PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION / ATTORNEY WORK PRODUCT
CALDERWOOD & HARKNESS LLP 1185 Avenue of the Americas, 42nd Floor New York, New York 10036
April 5, 2023
MEMORANDUM
TO: Miriam Calloway, Partner, Calderwood & Harkness LLP Rebecca Liang, Esq., Associate General Counsel, Clinical Affairs, Penterra Pharmaceuticals Corp.
FROM: Sean Morrissey, Associate, Calderwood & Harkness LLP
RE: Anti-Kickback Statute Compliance Analysis — Payment Structure and Investigator Compensation Under the Master Clinical Trial Agreement Between Penterra Pharmaceuticals Corp. and Veridian Health Research Network, Inc. for Protocol PPC-4871-III (CLARION)
MATTER NO.: 1018-00004
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product. It was prepared at the direction of counsel in anticipation of legal advice and, where applicable, litigation. It is intended solely for the use of the addressees and should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP. Unauthorized disclosure may result in waiver of the attorney-client privilege and work product protection.
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I. Executive Summary
This memorandum evaluates whether the payment structure and investigator compensation contemplated under the proposed Master Clinical Trial Agreement ("MCTA") between Penterra Pharmaceuticals Corp. ("Penterra" or the "Sponsor") and Veridian Health Research Network, Inc. ("Veridian" or "VHRN") for the Phase III CLARION trial (Protocol PPC-4871-III) comply with the federal Anti-Kickback Statute ("AKS"), 42 U.S.C. § 1320a-7b(b), and associated regulatory safe harbors. This analysis is prepared in advance of the first draft MCTA, which is scheduled for circulation on April 7, 2023, and is intended to inform the drafting and negotiation process with respect to the financial terms of the agreement.
The proposed MCTA contemplates a total deal value of approximately $80,000,000 over the projected 60-month study duration. The CLARION trial will be conducted across 38 Veridian Network sites located in 14 states, enrolling approximately 1,200 subjects with advanced hepatocellular carcinoma ("HCC") in a randomized, double-blind, placebo-controlled design. The payment structure includes per-patient site fees, start-up fees, annual site maintenance fees, investigator grants for publication and academic support, a network coordination and administrative fee payable to Veridian's central office, technology integration costs, and a contingency reserve.
Key Finding: Based on our review of the proposed payment structure, the applicable statutory framework, and the OIG's published guidance, we conclude that the MCTA payment structure, as currently designed, is structured to fall within the personal services and management contracts safe harbor set forth at 42 C.F.R. § 1001.952(d), and is consistent with the fair market value ("FMV") requirements articulated by the Office of Inspector General of the U.S. Department of Health and Human Services ("OIG"). This conclusion is subject to certain conditions and documentation requirements described in detail in this memorandum, most critically the procurement and maintenance of an independent FMV opinion addressing all material payment components.
Recommendation: To ensure and document AKS compliance, Penterra should take the following steps prior to execution of the MCTA:
1. Obtain and maintain an independent fair market value opinion from a qualified healthcare valuation firm for per-patient site fees and investigator grants, and retain such opinion in the matter files;
2. Ensure that the written MCTA agreements specify, with particularity, the services to be rendered by Veridian and each participating site in exchange for each category of payment;
3. Include robust AKS compliance representations and covenants in the MCTA and in individual investigator agreements;
4. Implement monitoring protocols to confirm ongoing compliance throughout the 42-month enrollment period and the full 60-month study term; and
5. Conduct a state-by-state analysis of anti-kickback and fee-splitting statutes in all 14 states where Veridian sites are located.
The balance of this memorandum sets forth the factual background, the applicable legal framework, a component-by-component analysis of the MCTA payment structure, a detailed safe harbor analysis, identification of additional risk factors and mitigation strategies, and specific recommendations for contractual provisions, monitoring, and training.
II. Background
A. The Parties
1. Penterra Pharmaceuticals Corp.
Penterra Pharmaceuticals Corp. ("Penterra" or the "Sponsor") is a corporation organized under the laws of the State of Delaware and 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. The company is a specialty pharmaceutical company focused on the development and commercialization of innovative oncology and hepatology therapeutics.
Penterra's Chief Executive Officer is Dr. Anand Raghavan, M.D., Ph.D. Its Vice President and General Counsel is Nathaniel Briggs, Esq. The company's clinical development organization is led by Dr. Marcus Yun, Senior Vice President of Clinical Development, and Jennifer Holt, Vice President of Clinical Operations. Samantha Novak serves as Executive Director of Clinical Trial Contracts and Budgets. Rebecca Liang, Esq., Associate General Counsel for Clinical Affairs, serves as the primary in-house legal contact for the CLARION program and is an addressee of this memorandum.
For fiscal year 2022, Penterra reported total revenue of approximately $1.87 billion, research and development expenditures of approximately $612 million, and a market capitalization of approximately $4.2 billion as of the close of the first quarter of 2023. The company's existing commercial portfolio includes four FDA-approved products in oncology and hepatology indications. The financial scale and commercial presence of Penterra are relevant to the AKS analysis because they establish that Penterra is a substantial pharmaceutical manufacturer with commercial products that may be prescribed by investigators participating in the CLARION trial.
