MEMORANDUM
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and the work product doctrine. It has been prepared by counsel at Calderwood & Harkness LLP in connection with the provision of legal advice to Penterra Pharmaceuticals Corp. and is not intended for distribution to, or reliance by, any third party without the express prior written consent of Calderwood & Harkness LLP.
FROM: Christopher Aiken, Associate, Calderwood & Harkness LLP
TO: Miriam Calloway, Partner, Calderwood & Harkness LLP
DATE: June 30, 2023
RE: Insurance Adequacy Analysis — Penterra Pharmaceuticals Corp. Clinical Trial Liability Coverage Relative to MCTA Subject-Injury Indemnification Obligations (Protocol PPC-4871-III / CLARION Trial)
MATTER NO.: 1018-00004
CC: Sean Morrissey, Associate; Joel Strauss, Partner (Billing Partner)
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I. EXECUTIVE SUMMARY
This memorandum analyzes the adequacy of Penterra Pharmaceuticals Corp.'s ("Penterra" or "Sponsor") clinical trial liability insurance policy issued by Briarcliff Mutual Insurance Company (Policy No. BM-CTL-2023-04182) (the "Briarcliff Policy" or the "Policy") against the subject-injury indemnification obligations and insurance requirements set forth in the executed Master Clinical Trial Agreement (the "MCTA") between Penterra and Veridian Health Research Network, Inc. ("Veridian") dated June 28, 2023. The MCTA governs the conduct of Protocol PPC-4871-III, known as the CLARION trial (Clinical Assessment of Response with Longitudinal Investigation in ONcology), a Phase III study of penterafenib (PPC-4871) in advanced hepatocellular carcinoma.
Conclusion. Based on the analysis set forth herein, the Briarcliff Policy meets the negotiated MCTA insurance requirements in all material respects. The Policy's coverage limits, sublimits, additional insured endorsements, and policy terms align with Penterra's contractual indemnification exposure under the MCTA. The Briarcliff Policy provides per-occurrence coverage of $25,000,000 and aggregate coverage of $75,000,000, which match the thresholds negotiated by the parties and memorialized in Exhibit E to the MCTA. Subject-injury sublimits of $10,000,000 per occurrence and $50,000,000 in the aggregate substantially exceed the corresponding medical care indemnification caps established in Exhibit D. The additional insured endorsement naming Veridian and each of its 38 participating Network sites has been issued and is effective as of the MCTA execution date.
Key Finding. The negotiated MCTA insurance thresholds of $25,000,000 per occurrence and $75,000,000 in the aggregate represent a commercially reasonable position, having been reduced from Veridian's initial demand of $50,000,000 per occurrence during the course of negotiations that extended from late April through early June 2023. Veridian, through its outside counsel Whitmore, Jansen & Callahan LLP, accepted this structure following extensive discussions regarding peer-sponsor benchmarking, the established safety profile of multi-kinase inhibitors, and the additional protection afforded by Penterra's substantial balance sheet. The Briarcliff Policy matches these exact negotiated thresholds.
Certain recommendations for ongoing monitoring and confirmatory actions are identified in Section VI below, including annual policy renewal management, defense cost treatment confirmation, and aggregate limit erosion monitoring. These recommendations are prudential in nature and do not diminish the adequacy conclusion stated above.
II. BACKGROUND
A. The MCTA and the CLARION Trial
Penterra Pharmaceuticals Corp. is the sponsor of Protocol PPC-4871-III, designated by Penterra as the CLARION trial — Clinical Assessment of Response with Longitudinal Investigation in ONcology. CLARION is a Phase III, randomized, double-blind, placebo-controlled clinical trial evaluating penterafenib (PPC-4871), an oral multi-kinase inhibitor targeting VEGFR-2, FGFR1-3, and c-Met, for the treatment of advanced hepatocellular carcinoma ("HCC") in patients who have received at least one prior line of systemic therapy. The trial is being conducted under Penterra's Investigational New Drug Application, IND 157823, filed with the United States Food and Drug Administration, and has been registered on ClinicalTrials.gov under Identifier NCT05928174.
The MCTA governs the relationship between Penterra, as Sponsor, and Veridian Health Research Network, Inc., as Site Network. Veridian is a 501(c)(3) not-for-profit corporation organized under the laws of Delaware, operating a network of 38 academic medical centers and affiliated clinical research sites across 14 states. Veridian serves as the contracting counterparty on behalf of all participating Network sites, each of which will execute individual Site Participation Agreements governed by the terms and conditions of the MCTA.
The total value of the MCTA is approximately $80,000,000, encompassing site fees, per-patient payments (estimated at approximately $45,000 per evaluable subject), investigator grants, laboratory and imaging costs, and operational support costs over the projected 42-month enrollment period. The target date for first patient in ("FPI") is August 14, 2023, and the total estimated study duration, including the 18-month post-enrollment follow-up period, is approximately 60 months, with projected study completion in or around August 2028.
The CLARION trial is designed to enroll 1,200 subjects randomized in a 2:1 ratio, with 800 subjects assigned to the penterafenib treatment arm and 400 subjects assigned to the matched placebo arm. The primary endpoint is overall survival, with secondary endpoints including progression-free survival, objective response rate, and duration of response per RECIST v1.1. Penterra's Phase II data for penterafenib in HCC demonstrated an objective response rate of 38% (95% CI: 29.4%–47.2%) and a manageable safety profile, with the most common treatment-emergent adverse events being hypertension (Grade ≥3: 14%), diarrhea (Grade ≥3: 8%), and hand-foot syndrome (Grade ≥3: 11%).
The MCTA was executed on June 28, 2023. The Closing Date, as defined in the MCTA, is July 5, 2023, by which date certain closing deliverables — including the insurance certificates at issue in this memorandum — must be in process. The Effective Date of the MCTA, at which point substantive performance obligations commence, is July 18, 2023.
The designated lead sites for the CLARION trial are:
• Site 001: Graystone University Medical Center, Philadelphia, Pennsylvania; Principal Investigator: Catherine Aldridge, M.D., Ph.D., Professor of Medicine and Oncology, Division of Gastrointestinal Oncology; and
• Site 002: Lakemont Medical Center, Chicago, Illinois; Co-Principal Investigator: Howard Matsuoka, M.D., Director of Hepatobiliary Oncology and Clinical Research.
