLARION trial under a separate Master Services Agreement with Penterra dated January 15, 2023. The Meridian MSA was negotiated by this firm and is not the subject of this memorandum, although certain coordination issues between the Meridian MSA and the Penterra–Veridian MCTA (including indemnification flow-down provisions) will be addressed in the separate Preliminary Issues Memorandum.
Deal Value. The total deal value of the proposed Penterra–Veridian MCTA is approximately $80,000,000, comprising the following components:
Counterparty Counsel. Veridian is represented by Whitmore, Jansen & Callahan LLP, with Allison Whitmore and David Kesselman leading the engagement. WJC is a well-regarded healthcare and life sciences firm based in Philadelphia, and we have encountered their team on prior clinical trial agreement negotiations. Based on our prior experience, WJC tends to take aggressive initial positions on indemnification and insurance provisions, particularly with respect to the scope of sponsor obligations and the standards governing carve-outs.
C. Regulatory Framework
The CLARION trial is subject to a comprehensive regulatory framework that informs both the structure and specific terms of the subject-injury indemnification provisions. The key regulatory authorities and requirements include:
FDA Regulations. The trial is conducted under an Investigational New Drug Application (IND 157823) and is subject to the FDA's regulations governing clinical investigations of new drugs, including:
• 21 C.F.R. Part 11 (Electronic Records; Electronic Signatures), governing the use of electronic data capture systems and electronic signatures in clinical trial documentation;
• 21 C.F.R. Part 50 (Protection of Human Subjects), including the informed consent requirements that bear directly on the disclosure of indemnification and medical care provisions to trial subjects;
• 21 C.F.R. Part 54 (Financial Disclosure by Clinical Investigators), which requires investigators to disclose financial interests and arrangements that could affect the reliability of data;
• 21 C.F.R. Part 56 (Institutional Review Boards), governing IRB review and approval of clinical trial protocols and informed consent documents; and
• 21 C.F.R. Part 312 (Investigational New Drug Application), governing the overall conduct of clinical investigations under IND, including sponsor and investigator obligations.
ICH E6(R2) Good Clinical Practice Guidelines. The International Council for Harmonisation's Guideline for Good Clinical Practice ("ICH E6(R2)") establishes internationally recognized ethical and scientific quality standards for the design, conduct, recording, and reporting of clinical trials. Relevant provisions include Section 5.8.1, which requires that the sponsor's policies regarding treatment of trial subjects injured as a result of their participation be described, and Section 4.5.2, which addresses investigator obligations with respect to protocol deviations.
HIPAA. The Health Insurance Portability and Accountability Act of 1996, as implemented through 45 C.F.R. Parts 160 and 164, governs the use and disclosure of protected health information. HIPAA considerations are relevant to the indemnification analysis insofar as breaches of HIPAA by site personnel may constitute a carve-out from Sponsor indemnification and a trigger for reciprocal site indemnification obligations.
Additional Regulatory Considerations. The Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) and the Physician Payments Sunshine Act / Open Payments provisions (42 U.S.C. § 1320a-7h) are relevant to the overall MCTA structure, including the payment terms and investigator compensation components. However, these issues are addressed in separate memoranda and are outside the scope of this analysis.
IRB Oversight. The CLARION trial will operate under a dual IRB structure. The Graystone University Institutional Review Board (IRB00012847) will serve as the IRB of record for the lead site and other Pennsylvania-based sites. The Veridian Central IRB will serve as the reviewing IRB for non-Pennsylvania sites through an IRB reliance framework. This structure has implications for the uniformity of informed consent language regarding indemnification and medical care provisions, as discussed in Section X.B.
III. LEGAL FRAMEWORK GOVERNING SUBJECT-INJURY INDEMNIFICATION
A. No Federal Statutory Mandate for Subject-Injury Compensation
Unlike certain European Union member states, which have adopted legislative frameworks mandating compensation for subjects injured in clinical trials (e.g., the EU Clinical Trials Regulation (EU) No. 536/2014, which requires sponsors to implement arrangements for compensation), there is no federal statute in the United States that mandates sponsor payment for injuries sustained by subjects participating in clinical trials. This gap in the federal regulatory framework means that the obligation of a sponsor to compensate trial subjects for study-related injuries — and the allocation of that obligation as between sponsor and site — arises primarily from two sources: (i) the contract between the sponsor and the site (here, the MCTA), and (ii) common law tort principles applicable under the governing state law.
While federal law does not mandate compensation, certain federal regulations and international guidelines address the disclosure and documentation of compensation and medical treatment provisions. Specifically:
• ICH E6(R2) GCP Guideline Section 5.8.1 provides that the sponsor's policies regarding the treatment of trial subjects who are injured as a result of their participation in a clinical trial should be described in the protocol or elsewhere, as appropriate. This guideline creates an expectation — though not a legally binding requirement in the absence of FDA incorporation — that sponsors will have articulated policies for the treatment of study-related injuries.