2. Veridian Health Research Network, Inc.
Veridian Health Research Network, Inc. ("Veridian" or "VHRN") is a corporation organized under the laws of the State of Delaware and is recognized by the Internal Revenue Service as a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code, Employer Identification Number 23-4178205. Veridian is headquartered at 750 Research Parkway, 8th Floor, Philadelphia, Pennsylvania 19104.
Veridian's President and Chief Executive Officer is Dr. Franklin Osei, M.D., Ph.D. Its Vice President of Legal and Compliance is Gregory Callahan, Esq. Veridian's operational leadership includes Diane Prescott, Chief Operating Officer; Dr. Lena Marchetti, Senior Vice President of Research Administration; and Patricia Dunne, Director of Sponsored Research Agreements.
Veridian operates a network of 38 academic medical centers and affiliated research institutions spanning 14 states. These sites are primarily located in major metropolitan areas and are affiliated with leading academic institutions. The network conducts approximately $1.4 billion in annual sponsored research across therapeutic areas, with significant concentrations in oncology, hepatology, cardiovascular disease, and immunology. Veridian's organizational structure, research infrastructure, and geographic breadth make it a prominent site management organization and research network for large-scale, multi-center clinical trials.
As a 501(c)(3) entity, Veridian is subject to the requirements applicable to tax-exempt organizations, including prohibitions on private inurement and private benefit. While Veridian's tax-exempt status does not, in and of itself, insulate the organization from AKS liability, it does bear on the risk analysis, as discussed further in Section VI.D below.
3. Key Investigators
The Global Principal Investigator for the CLARION trial is Dr. Catherine Aldridge, M.D., Ph.D., Professor of Oncology at Graystone University Medical Center, one of the 38 Veridian Network sites. Dr. Aldridge is a recognized expert in hepatocellular carcinoma and has served as principal investigator on more than 20 industry-sponsored clinical trials in liver cancers over the past 15 years. She is a member of multiple national and international oncology guideline committees and is a frequent author in peer-reviewed oncology journals.
The Co-Principal Investigator is Dr. Howard Matsuoka, M.D., Associate Professor of Hepatology and Oncology at Lakemont Medical Center, another Veridian Network site. Dr. Matsuoka has extensive experience in clinical trial design and conduct in hepatobiliary malignancies and has published more than 80 peer-reviewed articles in the field.
Both Dr. Aldridge and Dr. Matsuoka are practicing oncologists who treat patients with HCC and other liver cancers, including patients covered by Medicare, Medicaid, and other federal health care programs. Their dual roles as clinical investigators and treating physicians are relevant to the AKS analysis, as discussed in Section VI.A below. Additional sub-investigators and site principal investigators at each of the 38 Veridian Network sites will be identified in the individual site joinder agreements and are similarly situated with respect to the AKS analysis.
B. The CLARION Trial
1. Investigational Product
The investigational product is penterafenib (designated PPC-4871), an oral multi-kinase inhibitor under development by Penterra for the treatment of advanced hepatocellular carcinoma in the second-line setting, following failure of or intolerance to prior systemic therapy. Penterafenib targets multiple receptor tyrosine kinases implicated in HCC pathogenesis and has demonstrated promising efficacy and a manageable safety profile in completed Phase I and Phase II studies. Penterafenib is not currently approved by the U.S. Food and Drug Administration ("FDA") or any other regulatory authority for any indication and is available only through clinical investigation under an Investigational New Drug ("IND") application.
2. Trial Design
The CLARION trial (Protocol PPC-4871-III) is a Phase III, randomized, double-blind, placebo-controlled, multi-center clinical trial designed to evaluate the efficacy and safety of penterafenib versus placebo in patients with advanced HCC who have progressed on or after at least one prior line of systemic therapy. The trial is being conducted under IND Number 157823 and is registered with ClinicalTrials.gov under Identifier NCT05928174.
The trial design calls for a planned enrollment of 1,200 subjects, randomized in a 2:1 ratio (800 subjects in the penterafenib arm and 400 subjects in the placebo arm). Randomization will be stratified by geographic region, ECOG performance status, etiology of liver disease, and macrovascular invasion.
The enrollment period is projected to be 42 months, with a total study duration, including follow-up, of 60 months. Given the median overall survival observed in the Phase II study and the event-driven statistical design, the follow-up period is estimated at approximately 18 months following the last patient enrolled.
3. Endpoints. The primary endpoint is overall survival ("OS"), defined as the time from randomization to death from any cause. Key secondary endpoints include progression-free survival ("PFS"), objective response rate ("ORR") per RECIST v1.1, and duration of response ("DOR"). Safety and tolerability endpoints, patient-reported outcomes, and exploratory biomarker analyses are also included in the protocol.