These two sites are expected to contribute approximately 15% of total enrollment and will serve as the primary sites for protocol training, biomarker assay validation, and central imaging review coordination.
B. Negotiation History of Insurance Requirements
The insurance requirements of the MCTA were the subject of extensive negotiation between the parties over a period of approximately six weeks. An understanding of this negotiation history provides important context for evaluating the adequacy of the agreed-upon insurance thresholds.
Veridian, through its outside counsel Whitmore, Jansen & Callahan LLP (with Allison Whitmore serving as lead negotiation partner), initially proposed in its April 28, 2023 markup of the draft MCTA that Penterra be required to maintain clinical trial liability insurance with a minimum per-occurrence limit of $50,000,000. This initial demand was accompanied by a proposed aggregate limit of $150,000,000, which Veridian characterized as consistent with its standard requirements for Phase III oncology trials involving patient populations with advanced disease and investigational agents with multi-kinase inhibitor mechanisms of action.
Calderwood & Harkness, negotiating on behalf of Penterra, responded with a counter-proposal reflecting the existing terms of the Briarcliff Policy — specifically, $25,000,000 per occurrence and $75,000,000 in the aggregate. In support of this counter-proposal, Calderwood & Harkness provided a written memorandum to Whitmore, Jansen & Callahan demonstrating that the proposed limits were commercially reasonable and consistent with peer-sponsor benchmarks for similarly situated Phase III oncology clinical trials. The benchmarking data, drawn from publicly available clinical trial agreement templates and Calderwood & Harkness's internal database of negotiated MCTAs, indicated that per-occurrence limits for Phase III oncology trials typically ranged from $15,000,000 to $30,000,000, with the median falling at approximately $20,000,000.
The negotiation proceeded through several intermediate exchanges, including a formal Indemnification Term Sheet dated May 5, 2023, in which both parties set forth their respective positions on indemnification scope, caps, and insurance minimums in a structured, side-by-side format. This term sheet served as the foundation for the substantive in-person negotiation session held on June 9, 2023, at Calderwood & Harkness's Philadelphia office, attended by Miriam Calloway and Christopher Aiken from Calderwood & Harkness, Allison Whitmore and David Chen from Whitmore, Jansen & Callahan, Rebecca Liang (General Counsel, Penterra), and Gregory Callahan (VP, Legal & Compliance, Veridian). During this session, the parties reached agreement on the $25,000,000 per-occurrence / $75,000,000 aggregate insurance structure, with Veridian's acceptance predicated in part on (i) the inclusion of a subject-injury sublimit endorsement providing dedicated coverage for subject medical care costs, (ii) confirmation that the policy was written on an occurrence basis rather than a claims-made basis, and (iii) Penterra's representation that it possessed sufficient balance-sheet resources to self-insure against any indemnification exposure exceeding policy limits.
The agreed insurance requirements were memorialized in Exhibit E to the MCTA (Insurance Requirements and Certificate Forms), which was finalized on June 22, 2023, and incorporated into the execution version of the MCTA dated June 28, 2023.
C. Documents Reviewed
In preparing this memorandum, the undersigned has reviewed the following documents:
1. Briarcliff Mutual Insurance Company, Clinical Trial Liability Insurance Policy No. BM-CTL-2023-04182, including the complete policy jacket consisting of the declarations page, coverage form (Form BM-CTL-2023, Ed. 01/23), all endorsements (including the Subject-Injury Sublimit Endorsement, Endorsement No. BM-CTL-SI-2023-01, and the Additional Insured Endorsement, Endorsement No. BM-CTL-AI-2023-07), the schedule of exclusions, and all supplementary conditions. The policy period is April 1, 2023 through March 31, 2024, renewable annually at the option of the insured and the insurer.
2. The Master Clinical Trial Agreement between Penterra Pharmaceuticals Corp. and Veridian Health Research Network, Inc., execution version dated June 28, 2023, together with all exhibits and schedules thereto.
3. Exhibit D to the MCTA — Subject-Injury Indemnification Provisions (the "Indemnification Exhibit"), setting forth the scope, conditions, limitations, and caps applicable to Penterra's indemnification obligations with respect to subject injuries and related claims.
4. Exhibit E to the MCTA — Insurance Requirements and Certificate Forms, specifying the types and minimum limits of insurance required to be maintained by each party and the form of certificate of insurance to be exchanged.
5. The Indemnification Term Sheet dated May 5, 2023, exchanged between Calderwood & Harkness LLP and Whitmore, Jansen & Callahan LLP during the course of MCTA negotiations.
6. Certificate of Insurance issued by Briarcliff Mutual Insurance Company, dated June 28, 2023, together with the Additional Insured Endorsement (Endorsement No. BM-CTL-AI-2023-07) naming Veridian Health Research Network, Inc. and each of the 38 participating Veridian Network site institutions as additional insureds under the Policy.
7. Correspondence between Calderwood & Harkness LLP and Karen Tremblay, Vice President, Life Sciences Lines, Briarcliff Mutual Insurance Company, including letters dated May 15, 2023, June 2, 2023, and June 26, 2023, regarding the additional insured endorsement request, confirmation of policy terms, and delivery of the certificate of insurance.
In addition to the foregoing, the undersigned has consulted the separate Indemnification Benchmarking Memorandum prepared by Sean Morrissey in connection with this matter, which provides a detailed analysis of peer-sponsor insurance and indemnification benchmarks for Phase III oncology clinical trials.
III. MCTA INSURANCE REQUIREMENTS — DETAILED ANALYSIS
A. Sponsor (Penterra) Insurance Obligations Under the MCTA
The MCTA, through its Exhibit E (Insurance Requirements and Certificate Forms), imposes the following insurance obligations on Penterra as Sponsor:
Minimum Coverage Limits. Penterra is required to procure and maintain, at its own cost and expense, clinical trial liability insurance providing coverage with minimum limits of not less than:
• $25,000,000 per occurrence; and
• $75,000,000 in the aggregate.
These limits represent the final negotiated position of the parties, as described in Section II.B above, and are applicable specifically to claims arising from or related to the conduct of the CLARION trial under Protocol PPC-4871-III.