• 21 C.F.R. § 50.25(a)(6) requires that the informed consent document for research involving more than minimal risk include "a statement describing . . . the compensation and . . . the medical treatments available if injury occurs and, if so, what they consist of, or where further information may be obtained." Phase III oncology trials clearly involve more than minimal risk, and the CLARION trial is no exception. This regulatory requirement means that the indemnification and medical care provisions negotiated between Penterra and Veridian in the MCTA will need to be accurately reflected in the informed consent forms presented to subjects at all 38 sites.
The practical significance of the absence of a federal statutory mandate is that the scope, terms, limitations, and conditions of sponsor indemnification for subject injuries are matters of private negotiation between the sponsor and the site network, subject to the constraints of applicable state law and public policy. This places a premium on careful drafting of the MCTA indemnification provisions and underscores the importance of the market standards analysis presented in this memorandum.
B. State Law Considerations
The parties have agreed in principle that the MCTA will be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict-of-laws principles. New York is a commonly selected governing law jurisdiction for pharmaceutical industry contracts and is acceptable to both parties. However, it is important to recognize that while New York law will govern the interpretation and enforcement of the MCTA itself, the underlying subject-injury claims that may give rise to indemnification obligations will arise in the states where trial subjects are enrolled and treated. The CLARION trial will enroll subjects at sites across 14 states, including New York, Pennsylvania, Illinois, Massachusetts, Colorado, Georgia, California, Texas, Ohio, Michigan, North Carolina, Florida, Maryland, and Minnesota.
New York law generally enforces negotiated indemnification provisions, including caps on indemnification obligations and carve-outs from indemnification coverage, provided that such limitations are clearly stated and the product of arm's-length bargaining between sophisticated commercial parties. New York courts have consistently upheld contractual limitations on indemnification scope in commercial agreements, and this principle has been applied in contexts analogous to clinical trial agreements. See, e.g., Hooper Assocs., Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487 (1989) (holding that indemnification agreements must be strictly construed and that the intention to indemnify must be clearly implied from the language and purposes of the overall transaction). New York's general approach to indemnification — requiring clear and unambiguous language, and construing indemnification provisions narrowly — is favorable to a carefully drafted MCTA that delineates the scope of each party's obligations with precision.
We have also conducted a preliminary analysis of potential conflicts with state consumer protection or patient rights statutes in the states where Veridian sites are located. In particular:
• Pennsylvania (lead site state): Pennsylvania does not have a statute specifically mandating clinical trial subject compensation, but the state's Medical Care Availability and Reduction of Error Act (MCARE) imposes informed consent requirements that should be cross-referenced with the MCTA provisions.
• Illinois (key site state): Illinois law does not impose mandatory clinical trial indemnification but does have consumer protection statutes that could theoretically be invoked in the context of subjects who suffer serious injuries.
• Massachusetts: Massachusetts has relatively protective patient rights statutes and a robust informed consent framework that should be considered in the drafting of site-level informed consent documents.
• Colorado and Georgia: Neither state imposes mandatory sponsor indemnification requirements, but both have particular damages caps and tort reform provisions that may affect the quantum of potential subject claims.
Based on our analysis, we do not anticipate any state law that would invalidate or substantially interfere with the proposed indemnification structure, provided that the MCTA is carefully drafted and the informed consent documents at each site accurately reflect the applicable indemnification and medical care provisions.
C. Common Law Tort Principles
Independent of the contractual indemnification provisions in the MCTA, both Penterra and Veridian face potential exposure under common law tort theories. An understanding of these theories is essential because the contractual indemnification framework in the MCTA is designed to allocate the risk of these potential liabilities between the parties.
Sponsor Liability. Penterra, as the sponsor and IND holder for penterafenib, may face liability under the following tort theories:
• Strict Product Liability: In most states, a manufacturer of a product (including a pharmaceutical company marketing or distributing a drug product) may be held strictly liable for injuries caused by a defect in the product, whether the defect is in design, manufacturing, or labeling/warnings. While penterafenib is an investigational product not yet approved for marketing, courts in several jurisdictions have applied product liability principles to investigational drugs in the clinical trial setting, particularly where the injury arises from a manufacturing defect or a failure to disclose known risks.
• Negligence: Penterra may face claims of negligence in the design of the clinical trial protocol, the selection of investigational product dosing, the provision (or failure to provide) safety information to investigators, or the monitoring of the trial.
• Breach of Duty of Care: As the sponsor, Penterra owes certain duties of care to trial subjects, including the duty to ensure that the investigational product is manufactured in accordance with current Good Manufacturing Practice (cGMP) and that known safety information is promptly communicated to investigators and subjects.
Investigator and Site Liability. Veridian, its member institutions, and individual investigators may face liability under the following theories:
• Medical Malpractice: The administration of the investigational product and the conduct of study procedures (e.g., biopsies, infusions, blood draws) constitute the practice of medicine and are subject to medical malpractice standards in the applicable jurisdiction.