4. Trial Infrastructure
The trial's contract research organization ("CRO") is Meridian Contract Research Organization, Inc., engaged under a Master Services Agreement dated January 15, 2023. The electronic data capture ("EDC") vendor is Pinnacle Data Solutions, Inc., which provides the clinical data management platform. Central laboratory services are provided by Northbridge Bioanalytical Laboratories, Inc. These entities are engaged by Penterra under separate agreements and are not parties to the MCTA with Veridian, although the MCTA will require Veridian sites to interface with these vendors as necessary for trial conduct.
C. The MCTA Payment Structure Overview
The proposed MCTA between Penterra and Veridian contemplates a total deal value of approximately $80,000,000 over the projected 60-month study duration. The payment structure is composed of seven principal components, each of which is analyzed individually under the AKS framework in Section IV of this memorandum. A summary of the payment components is as follows:
Payment Milestones for Per-Patient Fees
The per-patient site fee of $52,000 per subject is structured as four equal milestone-based installments of $13,000 each, payable upon the achievement of the following clinical milestones:
(a) $13,000 (25%) — Upon subject randomization;
(b) $13,000 (25%) — Upon completion of the Week 12 assessment;
(c) $13,000 (25%) — Upon completion of the Week 24 assessment; and
(d) $13,000 (25%) — Upon study completion/final visit.
Start-Up Fee Payment Structure
Start-up fees of $75,000 per site are payable in two equal installments:
(a) $37,500 (50%) — Upon site activation (completion of all regulatory requirements and site initiation visit); and
(b) $37,500 (50%) — Upon enrollment of the first patient at the site.
Network Coordination Fee
The network coordination and administrative fee of $4,200,000 is payable to Veridian's central office in quarterly installments of $300,000 over 14 quarters, commencing upon MCTA execution.
Payment Terms. All payments under the MCTA are subject to Net 45 days payment terms from Penterra's receipt of a proper invoice from Veridian.
III. Legal Framework: The Anti-Kickback Statute
A. Statutory Text — 42 U.S.C. § 1320a-7b(b)
The federal Anti-Kickback Statute, codified at 42 U.S.C. § 1320a-7b(b), is the principal federal statute governing the legality of remuneration exchanged between parties in connection with the referral of patients or the generation of business payable by federal health care programs, including Medicare and Medicaid.
1. Prohibition on Soliciting or Receiving Remuneration
Subsection (b)(1) of the AKS provides that whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony.
2. Prohibition on Offering or Paying Remuneration
Subsection (b)(2) of the AKS provides a parallel prohibition on the offering or payment side, making it a felony for any person to knowingly and willfully offer or pay any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to any person to induce such person to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program.
3. Breadth of "Remuneration"
The term "remuneration" as used in the AKS is defined expansively and encompasses any payment whatsoever, whether made directly or indirectly, overtly or covertly, in cash or in kind. Courts have interpreted this term to include not only cash payments but also gifts, in-kind transfers of value, below-market loans, free goods and services, and any other transfer of value. See, e.g., United States v. Greber, 760 F.2d 68 (3d Cir. 1985) (interpreting "remuneration" broadly). The breadth of this definition is particularly relevant in the clinical trial context, where payments from pharmaceutical sponsors to investigators and institutions take range forms, including per-patient fees, start-up payments, grants, honoraria, and administrative fees.
4. Scienter Requirement
The AKS requires proof that the defendant acted "knowingly and willfully." However, the Patient Protection and Affordable Care Act of 2010 ("ACA") amended the AKS to provide that "a person need not have actual knowledge of [the AKS] or specific intent to commit a violation of [the AKS]." 42 U.S.C. § 1320a-7b(h). This amendment lowered the scienter threshold and expanded the range of conduct that may give rise to AKS liability. Following the ACA amendment, a violation may be established without proof that the defendant knew that the specific conduct in question was unlawful under the AKS, provided that the defendant acted with knowledge that the payment was intended, at least in part, to induce referrals.
5. Application to Clinical Trials
Payments from pharmaceutical sponsors to clinical investigators and site institutions in connection with clinical trials may implicate the AKS when the investigators and institutions are in a position to prescribe, recommend, order, or arrange for items or services payable by federal health care programs. In the context of the CLARION trial, this nexus is present because:
(a) The investigators at the 38 Veridian Network sites are practicing oncologists and hepatologists who treat patients with HCC and other cancers;
(b) HCC treatments, including systemic therapy, supportive care, imaging, and related services, are covered items and services under Medicare, Medicaid, and other federal health care programs;
(c) Investigators participating in the CLARION trial may also prescribe Penterra's existing commercially available products, or may be in a position to prescribe penterafenib if and when it receives FDA marketing approval; and
(d) Payments under the MCTA — per-patient fees, start-up fees, maintenance fees, investigator grants, and administrative fees — constitute "remuneration" within the meaning of the AKS.