Additional Insured Requirements. Penterra's clinical trial liability insurance must name the following parties as additional insureds under the policy:
• Veridian Health Research Network, Inc., as the contracting Site Network entity;
• Each participating Veridian Network site institution, as identified in the Site Participation Agreements executed under the MCTA; and
• The respective officers, directors, employees, and agents of Veridian and each participating site institution, to the extent acting within the scope of their responsibilities under the MCTA and the Protocol.
The additional insured status of such parties is required to extend to claims arising from the CLARION trial that are subject to Penterra's indemnification obligations under Exhibit D.
Certificate Delivery Requirements. Penterra is required to deliver to Veridian a certificate of insurance evidencing the required coverage, together with the additional insured endorsement, within fifteen (15) business days of the execution of the MCTA. Given the MCTA execution date of June 28, 2023, this deadline falls on approximately July 19, 2023. Thereafter, Penterra must deliver updated certificates of insurance to Veridian annually upon each renewal of the policy, and must provide at least thirty (30) days' prior written notice of any material change in, cancellation of, or non-renewal of the policy.
Duration of Coverage. Penterra's clinical trial liability insurance must remain in effect throughout the entire duration of the CLARION trial and for a "reasonable tail period" (as defined in Exhibit E, Section 3(d)) following study completion, which tail period is intended to capture latent claims arising from subject injuries or product defects that may not manifest until after the final study visit. Exhibit E does not specify a fixed tail period, instead requiring that the tail period be "not less than the period customarily maintained by sponsors of comparable clinical trials in the pharmaceutical industry." Based on industry practice, a tail period of two to three years following study completion would be standard for a Phase III oncology trial of this nature.
Given the projected study completion date of August 2028, this would require Penterra to maintain coverage (or extended reporting period / tail endorsements) through at least August 2030, and potentially through August 2031.
B. Site/Veridian Insurance Obligations
For purposes of completeness, this memorandum also notes the reciprocal insurance obligations imposed on Veridian and the participating sites under Exhibit E of the MCTA.
Each participating Veridian Network site institution is required to maintain, at its own cost and expense, general liability and professional liability (medical malpractice) insurance with minimum limits of not less than:
• $5,000,000 per occurrence; and
• $10,000,000 in the aggregate.
Evidence of such coverage must be provided to Penterra within fifteen (15) business days of the execution of the MCTA, and annually thereafter upon policy renewal. This obligation runs independently for each of the 38 participating sites, and Veridian has represented in the MCTA that it will cause each site to comply with this requirement as a condition of participation in the CLARION trial.
The adequacy of the site-level insurance coverage is not the principal subject of this memorandum but is noted here for structural completeness. Calderwood & Harkness has sent a formal request letter to Gregory Callahan, Vice President, Legal & Compliance at Veridian, requesting the timely delivery of site insurance certificates for all 38 participating institutions. As of the date of this memorandum, certificates have been received from 12 of the 38 sites, including both lead sites (Graystone University Medical Center and Lakemont Medical Center). We expect the remaining certificates to be delivered prior to the Effective Date.
IV. BRIARCLIFF POLICY ANALYSIS
A. Policy Overview
The Briarcliff Policy is summarized as follows:
Briarcliff Mutual is a well-established specialty insurer with a long track record of underwriting clinical trial liability and life sciences risks. According to publicly available financial information, Briarcliff carries an A.M. Best rating of A (Excellent) with a stable outlook, and its statutory surplus as of the most recent reporting period exceeds $2.8 billion. The firm maintains a dedicated Life Sciences Lines division, headed by Karen Tremblay, which specializes in the underwriting of pharmaceutical, biotech, and medical device clinical trial risks. Calderwood & Harkness has had prior dealings with Briarcliff on multiple matters and considers the carrier to be reliable and responsive.
B. Coverage Limits
The Briarcliff Policy provides the following coverage limits:
Per-Occurrence Limit: $25,000,000. This is the maximum amount payable by Briarcliff under the Policy for all covered losses arising from any single occurrence, as that term is defined in the Policy. This limit matches the MCTA's requirement exactly.
Aggregate Limit: $75,000,000. This is the maximum amount payable by Briarcliff under the Policy for all covered losses during the policy period, regardless of the number of occurrences. This limit matches the MCTA's requirement exactly.
Subject-Injury Sublimit: $10,000,000 per occurrence / $50,000,000 in the aggregate. Pursuant to Endorsement No. BM-CTL-SI-2023-01 (Subject-Injury Sublimit Endorsement), the Policy includes a dedicated sublimit for claims arising specifically from bodily injury, illness, disease, or death suffered by subjects enrolled in clinical trials sponsored by the Named Insured. The subject-injury sublimit is nested within the broader per-occurrence and aggregate limits — that is, amounts paid under the subject-injury sublimit reduce the overall per-occurrence and aggregate limits on a dollar-for-dollar basis. The adequacy of this sublimit relative to the MCTA's indemnification caps is analyzed in detail in Section V below.
C. Scope of Coverage
The Briarcliff Policy is a clinical trial liability insurance policy that provides coverage for the following categories of loss:
(a) Subject Injury. Bodily injury, illness, disease, or death of clinical trial subjects arising from the administration of investigational products in the course of clinical trials conducted under the Named Insured's IND applications filed with the U.S. Food and Drug Administration. Coverage extends to injuries resulting from the investigational product itself when administered in accordance with the applicable clinical trial protocol, as well as injuries arising from protocol-mandated procedures and assessments.
(b) Product-Related Claims. Claims arising from alleged defects in the design, manufacture, formulation, labeling, packaging, storage, or handling of the investigational product, including claims alleging failure to warn of known or reasonably foreseeable risks.
(c) General Clinical Trial Liability. Claims arising from the Named Insured's negligence, errors, or omissions in the design, conduct, monitoring, or oversight of clinical trials, including claims alleging breach of the duty of care owed to trial subjects, improper informed consent procedures attributable to the Sponsor, or failure to comply with applicable regulatory requirements in a manner that causes harm to trial subjects.
The coverage form specifically states that coverage applies to claims "arising from or in connection with" the conduct of clinical trials, which is broadly worded and should encompass the full range of indemnification triggers set forth in Exhibit D of the MCTA.