• Negligence: Sites and investigators may be liable for negligent conduct in the screening, enrollment, treatment, and monitoring of trial subjects.
• Failure to Obtain Proper Informed Consent: If a site or investigator fails to obtain informed consent in compliance with 21 C.F.R. Part 50 and applicable state law, the site may be liable for injuries sustained by the subject, even if those injuries would have occurred regardless of whether consent was properly obtained.
A critical distinction in the allocation of liability — and therefore in the structure of the indemnification provisions — is the distinction between injuries caused by the investigational product itself (which are primarily the Sponsor's risk) and injuries caused by trial procedures, protocol conduct, or the subject's pre-existing medical conditions (which may be shared risks or primarily the site's risk, depending on the circumstances). The contractual indemnification framework in the MCTA serves as the primary risk-allocation mechanism between the parties, supplementing but not replacing the parties' respective tort liabilities and defenses.
IV. PREVAILING MARKET STANDARDS FOR SPONSOR INDEMNIFICATION OF SITES AND INVESTIGATORS
A. Scope of Sponsor Indemnification Obligation
Based on our review of comparable agreements in the Calderwood & Harkness proprietary clinical trial agreement database and publicly available SEC filings in which clinical trial agreements are filed as material contracts, the prevailing market standard for the scope of sponsor indemnification obligations in Phase III multi-site oncology clinical trial agreements is as follows:
Indemnified Parties. The sponsor typically indemnifies the site network entity, each individual participating site institution, the principal investigator at each site, sub-investigators, study coordinators, and other site staff involved in the conduct of the trial (collectively, the "Indemnified Parties"). This broad definition of Indemnified Parties is standard and appropriate, as it provides comprehensive coverage for the individuals and entities that are exposed to potential claims by trial subjects or their representatives.
Covered Claims. The sponsor's indemnification obligation typically extends to claims arising from the following categories of events:
(a) Injury caused by the investigational product when administered in accordance with the Protocol. This is the core indemnification obligation. The sponsor agrees to indemnify the Indemnified Parties against claims, liabilities, costs, and damages arising from injuries to trial subjects that are caused by the investigational product, provided the product was administered in compliance with the applicable clinical trial protocol. This standard — often referred to as the "protocol-compliant administration" standard — appropriately places the risk of product-related injuries on the sponsor, who controls the development, manufacture, and characterization of the investigational compound, while ensuring that the sponsor is not liable for injuries resulting from improper administration by site personnel.
(b) Defects in the investigational product. A separate and often more broadly stated indemnification obligation covers injuries arising from defects in the investigational product, whether such defects are in design, manufacturing, formulation, packaging, or labeling. As discussed in Section IV.C below, the strong market trend is toward uncapped indemnification for product-defect claims.
(c) Sponsor's breach of the MCTA or Protocol. The sponsor indemnifies the Indemnified Parties against claims arising from the sponsor's breach of its obligations under the MCTA or the clinical trial protocol. This includes, for example, the sponsor's failure to provide required safety information, failure to supply conforming investigational product, or failure to fulfill its monitoring obligations.
(d) Sponsor's negligence or willful misconduct. The sponsor indemnifies the Indemnified Parties against claims arising from the sponsor's own negligent acts or omissions or willful misconduct in connection with the trial.
The "protocol-compliant administration" standard is a particularly important feature of the indemnification scope. Under this standard, Penterra's indemnification obligation for product-related injuries is triggered when penterafenib (or placebo) causes injury while being administered in accordance with Protocol PPC-4871-III. This standard ensures that Penterra bears the risk of injuries that are inherent in the investigational product or the protocol-specified treatment regimen, while preserving the carve-outs for injuries resulting from site or investigator error (discussed in Section V below).
A broader trend in oncology Phase III trials is worth noting: sponsors in this therapeutic area typically accept broad indemnification obligations given the serious and life-threatening nature of the underlying disease, the inherently higher risk profile of oncology investigational agents, and the vulnerable patient population involved. This trend is consistent with the approach we recommend for Penterra in the CLARION trial.
B. Per-Subject and Aggregate Caps on Medical Care Costs
A critical distinction in the indemnification structure is the distinction between two types of financial exposure:
(i) Indemnification for third-party claims and lawsuits — i.e., the sponsor's obligation to defend, indemnify, and hold harmless the Indemnified Parties against claims, demands, actions, or lawsuits brought by trial subjects (or their estates, representatives, or insurers) seeking damages for study-related injuries. As discussed in Section IV.C below, this obligation is typically uncapped for product-defect claims and subject to standard carve-outs for other covered claims.
(ii) Direct medical care costs for treatment of study-related injuries — i.e., the sponsor's obligation to pay (or reimburse) the reasonable and customary costs of medical treatment provided to trial subjects for injuries that are determined to be study-related. This obligation is typically subject to both per-subject and aggregate caps.