6. Penalties. Violation of the AKS carries severe consequences, including:
(a) Criminal Penalties: A conviction under the AKS is classified as a felony offense, punishable by a fine of up to $100,000 per violation, imprisonment for up to 10 years, or both;
(b) Civil Monetary Penalties: The OIG may impose civil monetary penalties under 42 U.S.C. § 1320a-7a of up to $100,000 per violation, plus treble damages (three times the amount of remuneration involved);
(c) Exclusion from Federal Health Care Programs: Mandatory exclusion from participation in Medicare, Medicaid, and all other federal health care programs upon conviction, and permissive exclusion for conduct that constitutes grounds for an AKS violation even absent a criminal conviction; and
(d) False Claims Act Liability: A violation of the AKS may also give rise to liability under the federal False Claims Act, 31 U.S.C. § 3729 et seq., because claims submitted to federal health care programs that result from AKS violations are considered false or fraudulent claims.
The magnitude of these penalties underscores the importance of structuring clinical trial payments to comply with the AKS and, where possible, to satisfy an applicable safe harbor.
B. OIG Guidance on Pharmaceutical Industry Practices
The OIG has issued extensive guidance on compliance practices for pharmaceutical manufacturers, several pieces of which are directly relevant to the payment structure contemplated under the MCTA.
1. OIG Compliance Program Guidance for Pharmaceutical Manufacturers (2003)
In April 2003, the OIG published its Compliance Program Guidance for Pharmaceutical Manufacturers, 68 Fed. Reg. 23,731 (May 5, 2003). This guidance identifies a range of industry practices that may implicate the AKS, including clinical research payments to investigators. The guidance advises pharmaceutical manufacturers to ensure that payments to investigators are consistent with fair market value for legitimate research services, are set in advance, and are not determined in a manner that takes into account the volume or value of the investigator's prescribing activity or other business generated for the manufacturer.
The 2003 Guidance specifically cautions that "[r]esearch payments may raise concerns when pharmaceutical manufacturers provide grants to physicians for research activities involving their products, particularly where those activities do not rise to the level of legitimate scientific research." The Guidance further advises that "to help demonstrate that such an arrangement does not violate the anti-kickback statute, the manufacturer should ensure that payment is consistent with fair market value for the services rendered."
2. OIG Special Advisory Bulletin on Payments to Referring Physicians (2013)
In June 2013, the OIG issued a Special Advisory Bulletin addressing payments to referring physicians, including compensation arrangements incident to clinical trials. The Bulletin emphasizes the "one purpose" test and reiterates that arrangements with referring physicians are subject to heightened scrutiny when the physician is in a position to generate business for the payor.
3. OIG Guidance on Grants and Research Funding
The OIG has addressed research grants and funding arrangements in various advisory opinions and guidance documents. The core principles applicable to clinical trial payments are:
(a) Research payments must reflect fair market value for legitimate, necessary services rendered in connection with the research;
(b) Payments must not be tied, directly or indirectly, to the volume or value of prescribing activity or referrals of patients for items or services payable by federal health care programs;
(c) The selection of investigators and sites must be based on legitimate research criteria (e.g., scientific qualifications, patient population, research infrastructure) rather than on prescribing volume or commercial market share; and
(d) Payments that are disproportionate to the services rendered, or that are structured in a manner that provides financial incentives beyond fair compensation for research activities, raise significant AKS concerns.
4. The "One Purpose" Test
Courts have consistently held that a payment violates the AKS if one purpose of the remuneration is to induce referrals, even if there are other legitimate purposes for the payment. See United States v. Greber, 760 F.2d 68 (3d Cir. 1985); United States v. Kats, 871 F.2d 105 (9th Cir. 1989); United States v. McClatchey, 217 F.3d 823 (10th Cir. 2000). Under this standard, it is not a defense that a payment also compensates for legitimate services if one purpose of the payment is to induce or reward referrals. This test places a premium on structuring payments to eliminate even the appearance of a referral incentive and on documenting the FMV basis for all compensation.
C. Relevant Safe Harbors — 42 C.F.R. § 1001.952
Congress authorized the Secretary of Health and Human Services to promulgate regulatory safe harbors that define specific payment practices that, if met, will not be treated as violations of the AKS. 42 U.S.C. § 1320a-7b(b)(3)(E). These safe harbors are codified at 42 C.F.R. § 1001.952 and provide bright-line protection for arrangements that satisfy all elements of an applicable safe harbor. Failure to satisfy a safe harbor does not mean that an arrangement violates the AKS, but it does mean that the arrangement must be evaluated on a facts-and-circumstances basis under the statute itself.
1. Personal Services and Management Contracts Safe Harbor — 42 C.F.R. § 1001.952(d)
The personal services and management contracts safe harbor is the principal safe harbor applicable to clinical trial site and investigator payments. This safe harbor protects remuneration paid under an arrangement for the provision of services if all of the following requirements are met:
(a) The arrangement is set out in a written agreement signed by the parties that specifies the services to be provided by the parties to the agreement;
(b) The agreement covers all of the services to be provided by the parties for the term of the agreement and specifies the services to be provided;
(c) If the agreement is intended to provide for the services of the agent on a periodic, sporadic, or part-time basis, rather than on a full-time basis for the term of the agreement, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals;
(d) The term of the agreement is for not less than one year;
(e) The aggregate compensation paid to the agent over the term of the agreement is (i) set in advance, (ii) consistent with fair market value in arms-length transactions, and (iii) not determined in a manner that takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part under Medicare, Medicaid, or other Federal health care programs; and
(f) The services performed under the agreement do not involve the counseling or promotion of a business arrangement or other activity that violates any State or Federal law.
