David,
Thank you for taking the time to speak with me earlier today to walk through Veridian's initial reactions to the indemnification term sheet that Penterra circulated on May 5. It was a productive conversation, and I appreciate the candor with which you and your team have engaged on these issues. Per our discussion, I am writing to memorialize Penterra's positions on the four specific points you raised and to provide some additional context that I hope will assist both sides in moving toward resolution. As you know, these indemnification provisions are being negotiated in the context of the broader Master Clinical Trial Agreement for Protocol PPC-4871-III (the CLARION trial) — Penterra's Phase III, randomized, double-blind, placebo-controlled study of penterafenib (PPC-4871) in advanced hepatocellular carcinoma.
I have organized Penterra's responses by issue below.
**1. Per-Subject Medical Care Cap of $500,000**
We understand Veridian's concern that the $500,000 per-subject cap on reasonable and customary medical costs for treatment of study-related injuries may be insufficient given the severity of adverse events possible in an advanced HCC patient population. This is a fair point to raise, and I want to make sure the structure of the cap is clearly understood.
The $500,000 per-subject cap applies solely to medical care costs for study-related injuries that are not covered by the subject's own insurance. It is not a cap on Penterra's indemnification obligation generally. This distinction is important: as discussed below under Issue 3, Penterra's indemnification for claims arising from product defects is uncapped and operates independently of the per-subject medical care cap.
The $500,000 figure is consistent with industry benchmarks for Phase III oncology trials and reflects a reasonable and customary standard that we have seen across comparable sponsor-site arrangements. While Penterra is open to discussing whether the per-subject cap should be subject to an annual adjustment mechanism (e.g., tied to CPI or a medical cost index), we are not in a position to eliminate the cap entirely, as Veridian initially proposed in its markup requesting uncapped subject-injury indemnification. We believe the layered structure — a per-subject medical care cap sitting alongside uncapped product-defect coverage — provides robust and commercially reasonable protection for the sites and investigators.
**2. Aggregate Cap of $15,000,000 for Subject-Injury Medical Care Costs**
We have considered Veridian's position that the $15,000,000 aggregate cap across all sites is too low given the planned enrollment of approximately 1,200 subjects across 38 Veridian Network sites in 14 states. I want to provide some context on how this figure was derived.
The aggregate cap was calibrated against the subject-injury sublimit under Penterra's clinical trial liability insurance policy with Briarcliff Mutual Insurance Company (Policy No. BM-CTL-2023-04182), which provides a subject-injury sublimit of $10,000,000 per occurrence and $50,000,000 in the aggregate. The $15,000,000 aggregate contractual cap for medical care costs is a direct Penterra obligation, sitting alongside — and not as a substitute for — the broader insurance coverage available under that policy.
It is also worth noting that given the 2:1 randomization ratio (800 treatment : 400 placebo), the statistical likelihood of the aggregate cap being exhausted is low based on the Phase II safety data for penterafenib, which demonstrated a manageable safety profile. Of course, we recognize that past results are not guarantees, and this is precisely why the uncapped product-defect indemnification provides an additional layer of protection for serious contingencies.
Penterra is willing to discuss a modest increase to the aggregate cap, and we would welcome a specific counterproposal from Veridian on this point. That said, I want to be transparent that uncapped aggregate exposure for subject-injury medical care costs is not feasible from a corporate governance and financial planning standpoint, and our client's board-level approvals for this trial were premised on a defined aggregate cap structure.
**3. Scope of Uncapped Product-Defect Indemnification**
You asked on our call for clarification on the precise scope of Penterra's uncapped indemnification for product-defect claims, and I am happy to provide that here.
Under the term sheet, Penterra's indemnification of Veridian, each participating site institution, each principal investigator, sub-investigators, and site staff is uncapped with respect to claims arising from any defect in the investigational product (PPC-4871). This encompasses manufacturing defects, contamination, mislabeling, and inherent design defects in the compound itself. Unlike the capped medical-care obligation discussed in Issues 1 and 2, the uncapped product-defect indemnification covers all claims, losses, damages, liabilities, and expenses — including reasonable attorneys' fees — and is not limited to medical care costs.