Defense Costs. The Policy provides for the insurer's obligation to defend the Named Insured and any additional insureds against covered claims. A critical question for adequacy purposes is whether defense costs are payable within the stated limits or in addition to the stated limits. The coverage form (Form BM-CTL-2023, Section IV.C) provides that defense costs, including attorneys' fees, expert witness fees, and litigation expenses, are included within — and therefore erode — the per-occurrence and aggregate limits. This is a significant structural feature: in a complex clinical trial liability case involving extensive discovery, expert testimony, and potentially multi-jurisdictional litigation, defense costs could substantially reduce the amount of coverage available for indemnification payments. This issue is addressed further in Sections V.B.3 and VI below.
D. Additional Insured Endorsement
In response to Calderwood & Harkness's request letters dated May 15, 2023, and June 2, 2023, Briarcliff issued Additional Insured Endorsement No. BM-CTL-AI-2023-07, which names the following as additional insureds under the Policy:
• Veridian Health Research Network, Inc.;
• Each of the 38 participating Veridian Network site institutions, as identified in Schedule A to the Endorsement; and
• The respective officers, directors, employees, agents, investigators, sub-investigators, study coordinators, and other personnel of Veridian and each participating site institution, to the extent acting within the scope of their responsibilities in connection with the CLARION trial.
The Endorsement became effective as of June 28, 2023, coinciding with the execution date of the MCTA. The scope of the additional insured coverage is limited to liability arising from the CLARION trial conducted under Protocol PPC-4871-III; the Endorsement does not extend coverage to additional insureds for claims unrelated to the CLARION trial or for liability arising from the additional insureds' own independent activities.
This additional insured endorsement is consistent with, and satisfies, the requirements of MCTA Exhibit E. The Endorsement was confirmed in writing by Karen Tremblay in her June 26, 2023 correspondence to Calderwood & Harkness.
E. Key Exclusions and Limitations
The Briarcliff Policy contains the following exclusions and limitations that are material to this analysis:
Intentional/Willful Misconduct. The Policy excludes coverage for claims arising from the intentional or willful misconduct of the Named Insured. This is a market-standard exclusion that appears in substantially all clinical trial liability policies. It does not create a gap relative to the MCTA's indemnification structure, because the MCTA's indemnification provisions (Exhibit D, Section 2(d)) separately address Penterra's liability for willful misconduct, and the parties have acknowledged that insurance coverage for intentional wrongdoing would be contrary to public policy in most jurisdictions. Penterra's indemnification obligation for its own willful misconduct would be satisfied from its own balance sheet rather than from insurance proceeds.
Regulatory Non-Compliance. The Policy excludes coverage for claims arising from the Named Insured's knowing and material non-compliance with applicable regulatory requirements, including but not limited to FDA regulations governing the conduct of clinical trials (21 C.F.R. Parts 50, 56, and 312). This exclusion warrants careful attention in the context of the MCTA, because Exhibit D, Section 2(c) provides indemnification for losses arising from Penterra's breach of the MCTA or the Protocol. To the extent that a breach of the Protocol also constitutes a regulatory violation, claims arising from such a breach could potentially fall within this exclusion. However, the exclusion is limited to "knowing and material" non-compliance, which sets a high threshold and would not encompass inadvertent protocol deviations or minor regulatory infractions. We consider this exclusion to be consistent with market practice and to present a low risk of creating a material coverage gap.
Punitive or Exemplary Damages. The Policy excludes coverage for punitive or exemplary damages. This exclusion is standard and reflects the fact that many jurisdictions prohibit the insurance of punitive damages as a matter of public policy. The MCTA's indemnification provisions do not specifically address punitive damages, and the "losses, damages, and liabilities" covered by the indemnity would likely be interpreted to include compensatory damages but not necessarily punitive damages. We do not consider this exclusion to create a meaningful coverage gap.
Professional Liability of Investigators. The Policy does not cover claims arising from the professional liability (i.e., medical malpractice) of investigators, sub-investigators, or other clinical site personnel in their capacity as healthcare providers. This exclusion is appropriate and expected, as such claims fall within the scope of the site-level professional liability insurance required under the MCTA ($5,000,000 per occurrence / $10,000,000 aggregate per site). The MCTA's indemnification structure explicitly carves out losses arising from site negligence or investigator malpractice from Penterra's indemnification obligations (Exhibit D, Section 3).
Known Claims / Prior Acts. The Briarcliff Policy is written on an occurrence basis, meaning that it covers claims arising from events (occurrences) that take place during the policy period, regardless of when the claim is first made or reported. This is a significant advantage over claims-made policies, which cover only claims actually made during the policy period and therefore require extended reporting period (tail) endorsements to address latent claims. The occurrence-basis structure provides Penterra with coverage for any injury-causing event that occurs during the April 1, 2023 through March 31, 2024 policy period, even if the resulting claim is not made until years later.
F. Territory
The Briarcliff Policy provides worldwide coverage for clinical trials conducted under the Named Insured's IND applications, subject to the requirement that any suit, action, or proceeding for which coverage is sought must be brought in the United States or its territories. This territorial scope is fully adequate for the CLARION trial, which will be conducted exclusively at the 38 Veridian Network sites located across 14 states within the United States. The Policy's requirement that suits be brought in the United States is consistent with the MCTA's governing law provision (New York law) and its dispute resolution provisions (which provide for exclusive jurisdiction in the federal and state courts located in the Borough of Manhattan, New York, New York, subject to arbitration provisions for certain categories of disputes).
G. Notice Requirements Under the Policy
The Briarcliff Policy requires the Named Insured and any additional insureds to provide prompt written notice to Briarcliff of any claim, suit, demand, or occurrence that may reasonably be expected to give rise to a claim under the Policy. Notice must be provided to Briarcliff's Claims Department at 55 Constitution Plaza, Hartford, CT 06103, Attention: Clinical Trial Liability Claims Unit. The Policy does not specify a fixed number of days within which notice must be given, instead requiring that notice be given "as soon as practicable" after the insured becomes aware of the claim or occurrence.
This notice requirement should be considered in conjunction with the MCTA's own notice provisions. Under Exhibit D, Section 5 of the MCTA, Veridian or any participating site that becomes aware of an event giving rise to an indemnification claim against Penterra must provide written notice to Penterra within thirty (30) calendar days of becoming aware of such event. Upon receipt of such notice, Penterra will need to assess whether the underlying event constitutes a claim or potential claim under the Briarcliff Policy and, if so, promptly cascade that notice to Briarcliff's Claims Department.