The detailed analysis of the MCTA payment structure against each element of this safe harbor is set forth in Section V below.
2. Employee Safe Harbor — 42 C.F.R. § 1001.952(i)
The employee safe harbor protects remuneration paid by an employer to an employee (who has a bona fide employment relationship with the employer) for employment in the provision of covered items or services. This safe harbor is not applicable to the MCTA arrangement because the investigators and site personnel who will conduct the CLARION trial are employees of the Veridian Network institutions, not employees of Penterra. The MCTA creates an independent contractor relationship between Penterra and Veridian, and between Penterra and the individual sites and investigators.
3. Space Rental Safe Harbor — 42 C.F.R. § 1001.952(b)
The space rental safe harbor protects payments for the use of office space or equipment if certain requirements are met, including that the lease is set out in writing, covers all premises used, specifies the schedule of use, has a term of at least one year, provides for aggregate rental charges set in advance and consistent with FMV, and is not determined based on the volume or value of referrals. This safe harbor may be tangentially applicable to the extent that the MCTA compensates Veridian sites for the use of clinical research space and equipment in connection with the CLARION trial. However, because the per-patient site fees and other payments under the MCTA are structured as payments for services rather than as rent for space, the personal services safe harbor is the more directly applicable framework. We note the space rental safe harbor here for completeness and in the event that the MCTA payment structure is revised during negotiations to include a separately identified space or facility component.
4. Limitations of Safe Harbor Protection
It is important to emphasize that compliance with a regulatory safe harbor does not confer absolute immunity from prosecution or investigation. Rather, compliance with a safe harbor provides a strong affirmative defense and, as a practical matter, makes it highly unlikely that the OIG or the Department of Justice would pursue an enforcement action. Conversely, failure to comply with a safe harbor does not establish that an arrangement violates the AKS; it merely means that the arrangement must be evaluated under the totality of the circumstances. Nevertheless, structuring the MCTA to satisfy the personal services safe harbor is the most prudent course and provides the greatest degree of legal certainty.
IV. AKS Analysis of Each Payment Component
This Section analyzes each of the seven principal payment components of the proposed MCTA individually, identifying the AKS risk factors specific to each component and providing recommendations to mitigate those risks.
A. Per-Patient Site Fees ($52,000/Subject; $62,400,000 Total)
1. Description. Per-patient site fees represent the largest single component of the MCTA, constituting approximately 78% of the total deal value. These fees compensate the 38 Veridian Network site institutions for all clinical activities associated with each enrolled subject, including but not limited to: screening and eligibility assessment, informed consent, randomization procedures, study drug dispensation and administration, treatment monitoring, study visits (including physical examinations, vital signs, laboratory assessments, and radiological imaging per protocol schedule), safety monitoring and adverse event reporting, data collection and entry into the Pinnacle EDC system, specimen collection and shipment to Northbridge Bioanalytical Laboratories, maintenance of source documents and regulatory files, and end-of-study procedures.
2. Payment Structure
The per-patient fee of $52,000 per subject is structured as four equal milestone-based installments of $13,000 each, payable upon the achievement of the following protocol-defined milestones: (a) subject randomization, (b) completion of the Week 12 assessment, (c) completion of the Week 24 assessment, and (d) study completion/final visit. This payment structure aligns each installment with the delivery of specific clinical trial services at defined timepoints in the study protocol. The milestone-based structure was the result of negotiation between the parties; we understand from conversations with Ms. Liang that Veridian initially proposed a front-loaded payment structure with 40% payable at randomization and the remaining 60% spread across subsequent milestones. The negotiated 25/25/25/25 structure is more conservative from an AKS perspective, as discussed below.
3. AKS Risk Analysis
Per-patient fee arrangements are widely used in industry-sponsored clinical trials and have been recognized by the OIG as a legitimate mechanism for compensating sites for clinical trial services. However, per-patient fees are not free from AKS risk, and the following factors must be considered:
Fair Market Value. The threshold AKS question for per-patient site fees is whether the per-patient amount — here, $52,000 per subject — reflects fair market value for the scope and complexity of services rendered in a Phase III oncology trial involving patients with advanced HCC. A per-patient fee that exceeds FMV may be characterized as containing an impermissible premium that functions as remuneration for referrals or prescribing activity. Based on our preliminary review of publicly available benchmarking data and our experience with comparable Phase III oncology trial budgets, a per-patient fee of $52,000 appears to be within the range of per-patient costs for Phase III oncology trials involving complex treatment regimens, extensive imaging schedules, extended follow-up periods, and the heightened safety monitoring requirements associated with HCC patient populations. However, we cannot render a definitive FMV conclusion based on publicly available data alone.