The distinction is important because the per-subject and aggregate caps discussed in this section apply only to the second category — the sponsor's direct obligation to fund medical treatment of study-related injuries. They do not limit the sponsor's obligation to indemnify the Indemnified Parties against third-party lawsuits or claims.
Per-Subject Cap. Based on our review of comparable agreements, the market range for per-subject caps on medical care costs in Phase III oncology clinical trials is $250,000 to $750,000 per subject. The midpoint and most commonly observed cap is $500,000 per subject. This cap applies to the reasonable and customary costs of medical treatment for study-related injuries that are not covered by the subject's own health insurance or other third-party coverage.
We recommend a per-subject cap of $500,000 for the Penterra–Veridian MCTA. This figure is squarely within the market range, represents the modal value observed across comparable agreements, and is appropriate for a Phase III oncology trial involving an oral multi-kinase inhibitor in an advanced HCC population. The cap should be defined to apply to "reasonable and customary charges for medically necessary treatment of injuries that are directly attributable to the administration of the Study Drug or the conduct of Study Procedures in accordance with the Protocol, to the extent such charges are not covered by the Subject's own health insurance or other applicable third-party coverage."
Aggregate Cap. The aggregate cap on medical care costs across all sites represents the sponsor's maximum total financial exposure for direct medical treatment of study-related injuries over the life of the trial. Two approaches are commonly observed in the market:
• Percentage-of-deal-value approach: Aggregate caps in the range of 2% to 5% of total deal value. For an $80,000,000 deal, this would yield a range of $1,600,000 to $4,000,000. However, this approach tends to produce aggregate caps that are disproportionately low relative to the number of subjects and the risk profile of the trial, particularly in oncology.
• Fixed-amount approach: Fixed aggregate caps in the range of $10,000,000 to $20,000,000 are common in large Phase III oncology trials with enrollment exceeding 500 subjects. This approach better reflects the actual risk exposure and is more commonly adopted in agreements of the size and complexity of the CLARION trial.
We recommend an aggregate cap of $15,000,000 across all 38 Veridian sites. This figure represents approximately 18.75% of the total deal value, which is at the higher end of the range observed in comparable agreements. However, this higher cap is justified by several factors specific to the CLARION trial: (a) the enrollment of 1,200 subjects across 38 sites, which creates a large population base with correspondingly greater potential for study-related injuries; (b) the oncology therapeutic area, which is associated with inherently higher rates of serious adverse events; (c) the advanced HCC subject population, which includes patients with compromised liver function and significant comorbidities; and (d) the 60-month total study duration, which extends the period of potential exposure.
It bears repeating that the medical care cost caps apply only to the Sponsor's obligation to pay directly for medical treatment of study-related injuries. They do not cap Penterra's indemnification obligation for third-party lawsuits or claims brought against the Indemnified Parties.
C. Product-Defect Indemnification — Uncapped
There is a strong and well-established market consensus that indemnification for injuries caused by defects in the investigational product should be uncapped. Our review of comparable agreements confirms that this position is effectively universal in Phase III clinical trial agreements involving investigational pharmaceutical products.
The rationale for uncapped product-defect indemnification is straightforward and compelling: the sponsor controls the design, chemical composition, formulation, manufacturing process, quality control testing, stability assessment, and labeling specifications of the investigational product. Sites and investigators have no ability to inspect, test, or verify the quality or safety of the investigational product beyond what is disclosed in the Investigator's Brochure and Protocol. To impose a cap on the sponsor's indemnification obligation for injuries caused by defects in a product that is entirely within the sponsor's control would be commercially unreasonable, contrary to established principles of risk allocation, and potentially contrary to public policy.
This position is consistent with strict product liability principles under New York law and under the law of virtually all other states where Veridian sites are located. Under the Restatement (Third) of Torts: Products Liability, a product seller is subject to liability for harm caused by a product defect regardless of the seller's exercise of reasonable care, and this principle applies with particular force to pharmaceutical manufacturers.
We recommend that Penterra accept uncapped indemnification for product-defect claims as part of its indemnification obligations under the MCTA. This recommendation is consistent with Penterra's position as the IND holder for PPC-4871, its exclusive control over the manufacture and supply of penterafenib, and the market expectation that sponsors will bear full risk for product defects. We do not anticipate that this position will be a point of contention in negotiations with WJC, as it is to Veridian's benefit. Rather, the negotiation focus will likely center on the scope of the per-subject and aggregate caps for non-defect product-related injuries.
V. CARVE-OUTS FROM SPONSOR INDEMNIFICATION
A. Investigator Negligence or Willful Misconduct
The most fundamental carve-out from sponsor indemnification is the exclusion of claims arising from the negligence or willful misconduct of the site, the investigator, or site personnel. This carve-out is nearly universal in clinical trial agreements — indeed, it is present in every one of the comparable agreements reviewed in our market survey — and is non-negotiable from Penterra's perspective.