It is critical that Penterra establish an internal notice-cascading protocol to ensure that no material delay occurs between receipt of a site indemnification notice and transmission of the corresponding notice to Briarcliff. Failure to provide prompt notice to Briarcliff could jeopardize coverage under the Policy, depending on the circumstances and the applicable law governing the late-notice defense. This recommendation is addressed further in Section VI below.
V. ADEQUACY OF COVERAGE RELATIVE TO MCTA INDEMNIFICATION OBLIGATIONS
A. Sponsor Indemnification Obligations Under the MCTA (Exhibit D)
Exhibit D to the MCTA sets forth Penterra's subject-injury indemnification obligations. Under Exhibit D, Section 2, Penterra agrees to indemnify, defend, and hold harmless Veridian, each participating Veridian Network site institution, each principal investigator, each sub-investigator, and each member of the site staff (collectively, the "Site Indemnitees") against any and all claims, losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees and costs of litigation) to the extent arising from:
(a) Bodily injury, illness, disease, or death suffered by a trial subject caused by or attributable to PPC-4871 (penterafenib) when administered in accordance with the Protocol and applicable regulatory requirements;
(b) Any defect in the design, manufacture, formulation, labeling, packaging, storage, handling, or distribution of the investigational product (PPC-4871) or any comparator, placebo, or ancillary product supplied by Penterra for use in the CLARION trial;
(c) Penterra's material breach of its obligations under the MCTA, the Protocol, or applicable regulatory requirements, to the extent such breach causes harm to trial subjects or results in liability to the Site Indemnitees; and
(d) The negligence or willful misconduct of Penterra or its employees, agents, contractors, or representatives (including, without limitation, Penterra's contract research organization(s)) in connection with the conduct, monitoring, or oversight of the CLARION trial.
Carve-Outs from Indemnification. Penterra's indemnification obligation does not apply to the extent that any claim, loss, damage, liability, cost, or expense arises from:
(i) The negligence or willful misconduct of any Site Indemnitee, including but not limited to medical malpractice, failure to obtain proper informed consent, or failure to adhere to institutional standards of care;
(ii) Unauthorized deviations from the Protocol by any Site Indemnitee that are not necessitated by considerations of subject safety, as determined by the principal investigator in consultation with the Sponsor's medical monitor; or
(iii) Any Site Indemnitee's breach of the MCTA, the Site Participation Agreement, or applicable law or regulation.
Subject Medical Care Caps. Exhibit D, Section 4 establishes the following caps on Penterra's obligation to pay for the medical care costs of subjects who experience trial-related injuries:
• Per-Subject Cap: $500,000 per individual trial subject, covering reasonable and necessary medical care costs directly attributable to the trial-related injury; and
• Aggregate Cap: $15,000,000 in the aggregate across all trial subjects and all participating sites for all medical care costs arising from trial-related injuries during the course of the CLARION trial.
Product-Defect Claims. Significantly, Exhibit D, Section 4(c) provides that Penterra's indemnification obligations with respect to claims arising from product defects (as described in subsection (b) above) are uncapped — that is, they are not subject to the per-subject or aggregate medical care caps. This reflects the allocation of risk negotiated by the parties, under which Penterra bears full responsibility for losses attributable to defects in its investigational product without any contractual limitation on the amount of such liability.
B. Mapping Policy Coverage to Indemnification Exposure
The following analysis maps the Briarcliff Policy's coverage terms to each category of indemnification exposure under the MCTA, assessing the adequacy of coverage for each.
1. Subject-Injury Sublimit vs. Medical Care Caps
The most direct point of comparison for purposes of adequacy analysis is the relationship between the Briarcliff Policy's subject-injury sublimit and the MCTA's medical care indemnification caps.
Per-Occurrence Analysis. The Briarcliff Policy's subject-injury sublimit of $10,000,000 per occurrence substantially exceeds the MCTA's per-subject medical care cap of $500,000. In a single-subject injury scenario — for example, a serious adverse event experienced by one trial subject — the Policy would provide coverage of up to $10,000,000, which is twenty times the per-subject indemnification cap. Even in a mass-event scenario, such as a single batch-related adverse event affecting multiple subjects simultaneously, the $10,000,000 per-occurrence sublimit would be sufficient to cover up to 20 subjects at the maximum per-subject cap of $500,000. While a mass-event scenario involving more than 20 subjects is theoretically possible, such a scenario would be extraordinary in the context of a randomized, placebo-controlled trial with well-established safety monitoring procedures and would likely trigger the broader per-occurrence limit of $25,000,000 (applicable to all clinical trial liability claims, not limited to subject injuries) rather than being constrained solely to the subject-injury sublimit.
Aggregate Analysis. The Briarcliff Policy's aggregate subject-injury sublimit of $50,000,000 provides more than 3.3 times the headroom relative to the MCTA's aggregate medical care cap of $15,000,000. Even accounting for the possibility of multiple unrelated subject-injury events over the course of a 60-month trial, the $50,000,000 aggregate sublimit provides a substantial buffer. To exhaust the aggregate sublimit while remaining within the MCTA's medical care cap framework, the trial would need to experience aggregate subject-injury claims totaling $50,000,000 — a scenario that would require more than 100 subjects to reach their individual $500,000 cap. Given the 1,200-subject enrollment (800 on active drug), this would represent a catastrophic safety signal affecting more than 12% of the treated population, which would almost certainly trigger a study halt by the Data Safety Monitoring Board well before such an aggregate threshold was reached.
Conclusion. The subject-injury sublimits under the Briarcliff Policy are adequate relative to the MCTA's capped medical care indemnification obligations. The per-occurrence sublimit provides a 20:1 cushion over the per-subject cap, and the aggregate sublimit provides a 3.3:1 cushion over the aggregate medical care cap.
2. Product-Defect Claims (Uncapped Indemnification)
The MCTA provides uncapped indemnification for claims arising from product defects in PPC-4871. This is the area of greatest potential exposure for both Penterra and, correspondingly, for the Briarcliff Policy, because there is no contractual ceiling on the amount of damages for which Penterra could be liable if a product defect were established.
The Briarcliff Policy's per-occurrence limit of $25,000,000 and aggregate limit of $75,000,000 provide the outer boundary of insured coverage for product-defect claims. Beyond these limits, Penterra would be required to satisfy any remaining indemnification obligations from its own financial resources.