The standard carve-outs apply. Specifically, the uncapped product-defect indemnification does not extend to losses arising from: (i) negligence or willful misconduct of the site, investigator, or site personnel; (ii) protocol deviations not authorized by Penterra and not required for subject safety; or (iii) the site's or Veridian's breach of the MCTA or applicable law. These carve-outs are customary and, we believe, uncontroversial.
I would note that this uncapped product-defect provision is broader than what we see in many peer sponsor arrangements and reflects Penterra's strong commitment to site and investigator protection in connection with the CLARION trial. In addition, Penterra also indemnifies — subject to the per-subject and aggregate medical care caps — for subject injury caused by the investigational product when administered in accordance with the Protocol and for Penterra's own breach, negligence, or willful misconduct. Taken together, these provisions provide a comprehensive indemnification framework for the sites.
**4. 30-Day Notice Requirement for Indemnification Claims**
We understand Veridian's concern that the 30 calendar day notice period for indemnified parties to provide written notice of a claim may be challenging for academic medical center sites with multi-layered internal reporting and compliance structures. I want to flag two features of the term sheet that I believe substantially address this concern.
First, the term sheet already includes a savings clause providing that failure to deliver timely notice does not relieve Penterra of its indemnification obligation except to the extent Penterra is materially prejudiced by the delay. The "material prejudice" standard provides substantial protection to the sites — late notice alone does not forfeit indemnification rights, and the burden of demonstrating material prejudice would rest with Penterra.
Second, as a practical matter, the serious adverse event reporting obligations in the Protocol require sites to report SAEs within 24 hours of awareness to both Penterra and Meridian CRO. In the ordinary course, this SAE reporting will put Penterra on notice of potential claims well before the 30-day contractual notice period runs, which significantly reduces the risk of a situation in which late notice would be outcome-determinative.
Penterra views 30 days as reasonable and consistent with market practice for clinical trial indemnification provisions. That said, we are open to hearing a specific counterproposal from Veridian if you believe a different period is warranted — for example, if Veridian can identify specific institutional processes that would make a modestly longer period necessary.
**5. Reciprocal Site/Veridian Indemnification (Brief Note)**
I also want to flag that the term sheet proposes reciprocal indemnification by Veridian and each participating institution of Penterra for claims arising from site negligence or willful misconduct, unauthorized protocol deviations, and site or Veridian breach of the MCTA. The proposed caps of $5,000,000 per site per occurrence and $20,000,000 in the aggregate across all Veridian sites are, in our view, reasonable and proportionate to the respective risk allocations between sponsor and site network. We invite Veridian's comments on these reciprocal provisions as part of the next round of discussion.
* * *
I hope the foregoing clarifications are helpful and will facilitate Veridian's and WJC's further review of the term sheet. I would suggest that we schedule a call later this week — Thursday or Friday would work well on our end — with Miriam and Allison to discuss these points in greater detail and to address any other open items from the initial markup. Our goal would be to incorporate agreed positions into the Second Draft MCTA as efficiently as possible.
On the Penterra side, Jennifer Holt (VP, Clinical Operations) and Rebecca Liang (Associate General Counsel, Clinical Affairs) are also available to address any operational or practical questions about the indemnification framework and how it interacts with site-level budgets and insurance requirements. Please do not hesitate to loop them in as needed.
Finally, I want to be mindful of the broader timeline: Penterra is targeting circulation of the Second Draft MCTA by mid-to-late May to keep the agreement on track for execution ahead of the target first-patient-in date of August 14, 2023. We appreciate your team's partnership in working toward that goal.
Please let me know your availability for a call later this week, and feel free to reach out in the interim with any questions.
Best regards,
Sean Morrissey Associate, Healthcare & Life Sciences Practice Group Calderwood & Harkness LLP 280 Park Avenue, 34th Floor New York, NY 10017 T: (212) 554-7318 E: smorrissey@calderwoodharkness.com
Matter No. 1018-00004
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