The rationale for this carve-out is equally fundamental: the sponsor should not bear the cost of injuries that result from the site's or investigator's failure to meet the applicable standard of care. If an investigator negligently administers the investigational product (e.g., incorrect dosing, failure to monitor for known adverse reactions, failure to respond appropriately to adverse events), or engages in willful misconduct (e.g., enrolling subjects who do not meet inclusion/exclusion criteria, fabricating data, coercing subjects into participation), the resulting injuries are properly attributable to the site and investigator, not to the sponsor.
In drafting this carve-out, the term "negligence" should be defined by reference to the applicable standard of care for the relevant medical specialty. For the CLARION trial, the relevant standard of care is that of a reasonably prudent oncologist or hepatologist practicing in the same or similar circumstances. This standard incorporates both the general standards of clinical medicine and the specific requirements of the Protocol, the Investigator's Brochure, and applicable GCP guidelines.
We anticipate that Veridian and WJC will push for a narrower carve-out based on "gross negligence" rather than "negligence." Under a gross negligence standard, the sponsor would remain obligated to indemnify the site and investigator for injuries caused by their ordinary negligence, with the carve-out applying only to injuries caused by gross negligence or willful misconduct. This position is understandable from Veridian's perspective — it would shift significant risk from the Site Network to the Sponsor — but it is not consistent with majority market practice in Phase III clinical trial agreements. Our review of comparable agreements shows that approximately 70% of agreements use a "negligence" carve-out standard, while approximately 30% use a "gross negligence" standard. We recommend holding firm on the "negligence" standard, at least as an initial position, with the understanding that this may become a significant negotiation point.
B. Protocol Deviations Not Authorized by Sponsor
A second standard carve-out provides that the sponsor is not obligated to indemnify the Indemnified Parties for injuries resulting from deviations from the clinical trial protocol that are not authorized by the sponsor. In the context of the CLARION trial, this means that if an investigator deviates from Protocol PPC-4871-III — for example, by administering penterafenib at a dose other than the protocol-specified dose, by enrolling a subject who does not meet the protocol's inclusion/exclusion criteria, or by omitting a required safety assessment — and a subject is injured as a result, the sponsor is not obligated to indemnify the site or investigator for such injury.
This carve-out is standard and appropriate, but it requires careful drafting to address an important distinction between two categories of protocol deviations:
(i) Medically necessary protocol deviations undertaken to protect subject safety in emergency situations. Under both FDA regulations and ICH GCP guidelines, an investigator may deviate from the approved protocol without prior sponsor authorization when doing so is necessary to eliminate an apparent immediate hazard to the trial subject. See 21 C.F.R. § 312.60 ("An investigator may deviate from the investigational plan . . . without prior IRB approval to protect the life or physical well-being of a subject in an emergency."); ICH E6(R2) § 4.5.2. These emergency safety deviations should remain within the scope of sponsor indemnification, as they are undertaken in circumstances where the investigator has no practical alternative and is acting in the subject's best interest.
(ii) Non-authorized deviations representing investigator or site error, judgment, or convenience. Protocol deviations that are not driven by immediate safety concerns — such as deviations resulting from administrative error, scheduling convenience, investigator preference, or misunderstanding of the protocol — are properly carved out from sponsor indemnification. The risk of injury resulting from such deviations should be borne by the site and investigator, who are responsible for protocol compliance.
We recommend that the MCTA include language specifying that deviations "reasonably necessary to eliminate an apparent immediate hazard to the Subject's safety" remain within the scope of Sponsor indemnification, consistent with the regulatory framework. This language should be accompanied by a requirement that the investigator report any such deviation to both the Sponsor and the IRB as soon as practicable after the deviation occurs, in accordance with 21 C.F.R. § 312.60 and ICH E6(R2) § 4.5.2.
This issue is expected to be a significant negotiation point with Veridian and WJC. Veridian may argue for broader coverage of protocol deviations, including deviations that reflect reasonable clinical judgment even if not strictly required by immediate safety concerns. Our recommended position is to maintain the distinction between emergency safety deviations (covered) and all other deviations (carved out), with the proviso that whether a deviation was "reasonably necessary to eliminate an apparent immediate hazard" is to be determined based on the facts and circumstances known to the investigator at the time of the deviation.
C. Site Breach of the MCTA or Applicable Law
A third standard carve-out provides that the sponsor's indemnification obligation does not extend to claims arising from the site's or Veridian's breach of the MCTA or applicable law. This carve-out is the mirror image of the sponsor's indemnification obligation for its own breaches: just as the sponsor indemnifies the site for injuries caused by the sponsor's breach of the MCTA, the site bears responsibility for injuries caused by the site's breach of the MCTA.