Risk Assessment. In a Phase III oncology trial with 1,200 enrolled subjects, 800 of whom will receive active drug, the theoretical maximum exposure for a catastrophic product-defect scenario — such as a contaminated batch affecting a substantial portion of the treated population, or the discovery of an undisclosed and severe toxicity — could conceivably exceed the Policy's per-occurrence and aggregate limits. A class-wide product-defect claim involving hundreds of subjects with serious injuries, coupled with significant compensatory and potentially punitive damage claims, could generate exposure in excess of $100,000,000 in a worst-case scenario.
However, this theoretical maximum exposure must be assessed in light of several significant mitigating factors:
(a) Established Safety Profile. Penterafenib is an oral multi-kinase inhibitor belonging to a pharmacological class with a well-characterized safety profile, based on extensive clinical experience with similar compounds. Penterra's Phase II data demonstrated a manageable adverse event profile, with the most common Grade ≥3 events being hypertension (14%), diarrhea (8%), and hand-foot syndrome (11%). These are known class effects that are generally manageable with dose modifications and supportive care. The Phase II safety database did not identify any novel or unexpected serious safety signals.
(b) Randomized, Placebo-Controlled Design. The double-blind, placebo-controlled design of the CLARION trial provides a robust mechanism for distinguishing drug-related adverse events from events attributable to the underlying disease (advanced HCC) or other causes. This design feature substantially reduces the risk of attributing non-drug-related injuries to penterafenib and correspondingly reduces the exposure to meritorious product-defect claims.
(c) Independent Safety Monitoring. The CLARION trial will be overseen by an independent Data Safety Monitoring Board ("DSMB") that will conduct periodic unblinded reviews of safety data and has the authority to recommend trial modification, suspension, or termination in the event of an unacceptable safety signal. This real-time safety surveillance substantially reduces the risk of a large-scale product-defect event going undetected.
(d) CRO Safety Surveillance. Penterra has engaged Meridian Clinical Research Organization as its CRO for the CLARION trial. Meridian will provide real-time safety data management, adverse event monitoring, and signal detection services, which serve as an additional layer of safety oversight beyond the DSMB.
(e) Penterra's Financial Capacity. Penterra is a well-capitalized pharmaceutical company with substantial financial resources that provide a balance-sheet backstop beyond the Policy's insurance limits. As of the most recent quarterly filing (Q1 2023), Penterra reported cash, cash equivalents, and short-term investments of approximately $890 million. Penterra's fiscal year 2022 revenue was $1.87 billion, and the company has no material long-term debt. In the event that a product-defect claim were to exceed the Briarcliff Policy limits, Penterra has the financial capacity to satisfy its uncapped indemnification obligations from its own resources.
Conclusion. The Briarcliff Policy limits of $25,000,000 per occurrence and $75,000,000 in the aggregate are commercially reasonable for a Phase III oncology clinical trial of this size, type, and risk profile. While the uncapped nature of the MCTA's product-defect indemnification creates a theoretical possibility of exposure exceeding policy limits, the mitigating factors described above — including the established safety profile, the randomized placebo-controlled design, independent safety monitoring, and Penterra's substantial balance sheet — collectively reduce this risk to a commercially acceptable level. The uncapped indemnification exposure is effectively partially self-insured through Penterra's balance sheet, which the undersigned considers to be a reasonable allocation of risk given Penterra's financial strength.
3. Defense Costs
As noted in Section IV.C above, the Briarcliff Policy provides that defense costs are included within — and therefore erode — the per-occurrence and aggregate limits. This means that if Penterra or an additional insured incurs substantial litigation defense costs in connection with a covered claim, those costs will reduce the amount of coverage available for the underlying indemnification payments.
The significance of this feature depends on the nature and complexity of any claims that may arise. In a straightforward single-subject injury claim, defense costs are unlikely to be material relative to the $25,000,000 per-occurrence limit. However, in a complex, multi-plaintiff product-defect case involving extensive discovery, multiple expert witnesses, and protracted litigation across multiple jurisdictions, defense costs could reach several million dollars or more, meaningfully reducing the effective coverage available for indemnification.
Recommendation. Calderwood & Harkness should confirm with Karen Tremblay at Briarcliff whether any supplemental defense-cost coverage is available, either as an endorsement to the existing Policy or as a separate defense-cost-only policy. If defense costs are expected to be material in the context of a particular claim, Penterra should consider whether to seek increased policy limits upon renewal to provide additional headroom. At a minimum, the defense-cost-within-limits structure should be communicated to Penterra's internal legal team (specifically, Rebecca Liang, General Counsel) so that they are aware of this feature when evaluating the total coverage available for any given claim.
4. Breach/Negligence Claims
The MCTA provides indemnification for losses arising from Penterra's breach of the MCTA or Protocol (Exhibit D, Section 2(c)) and from Penterra's negligence or willful misconduct (Exhibit D, Section 2(d)). Claims arising from breach or negligence would fall within the Briarcliff Policy's general clinical trial liability coverage, subject to the per-occurrence limit of $25,000,000 and the aggregate limit of $75,000,000.
This category of coverage is adequate for the following reasons. First, breach-of-contract claims in the clinical trial context typically involve allegations of failure to provide adequate safety monitoring, failure to disclose material safety information, or failure to adhere to the Protocol, all of which are covered under the Policy's general clinical trial liability coverage form. Second, negligence claims would be evaluated under the same coverage framework, with the additional protection of the carve-outs in Exhibit D that exclude losses attributable to site negligence from Penterra's indemnification obligations. Third, the Policy's willful misconduct exclusion would not apply to ordinary negligence claims, preserving coverage for the most likely category of breach/negligence exposure.
We assess no material gap in coverage for breach/negligence-based indemnification claims.
C. Reciprocal Site Indemnity and Potential Offset
The MCTA establishes a reciprocal indemnification structure under which Veridian and the participating sites indemnify Penterra for losses arising from certain categories of site-attributable conduct. Under Exhibit D, Section 6, the Site Indemnitees collectively indemnify Penterra against claims, losses, damages, liabilities, and expenses arising from:
(a) The negligence or willful misconduct of any Site Indemnitee or its employees, agents, or contractors;
(b) Unauthorized deviations from the Protocol by any Site Indemnitee that are not necessitated by considerations of subject safety; and
(c) Any Site Indemnitee's material breach of the MCTA, the applicable Site Participation Agreement, or applicable law or regulation.