Milestone-Based Structure. The equal 25/25/25/25 milestone structure mitigates the risk that payments function as enrollment incentives. A disproportionately front-loaded payment structure — in which a large percentage of the per-patient fee is payable upon enrollment or randomization — may create an incentive to enroll subjects regardless of eligibility, which may be characterized as an improper inducement. The equal distribution of payments across four milestones spanning the full treatment cycle (from randomization through study completion) aligns payments with the actual delivery of services over the course of each subject's participation and reduces the risk of enrollment-driven financial incentives. This structure is consistent with OIG guidance favoring payment arrangements tied to service delivery rather than to enrollment volume.
Uniformity. The per-patient fee is uniform across all 38 sites (subject to standard regional cost-of-living adjustments, if any, to be addressed in the final budget). This uniformity supports the conclusion that the fee reflects compensation for services rather than preferential payments to high-volume prescribers. If site-level adjustments are made, they should be documented and based on legitimate cost differentials.
No Volume-Based Incentives. The per-patient fee does not include any bonus, premium, or additional payment tied to the number of subjects enrolled at any particular site or by any particular investigator. There are no enrollment bonuses, recruitment incentives, or per-patient escalators in the proposed payment structure. The absence of volume-based incentives is consistent with the safe harbor requirement that compensation not be determined in a manner that takes into account the volume or value of referrals.
4. Recommendation. Penterra should commission an independent FMV assessment from a qualified healthcare valuation firm (such as Kraft Renwick CPAs LLP Healthcare Advisory, Navigant, or a comparable firm not affiliated with either Penterra or Veridian) to confirm that the per-patient site fee of $52,000 per subject is consistent with fair market value for the scope and complexity of Phase III oncology trial services described in Protocol PPC-4871-III. The FMV opinion should benchmark the per-patient fee against comparable Phase III HCC trials, with appropriate adjustments for trial complexity, visit schedule, imaging requirements, laboratory assessments, and geographic cost differentials. The valuation report should be retained in the matter files and referenced in the MCTA's compliance representations.
B. Start-Up Fees ($75,000/Site; $2,850,000 Total)
1. Description. Start-up fees of $75,000 per site are intended to compensate each of the 38 Veridian Network sites for the activities and costs associated with preparing the site for trial participation. These activities include, but are not limited to: regulatory document preparation and submission, Institutional Review Board ("IRB") or Ethics Committee submissions and review, site feasibility assessments, staff identification and training on the study protocol and investigational product, calibration and validation of study-specific equipment, establishment of drug accountability and storage procedures, integration of site systems with the Pinnacle Data Solutions EDC platform, source document template development, and participation in the site initiation visit conducted by the CRO or Sponsor.
2. Payment Structure
The start-up fee is payable in two equal installments of $37,500 each: the first installment upon site activation (defined as the completion of all regulatory requirements and the site initiation visit), and the second installment upon enrollment of the first patient at the site.
3. AKS Risk Analysis
Start-up fees are a standard and well-recognized component of clinical trial budgets. The OIG has not identified start-up fees as a particular area of concern, provided that such fees reflect the actual costs of start-up activities and are not used as a mechanism to funnel excess payments to sites or investigators.
The split payment structure — with 50% payable upon site activation and 50% upon first patient enrolled — is common in clinical trial agreements. The second tranche, tied to first patient enrollment, warrants brief comment: while this payment milestone is contingent on enrollment of at least one patient, it is more accurately characterized as compensation for the completion of start-up services (which are not fully realized until the site is operational and has demonstrated the capacity to enroll patients) rather than as a per-patient enrollment payment. The amount ($37,500) is a fixed, one-time payment per site and does not vary based on the number of patients enrolled or the volume of referrals.
The uniformity of the start-up fee across all 38 sites further supports the conclusion that the fee is a standard cost reimbursement rather than a targeted inducement. The AKS risk associated with start-up fees is low.
4. Recommendation. Penterra should document the specific start-up activities and associated costs at each site to support the FMV determination for the $75,000 per-site fee. This documentation should be maintained in the trial master file and should include, where available, site-specific budgets reflecting the estimated time and effort of site personnel, IRB submission costs, equipment calibration costs, and EDC integration costs. The independent FMV opinion recommended in Section VII.A should also address the reasonableness of the start-up fee.
C. Annual Site Maintenance Fees ($40,000/Site/Year; $5,320,000 Total)
1. Description. Annual site maintenance fees of $40,000 per site per year compensate each of the 38 Veridian Network sites for the ongoing costs of maintaining clinical trial readiness and regulatory compliance throughout the study period. These costs include ongoing regulatory maintenance (e.g., IRB continuing review submissions, protocol deviation reporting, IND safety report distribution and acknowledgment), staff retention and ongoing training, facility availability and maintenance of dedicated clinical research space, equipment maintenance and calibration, and site-level quality assurance activities.