The scope of this carve-out encompasses a range of potential site breaches, including but not limited to:
• Failure to obtain proper informed consent from trial subjects in compliance with 21 C.F.R. Part 50, the IRB-approved informed consent form, and applicable state law requirements;
• Failure to comply with IRB requirements, including failure to obtain initial IRB approval, failure to submit protocol amendments for IRB review, failure to report adverse events to the IRB, or failure to obtain continuing review approval;
• Breach of confidentiality obligations under the MCTA, including unauthorized disclosure of Penterra's proprietary information or confidential study data;
• Failure to comply with HIPAA or applicable state privacy laws, including unauthorized use or disclosure of subjects' protected health information; and
• Failure to comply with the financial disclosure requirements of 21 C.F.R. Part 54, including failure to disclose investigator financial interests that could affect the reliability of trial data.
This carve-out is standard, broadly accepted in the market, and unlikely to generate significant pushback from Veridian or WJC. We recommend including it in the initial draft MCTA without modification.
VI. RECIPROCAL INDEMNIFICATION — SITE/INVESTIGATOR INDEMNIFICATION OF SPONSOR
A. Scope
Just as Penterra will indemnify Veridian and the Indemnified Parties for specified categories of claims, the MCTA should include reciprocal indemnification obligations running from Veridian and each participating institution to Penterra. The scope of this reciprocal indemnification should cover claims arising from:
(a) The negligence or willful misconduct of site staff, investigators, sub-investigators, study coordinators, or other personnel of Veridian or its member institutions in connection with the conduct of the CLARION trial;
(b) Protocol deviations that are not authorized by Penterra (other than emergency safety deviations as defined in Section V.B above); and
(c) Veridian's or the participating site's breach of the MCTA, the Protocol, or applicable law, including the regulatory requirements identified in Section V.C above.
This reciprocal structure is standard and creates a symmetrical framework in which each party bears the risk of claims attributable to its own conduct. The reciprocal indemnification obligations of Veridian and the sites mirror the carve-outs from Sponsor indemnification: claims that fall outside the Sponsor's indemnification obligation because they arise from site negligence, unauthorized protocol deviations, or site breach are the very claims for which the site is obligated to indemnify the Sponsor.
B. Caps on Site Indemnification Obligations
Unlike the Sponsor's indemnification obligations — which are uncapped for product-defect claims and subject only to the per-subject and aggregate medical care cost caps described in Section IV.B — the Site Network's reciprocal indemnification obligations are typically subject to caps. This asymmetry reflects the fundamental difference in the parties' roles, resources, and risk profiles: the Sponsor is a commercial pharmaceutical company that controls the investigational product and the trial design, while the sites are clinical research institutions (often nonprofits) that provide the clinical infrastructure and patient care services.
Sites and academic medical centers — particularly 501(c)(3) not-for-profit organizations like Veridian — have historically and consistently resisted uncapped indemnification obligations in clinical trial agreements. This resistance is well-grounded: nonprofit research institutions operate under significant financial constraints, and an uncapped indemnification obligation could, in theory, expose the institution to liabilities that exceed its insurance coverage and endanger its financial viability. Moreover, the types of claims for which sites indemnify sponsors (principally, claims arising from site negligence or protocol deviations) are typically insurable under the institution's general and professional liability coverage.
Based on our review of comparable agreements, the market ranges for site indemnification caps are as follows:
• Per-site / per-occurrence cap: $2,000,000 to $10,000,000, with a median of approximately $5,000,000.
• Aggregate cap across all sites: $10,000,000 to $25,000,000, depending on the size and scope of the trial.
We recommend the following cap structure for Veridian's reciprocal indemnification obligations:
• $5,000,000 per site per occurrence. This cap is at the median of the observed market range and is aligned with the minimum insurance coverage that Penterra will require each site to maintain (see Section IX.B below), ensuring that the site's indemnification obligation is backstopped by adequate insurance.
• $20,000,000 aggregate across all Veridian sites. This aggregate cap provides Penterra with meaningful protection against the cumulative risk of multiple site-attributable claims across the 38-site network, while remaining within the range that a 501(c)(3) research network of Veridian's size and financial profile can reasonably accept. At $20,000,000, the aggregate cap is at the higher end of the market range but is justified by the scale of the CLARION trial (38 sites, 1,200 subjects, 60-month duration).
We anticipate that Veridian may initially propose lower caps, potentially in the range of $2,000,000 to $3,000,000 per site per occurrence and $10,000,000 in the aggregate. Our recommended position is to hold firm on the $5,000,000 per-site cap (which corresponds to the required insurance minimums) and to treat the aggregate cap as a negotiable item within the $15,000,000 to $20,000,000 range.
VII. NOTICE REQUIREMENTS
A. Timing of Notice
Prompt notice of claims is an essential component of any indemnification framework, as it enables the indemnifying party to investigate the claim, preserve evidence, engage counsel, and take other steps to protect its interests. The market standard for clinical trial agreements requires the indemnified party to provide written notice to the indemnifying party within a specified period after becoming aware of a claim, threatened claim, or circumstances reasonably likely to give rise to a claim.
Based on our review of comparable agreements, the range observed for notice periods is 15 to 45 calendar days from the date the indemnified party first becomes aware of the triggering event. The most commonly adopted notice period — and the one we recommend — is 30 calendar days from the date the indemnified party becomes aware of a claim, threat of claim, or circumstances likely to give rise to a claim.