The reciprocal site indemnity is subject to the following caps:
• $5,000,000 per site per occurrence; and
• $20,000,000 in the aggregate across all participating sites.
Veridian and the sites are required to maintain insurance with limits of $5,000,000 per occurrence / $10,000,000 aggregate, as described in Section III.B above, which provides a funded source for the site-side indemnity obligations.
In any claim involving shared liability — for example, a situation in which both a product-related issue (covered by Penterra's indemnity and the Briarcliff Policy) and site negligence (covered by the site-side indemnity and the site's own insurance) contribute to a subject's injury — coordination between Penterra's Briarcliff Policy and the site's own insurance coverage will be necessary. The Briarcliff Policy's "other insurance" clause provides that the Policy is primary with respect to claims arising from the investigational product and excess with respect to claims attributable to the negligence or misconduct of additional insureds. This is consistent with the indemnification allocation in the MCTA and should not create cross-coverage disputes.
Conclusion. No material gap has been identified in the cross-indemnification and insurance structure. The reciprocal indemnification obligations are appropriately matched to the insurance requirements imposed on each party, and the "other insurance" provisions in the Briarcliff Policy are consistent with the MCTA's allocation of risk.
D. Multi-Year Coverage Considerations
The CLARION trial is projected to last approximately 60 months, from first patient enrollment (targeted for August 14, 2023) through study completion (projected for August 2028). The Briarcliff Policy, however, has a one-year policy period running from April 1, 2023 through March 31, 2024, and is renewable annually at the mutual agreement of the insured and the insurer.
The MCTA requires Penterra to maintain clinical trial liability insurance coverage throughout the entire duration of the CLARION trial and for a reasonable tail period thereafter. This means that Penterra must successfully renew the Briarcliff Policy (or secure equivalent replacement coverage from another carrier) for approximately five consecutive policy years, with the final renewal covering the period through at least March 31, 2029, and potentially requiring a tail endorsement extending through 2030 or 2031.
Risk Assessment. Annual renewal introduces the risk that Briarcliff could decline to renew the Policy, increase premiums to unaffordable levels, narrow coverage terms, reduce limits, or impose additional exclusions that would render the Policy non-compliant with the MCTA's requirements. While such developments are not anticipated given Penterra's established relationship with Briarcliff and the current state of the clinical trial liability insurance market, they represent a material ongoing risk that must be monitored throughout the duration of the trial.
Recommendation. Penterra should explore the possibility of negotiating a multi-year renewal commitment or framework agreement with Briarcliff that would provide assurances of continued coverage at commercially reasonable terms for the duration of the CLARION trial. In the alternative, Penterra should consider negotiating a provision in the Policy that guarantees a minimum extended reporting period (tail) upon non-renewal, so that claims arising from occurrences during any given policy period can still be reported even if the Policy is not renewed. At a minimum, the MCTA requires annual delivery of renewed certificates of insurance to Veridian, and Penterra's internal legal and compliance teams should calendar each renewal date to ensure timely action.
E. Adequacy Relative to Veridian's Initial Demand
As discussed in Section II.B above, Veridian initially demanded per-occurrence coverage of $50,000,000, which was ultimately negotiated down to $25,000,000 per occurrence / $75,000,000 in the aggregate.
The negotiated position is adequate for the following additional reasons:
First, the $25,000,000 per-occurrence limit is consistent with peer-sponsor benchmarks for Phase III oncology clinical trials, as documented in the separate Indemnification Benchmarking Memorandum. The median per-occurrence limit for comparable trials in Calderwood & Harkness's database is approximately $20,000,000, placing Penterra's coverage above the industry median.
Second, the $75,000,000 aggregate limit provides a 3:1 aggregate-to-per-occurrence ratio, which is equal to or better than the ratio typically seen in clinical trial liability policies. This aggregate structure effectively provides more total coverage capacity than a policy with a higher per-occurrence limit but a lower aggregate multiple. For example, a $50,000,000 per-occurrence policy with a 2:1 aggregate ratio would provide only $100,000,000 in aggregate coverage — only modestly more than the $75,000,000 aggregate under the Briarcliff Policy.
Third, Veridian's acceptance of the $25,000,000/$75,000,000 structure, together with the other negotiated protections (subject-injury sublimits, occurrence-basis coverage, additional insured endorsement, and Penterra's balance-sheet representation), was the product of arms'-length negotiation between sophisticated parties represented by experienced counsel. Veridian's agreement was memorialized in the June 9, 2023 in-person negotiation session and subsequently reflected in the execution version of Exhibit E.
We consider the negotiated insurance structure to be commercially reasonable and adequate for the CLARION trial.
VI. GAPS AND RECOMMENDATIONS
A. Identified Gaps or Areas of Concern
Based on the foregoing analysis, the undersigned has identified the following gaps or areas of concern that, while not rising to the level of material inadequacy, warrant ongoing attention and, in certain cases, affirmative action by Penterra.
1. Annual Renewal Risk. The Briarcliff Policy must be renewed annually through at least August 2028 (projected study completion), and potentially through 2030 or 2031 to cover the tail period. Penterra should calendar each renewal date — the next renewal date being March 31, 2024 — and initiate the renewal process no later than 90 days prior to expiration of each policy period. Failure to maintain continuous clinical trial liability insurance coverage meeting the MCTA's minimum requirements would constitute a material breach of the MCTA and would entitle Veridian to exercise remedies under Section 14.2 of the MCTA, which include the right to suspend enrollment at all participating sites and, following a 60-day cure period, to terminate the MCTA for cause. The financial and operational consequences of such a termination — including the loss of the $80,000,000 MCTA and the disruption of a 1,200-subject Phase III trial — would be severe.
2. Defense Cost Erosion. As noted in Sections IV.C and V.B.3 above, the Briarcliff Policy treats defense costs as within the stated per-occurrence and aggregate limits. In a complex, multi-party litigation scenario, defense costs could erode available coverage by several million dollars. Calderwood & Harkness should promptly seek written confirmation from Karen Tremblay at Briarcliff regarding the precise treatment of defense costs and, if confirmed that defense costs are within limits, evaluate whether supplemental defense-cost coverage or increased limits are advisable. This analysis should be conducted prior to the first policy renewal.