2. Payment Structure
Annual site maintenance fees are paid annually in advance on each site-activation anniversary. The fees are uniform across all 38 sites, with no differentiation based on enrollment volume, patient accrual rates, or other performance metrics. Based on the projected average site participation period of 3.5 years (reflecting staggered site activation and enrollment periods), the total per-site maintenance payment over the study life is approximately $140,000, and the aggregate annual maintenance fee across all sites over the study duration is $5,320,000.
3. AKS Risk Analysis
Annual site maintenance fees for ongoing infrastructure and regulatory readiness are recognized as legitimate components of clinical trial budgets. The AKS risk associated with maintenance fees arises only if such fees are disproportionate to the actual costs of site maintenance or if they function as disguised payments for referrals or prescribing activity.
The $40,000 per-site per-year fee, applied uniformly across all 38 sites, does not appear facially disproportionate to the costs of maintaining regulatory compliance, staff readiness, and facility availability for a complex Phase III oncology trial. The fee does not vary based on the volume or value of referrals or business generated between the parties.
The AKS risk for annual site maintenance fees is assessed as low.
4. Recommendation. Penterra should document the categories of maintenance services covered by the $40,000 annual fee and, where practicable, obtain supporting cost documentation from Veridian. The independent FMV opinion should address the maintenance fee as part of the comprehensive valuation.
D. Investigator Grants ($1,500,000 Total)
1. Description. The MCTA allocates a total of $1,500,000 for investigator grants designated for publication support and academic activities by investigators participating in the CLARION trial. These grants are intended to support the preparation, submission, and publication of manuscripts reporting the results of the trial in peer-reviewed scientific journals. The primary recipients of investigator grants are expected to be the Global Principal Investigator, Dr. Catherine Aldridge, and the Co-Principal Investigator, Dr. Howard Matsuoka, although other investigators may also receive grant support based on their contributions to publications.
2. Payment Structure
Investigator grants are disbursed upon the acceptance of manuscripts for publication in peer-reviewed journals. The grants are not disbursed upon enrollment milestones, prescribing activity, or any other metric tied to the volume or value of referrals or business generated for Penterra. The publication-contingent disbursement mechanism ties payments to the delivery of a specific academic deliverable — an accepted manuscript — rather than to patient volume or prescribing behavior.
3. AKS Risk Analysis
Investigator grants constitute an area of heightened OIG scrutiny under the AKS. The OIG has repeatedly cautioned that grants, honoraria, and other payments to physician investigators may function as indirect payments for referrals or prescribing activity, particularly when the physician is in a position to prescribe the sponsor's commercially available products. The following considerations are relevant:
Legitimate Research Purpose. The investigator grants under the MCTA are designated for a legitimate research purpose — namely, the support of scientific publication activities arising from the CLARION trial. The publication of clinical trial results in peer-reviewed journals is a fundamental component of the clinical research enterprise and serves important scientific, medical, and public health interests. The OIG has recognized that payments for legitimate research and academic activities are distinguishable from improper inducements.
Publication-Contingent Disbursement. The structure of the grants — disbursement upon acceptance of a manuscript for peer-reviewed publication — is a significant risk-mitigating factor. This mechanism ties payment to the delivery of a concrete academic deliverable and ensures that investigators receive grant funds only upon the completion of scholarly work. This structure contrasts with arrangements in which grants are disbursed unconditionally or upon enrollment milestones, which may more readily be characterized as disguised referral payments.
Aggregate Amount. The total amount of $1,500,000 allocated for investigator grants across all investigators and sites is modest relative to the overall scope of the trial ($80,000,000 total deal value) and the number of sites and investigators involved (38 sites). This suggests that the grants are not being used as a mechanism to channel disproportionate payments to individual investigators.
Dual Role of Investigators. The risk associated with investigator grants is amplified by the dual role of investigators as both clinical researchers and treating physicians. Dr. Aldridge and Dr. Matsuoka, and other site investigators, are practicing oncologists who may be in a position to prescribe Penterra products. The grants must be structured to ensure that they do not, and are not perceived to, function as compensation for prescribing activity.
The AKS risk for investigator grants is assessed as medium, reflecting the heightened OIG scrutiny applied to payments to physician investigators.
4. Recommendation. Each investigator grant award should be documented with a separate written agreement between Penterra and the individual investigator that specifies the academic deliverables (i.e., the specific manuscripts or publications to be prepared), the amount of the grant, and the conditions for disbursement. The agreement should include an express representation that the grant reflects fair market value for medical writing and publication support services in oncology and is not intended as compensation for prescribing activity or referrals.
The independent FMV opinion should address the reasonableness of the investigator grant amounts by benchmarking them against comparable publication support payments in Phase III oncology trials.
Additionally, investigators receiving grants must comply with financial disclosure obligations under 21 C.F.R. Part 54, which requires clinical investigators to disclose certain financial interests and arrangements with the sponsor. Compliance with Part 54 supports the transparency of the financial relationship and is consistent with AKS compliance objectives.