A 30-day notice period strikes an appropriate balance between giving the indemnified party sufficient time to gather information and assess the claim (particularly in a multi-site clinical trial environment where the relevant facts may be located at a site hundreds of miles from the indemnified party's headquarters) and ensuring that the indemnifying party receives timely notice. A shorter period (e.g., 15 days) may be impractical in a 38-site trial where information must flow from the site through Veridian's central office to Penterra, while a longer period (e.g., 45 days) may unduly delay the indemnifying party's ability to respond.
B. Effect of Late Notice
The consequences of a failure to provide timely notice is a significant drafting issue. Two approaches are commonly observed in the market:
(i) Late notice as an absolute bar to indemnification. Under this approach, a failure to provide notice within the specified period extinguishes the indemnified party's right to indemnification entirely. While this approach provides a bright-line rule and creates strong incentives for prompt notice, it is disfavored in practice because it can produce harsh and inequitable results. Courts in many jurisdictions, including New York, have been reluctant to enforce absolute forfeiture provisions for technical notice failures absent a showing that the indemnifying party was actually prejudiced by the delay. This approach is observed in a minority of comparable agreements and is not recommended.
(ii) Late notice does not relieve the indemnifying party except to the extent of material prejudice. Under this approach — often called the "material prejudice" standard — a failure to provide timely notice does not relieve the indemnifying party of its indemnification obligation except to the extent the indemnifying party can demonstrate that it was materially prejudiced by the delay. This approach is preferred because it preserves the indemnified party's substantive rights while appropriately protecting the indemnifying party against actual harm caused by late notice.
We recommend adopting the material prejudice standard. Under this standard, Penterra's failure to provide timely notice of a claim would not relieve Penterra of its indemnification obligation, except to the extent that Penterra can demonstrate that it was materially prejudiced by the late notice — for example, because the delay prevented Penterra from investigating the claim, preserving critical evidence, or intervening in the defense at a meaningful stage. Conversely, Veridian's failure to provide timely notice of a claim against Penterra would not relieve Veridian of its reciprocal indemnification obligation except to the extent of material prejudice.
This approach is consistent with New York law, which generally disfavors forfeiture of indemnification rights for technical notice failures absent actual prejudice. See, e.g., Commercial Union Ins. Co. v. International Flavors & Fragrances, Inc., 822 F.2d 267 (2d Cir. 1987) (applying New York law and holding that late notice is a defense to indemnification only where the indemnifying party demonstrates actual prejudice).
C. Content of Notice
To ensure that the indemnifying party receives sufficient information to evaluate the claim and mount an appropriate response, the MCTA should specify the content requirements for notices of claims. We recommend that each notice include:
(i) A reasonably detailed description of the claim or threatened claim;
(ii) The factual basis of the claim, including the identity of the subject or claimant, the site where the relevant events occurred, and a description of the study-related injury or other harm alleged;
(iii) An estimated amount of loss, to the extent known or reasonably calculable at the time of the notice; and
(iv) Copies of any relevant documents in the possession of the indemnified party, including complaints, demand letters, regulatory correspondence, adverse event reports, and investigator reports.
Written notice is to be delivered to the designated representatives of each party: for Penterra, to Nathaniel Briggs, Vice President and General Counsel, at the address specified in the MCTA's notice provisions; for Veridian, to Gregory Callahan, Vice President, Legal and Compliance, at the address specified in the MCTA's notice provisions. Notice should be delivered by a method that provides confirmation of receipt (e.g., certified mail, overnight courier, or hand delivery), consistent with the MCTA's general notice provisions.
VIII. DEFENSE AND SETTLEMENT PROCEDURES
A. Control of Defense
The MCTA should include provisions governing the defense of indemnified claims — i.e., the procedures by which claims covered by the indemnification framework are investigated, defended, and resolved. The standard approach, which we recommend, is as follows:
The indemnifying party has the right (but not the obligation) to assume control of the defense of any indemnified claim, using counsel of its choice, upon receipt of notice of such claim. This right to control the defense is important because the indemnifying party — which bears the financial risk of an adverse outcome — has the strongest incentive to mount a vigorous and cost-effective defense. The indemnifying party's choice of defense counsel should not be subject to the indemnified party's approval, although in practice the parties typically cooperate on counsel selection.
If the indemnifying party assumes the defense, the indemnified party retains the right to participate in the defense at its own expense with counsel of its own selection. This right of participation provides the indemnified party with the ability to monitor the defense, protect its interests, and ensure that the indemnifying party is pursuing an appropriate defense strategy. However, the indemnified party's participation is at its own cost, and the indemnifying party retains ultimate control of the defense strategy, including decisions regarding discovery, motions practice, and trial strategy.