3. Tail Coverage. Upon completion of the CLARION trial (projected August 2028), latent claims arising from delayed adverse events, long-term toxicity, or previously undetected safety signals from PPC-4871 could arise months or even years after the final study visit. While the occurrence-basis structure of the Briarcliff Policy provides significant protection (since coverage attaches based on when the injury-causing event occurred, not when the claim is made), Penterra should nonetheless ensure that the final policy period provides adequate coverage for the tail period or, alternatively, negotiate an extended reporting period endorsement with Briarcliff. This is particularly important for an oncology trial, where long-term sequelae of treatment (including secondary malignancies, organ toxicity, and cardiovascular events) may not manifest for several years after exposure to the investigational product.
4. Aggregate Limit Erosion Across Multiple Trials. The declarations page of the Briarcliff Policy identifies Penterra Pharmaceuticals Corp. as the Named Insured and does not limit coverage to the CLARION trial alone. This raises the possibility that the $75,000,000 aggregate limit is shared across Penterra's entire clinical trial portfolio — which, based on publicly available information, includes at least four other active clinical trials in various stages of development. If claims arising from other Penterra-sponsored trials consume a portion of the aggregate limit, the coverage available for CLARION-related claims could be reduced. Given the $80,000,000 deal value and 1,200-subject enrollment of the CLARION trial, Penterra should confirm with Briarcliff whether the $75,000,000 aggregate is dedicated solely to the CLARION trial or is shared across all of Penterra's clinical programs. If the aggregate is shared, Penterra should consider requesting a dedicated aggregate endorsement for the CLARION trial to preserve the full $75,000,000 in coverage capacity.
B. Recommended Actions
Based on the foregoing analysis, the undersigned recommends the following actions:
1. Defense Cost Confirmation. Request written confirmation from Karen Tremblay, Vice President, Life Sciences Lines, Briarcliff Mutual Insurance Company, regarding the treatment of defense costs under Policy No. BM-CTL-2023-04182 — specifically, whether defense costs are included within the stated per-occurrence and aggregate limits (as the Policy appears to provide) or are payable in addition to such limits. If defense costs are confirmed to be within limits, evaluate the advisability of supplemental defense-cost coverage.
2. Aggregate Limit Status. Request written confirmation from Karen Tremblay that the $75,000,000 aggregate limit under the Briarcliff Policy has not been materially eroded by pending or paid claims arising from other Penterra-sponsored clinical trials. If the aggregate is shared across Penterra's portfolio, discuss the feasibility and cost of a dedicated aggregate endorsement for the CLARION trial.
3. Multi-Year Renewal Framework. Initiate discussions with Briarcliff regarding a multi-year renewal commitment or framework agreement that would provide Penterra with assurances of continued coverage at commercially reasonable terms for the projected duration of the CLARION trial (through at least August 2028, plus a tail period of two to three years). If a formal multi-year commitment is not available, request confirmation that Briarcliff will provide at least 90 days' advance notice of its intent not to renew or to materially modify the Policy terms.
4. Internal Notice-Cascading Protocol. Ensure that Penterra's internal legal team (Rebecca Liang, General Counsel), clinical operations team (Samantha Novak, VP, Clinical Operations), and regulatory affairs team (Jennifer Holt, VP, Regulatory Affairs) establish and maintain a written notice-cascading protocol that provides for the prompt relay of any site indemnification notice received under the MCTA to Briarcliff's Claims Department within the Policy's "as soon as practicable" notice requirements. The protocol should designate specific individuals responsible for receiving, evaluating, and forwarding indemnification notices and should include escalation procedures for time-sensitive situations.
5. Certificate Exchange Calendar. Calendar the fifteen (15) business day certificate exchange deadline under Exhibit E of the MCTA (approximately July 19, 2023 for the initial certificates), as well as the annual certificate renewal obligations that will arise upon each renewal of the Briarcliff Policy. Ensure that renewed certificates of insurance, together with updated additional insured endorsements reflecting any changes to the list of participating sites, are delivered to Veridian within the required timeframe following each renewal.
VII. OPINION
Based on the analysis set forth in this memorandum, and subject to the qualifications and recommendations stated herein, it is the opinion of undersigned counsel that the Briarcliff Mutual Insurance Company clinical trial liability insurance policy, Policy No. BM-CTL-2023-04182, meets the insurance requirements set forth in the MCTA between Penterra Pharmaceuticals Corp. and Veridian Health Research Network, Inc. (as reflected in Exhibit E to the MCTA) in all material respects.
Specifically:
(a) The per-occurrence limit of $25,000,000 and aggregate limit of $75,000,000 match the minimum coverage thresholds set forth in Exhibit E and provide commercially adequate coverage relative to Penterra's indemnification obligations under Exhibit D.
(b) The subject-injury sublimits of $10,000,000 per occurrence and $50,000,000 in the aggregate provide substantial headroom over the MCTA's capped medical care indemnification obligations, including the per-subject medical care cap of $500,000 and the aggregate medical care cap of $15,000,000.
(c) With respect to uncapped product-defect indemnification, the Policy's per-occurrence and aggregate limits, considered together with Penterra's substantial balance-sheet resources (Q1 2023 cash and equivalents of approximately $890 million; FY2022 revenue of $1.87 billion), provide commercially reasonable coverage for a Phase III oncology trial of this size and risk profile.
(d) The Additional Insured Endorsement (Endorsement No. BM-CTL-AI-2023-07), naming Veridian Health Research Network, Inc. and each of the 38 participating Veridian Network site institutions as additional insureds, satisfies the MCTA's additional insured requirements.
(e) The occurrence-basis coverage form, worldwide territorial scope, and general coverage terms of the Policy are consistent with the requirements of Exhibit E and provide appropriate coverage for the CLARION trial.
This opinion is subject to the recommendations set forth in Section VI above, particularly with respect to (i) annual policy renewal and the maintenance of continuous coverage through projected study completion and the applicable tail period, (ii) confirmation of the treatment of defense costs under the Policy, and (iii) monitoring of aggregate limit erosion across Penterra's clinical trial portfolio.
Limitations. This memorandum does not constitute a formal insurance coverage opinion or an actuarial assessment of Penterra's total risk exposure in connection with the CLARION trial. It is limited to an analysis of the contractual adequacy of the Briarcliff Policy relative to the specific insurance requirements set forth in the MCTA and the indemnification obligations established in Exhibit D. This memorand