If the indemnifying party fails to assume the defense within a reasonable period — typically 30 calendar days after receipt of notice — the indemnified party may assume the defense at the indemnifying party's reasonable expense. This fallback provision ensures that the indemnified party is not left without a defense in the event that the indemnifying party fails to act promptly. The indemnifying party's obligation to reimburse the indemnified party's defense costs in such circumstances is subject to the reasonableness of such costs.
B. Settlement Authority
Settlement of indemnified claims is a sensitive issue that requires balancing the indemnifying party's interest in resolving claims efficiently against the indemnified party's interest in protecting its reputation, regulatory standing, and ongoing operations. We recommend the following provisions:
• The indemnifying party may not settle any claim that (a) imposes any non-monetary obligation or restriction on the indemnified party (e.g., an injunction, a consent decree, or a requirement to change business practices), or (b) does not include a full and unconditional release of all claims against the indemnified party, without the indemnified party's prior written consent, which consent shall not be unreasonably withheld, conditioned, or delayed.
• The indemnified party may not settle any claim without the indemnifying party's prior written consent if such settlement would (a) require a payment by the indemnifying party, (b) result in a finding or admission of liability on the part of the indemnifying party, or (c) otherwise materially prejudice the indemnifying party's rights or interests.
These provisions are standard in clinical trial agreements and commercial indemnification frameworks generally. They ensure that neither party can unilaterally bind the other to unfavorable settlement terms.
C. Cooperation
Each party should be obligated to cooperate fully with the other in the defense of indemnified claims. Cooperation obligations should include:
• Making available to the defending party and its counsel all relevant witnesses, documents, records, and information in the cooperating party's possession or control;
• Executing such documents and taking such actions as may be reasonably necessary to effectuate the defense of the claim; and
• Refraining from taking any action that would compromise or prejudice the defense of the claim.
The costs of cooperation that go beyond routine administrative effort (e.g., travel costs for witnesses, costs of producing voluminous document sets, or expert witness fees) should be borne by the indemnifying party, consistent with the general principle that the indemnifying party bears the costs associated with the defense of indemnified claims.
IX. INTERACTION WITH INSURANCE REQUIREMENTS
A. Sponsor Insurance
Penterra maintains clinical trial liability insurance through Briarcliff Mutual Insurance Company under Policy No. BM-CTL-2023-04182. The key terms of the current policy are as follows:
The MCTA should provide that Veridian and each participating site institution will be named as additional insureds under the Briarcliff policy for the duration of the CLARION trial. Penterra should provide Veridian with a certificate of insurance evidencing the required coverage and additional insured status within 15 business days of MCTA execution, with updated certificates provided annually upon policy renewal.
We anticipate that Veridian's initial position will include a demand for per-occurrence insurance coverage of $50,000,000 or higher. The $25,000,000 per-occurrence limit maintained by Penterra under the Briarcliff policy is at the high end of market standard for clinical trial liability insurance and should be defensible. Our review of comparable agreements shows that per-occurrence limits in the range of $10,000,000 to $25,000,000 are standard for Phase III oncology trials, with limits above $25,000,000 being relatively uncommon. We recommend maintaining the $25,000,000 per-occurrence limit as Penterra's position and resisting any demand to increase this limit, given the significant premium costs associated with higher limits and the fact that the current limit is at or above market standard.
A critical provision to include in the MCTA is that the indemnification obligations are primary and the insurance coverage is a backstop. The MCTA should specify clearly that the existence of insurance does not limit, reduce, or otherwise affect Penterra's indemnification obligations under the MCTA. This ensures that Veridian's right to indemnification is not contingent upon or limited by the availability of insurance proceeds and that the contractual indemnification framework operates independently of the insurance coverage.
B. Site Insurance
The MCTA should require Veridian and each participating site institution to maintain general liability and professional liability insurance coverage at specified minimum levels throughout the term of the trial. Based on market standards and the need to align insurance coverage with the reciprocal indemnification caps, we recommend the following minimum coverage requirements:
• General and professional liability coverage: Not less than $5,000,000 per occurrence / $10,000,000 aggregate.
This coverage level aligns with the $5,000,000 per-site/per-occurrence cap on Veridian's reciprocal indemnification obligations, ensuring that Veridian's indemnification obligation is backstopped by adequate insurance coverage. Evidence of coverage should be provided in the form of certificates of insurance due within 15 business days of MCTA execution, with updated certificates provided annually thereafter.
Sites should be required to notify Penterra promptly of any material change in their insurance coverage, including any reduction in coverage limits, cancellation of coverage, or change of insurer.
C. Coordination of Indemnification and Insurance
The MCTA should include provisions addressing the relationship between the parties' indemnification obligations and their respective insurance coverage. We recommend the following principles:
• Independence of obligations. Indemnification obligations are independent of and in addition to insurance coverage. Neither party's indemnification obligation is limited by or contingent upon the availability of insurance proceeds.
• No excuse for failure to maintain insurance. Neither party's failure to obtain or maintain the required insurance coverage relieves such party of its indemnification obligations under the MCTA.