E. Network Coordination/Administrative Fee ($4,200,000 to Veridian Central)
1. Description. The MCTA provides for a network coordination and administrative fee of $4,200,000 payable to Veridian's central office. This fee compensates Veridian's central organization for the administrative oversight, site coordination, network governance, quality assurance, and centralized regulatory support that Veridian provides across its 38-site network in connection with the CLARION trial. Specific services include: coordination of site activation and regulatory submissions across the network, centralized IRB management (where applicable), quality assurance and quality control oversight, network-level training programs, communication and governance activities between Penterra and the site network, centralized data review and monitoring, and administrative support for multi-site regulatory compliance.
2. Payment Structure
The network coordination fee is payable in quarterly installments of $300,000 over 14 quarters, commencing upon execution of the MCTA. The quarterly payment structure provides a predictable, fixed stream of compensation that is independent of enrollment volume or site-level performance metrics.
3. AKS Risk Analysis
Administrative fees payable to research networks are common in multi-site clinical trial agreements and have been recognized as serving legitimate administrative purposes. The AKS risk associated with the network coordination fee arises primarily from the possibility that the fee could function as a referral fee — that is, compensation to Veridian for directing its member sites to participate in the CLARION trial and, by extension, for creating a relationship between Penterra and investigators who may prescribe Penterra products.
Several factors mitigate this risk:
Pre-Existing Network. Veridian is a pre-existing research network with an established infrastructure and a track record of conducting large-scale clinical trials across therapeutic areas. Penterra selected Veridian based on the network's research capabilities, patient population access, geographic breadth, and operational infrastructure. The selection was not based on the prescribing volume or commercial market share of Veridian investigators with respect to Penterra products.
501(c)(3) Status. As a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code, Veridian is subject to restrictions on private inurement and private benefit. While tax-exempt status does not eliminate AKS liability, it reduces the likelihood that administrative fees function as a mechanism to enrich individuals who are in a position to make referral decisions.
Identifiable Services. The coordination fee is intended to compensate Veridian for identifiable administrative services performed by its central office staff, including Diane Prescott (COO), Dr. Lena Marchetti (SVP, Research Administration), Patricia Dunne (Director, Sponsored Research Agreements), and their respective teams. The fee must be documented as reflecting the actual cost of coordination services, including staff time, overhead, and out-of-pocket expenses.
Fixed Payment Structure. The quarterly payment of $300,000 is a fixed amount that does not vary based on enrollment volume, the number of active sites, or any other metric tied to the volume or value of referrals.
The AKS risk for the network coordination fee is assessed as low-medium, reflecting the potential characterization of the fee as a referral payment, mitigated by the factors described above.
4. Recommendation. Penterra should require Veridian to maintain contemporaneous time and effort records supporting the coordination fee, including documentation of the specific services performed by Veridian's central office staff in connection with the CLARION trial and the allocation of staff time to those services. The MCTA should include a representation by Veridian that the coordination fee reflects fair market value for the administrative services provided by its central office and is not intended as compensation for referrals or for directing sites to participate in the trial.
F. Technology/EDC Integration Costs ($1,230,000)
1. Description. The MCTA includes a technology integration cost of $1,230,000, representing the fixed cost of integrating Veridian site systems with the Pinnacle Data Solutions, Inc. EDC platform used for the CLARION trial. This is a one-time technology infrastructure cost associated with the configuration, testing, and deployment of the EDC system across the 38 Veridian Network sites.
2. AKS Risk Analysis
Technology infrastructure payments that are not linked to patient referrals, prescribing activity, or the generation of business payable by federal health care programs present minimal AKS risk. The EDC integration cost is a pass-through technology cost that compensates Veridian for a legitimate and identifiable infrastructure expenditure necessary for trial conduct. The payment is fixed, does not vary based on enrollment volume, and does not flow to individual investigators or prescribers.
The AKS risk for technology/EDC integration costs is assessed as low.
3. Recommendation. Standard documentation of the technology integration services and associated costs is sufficient. No additional AKS-specific measures are recommended for this component beyond inclusion in the MCTA's general compliance representations.
G. Contingency/Change Order Reserve ($2,500,000)
1. Description. The MCTA sets aside a contingency and change order reserve of $2,500,000 to cover unanticipated costs that may arise during the course of the 60-month study period. Such costs may include protocol amendments requiring additional study visits or procedures, regulatory changes necessitating additional compliance activities, unanticipated safety monitoring requirements, and other changes in scope that are not contemplated by the initial MCTA budget.
2. Payment Structure
Disbursement from the contingency reserve is subject to the execution of a written change order approved by authorized representatives of both Penterra and Veridian. The change order process requires documented justification for the additional expenditure, specification of the additional services to be performed, and agreement on the amount of additional compensation. No funds may be disbursed from the contingency reserve without mutual written agreement.
3. AKS Risk Analysis
Contingency reserves are a standard feature of clinical trial budgets and serve a legitimate operational purpose. The AKS risk associated with the contingency reserve is low because disbursement requires documented justification and mutual agreement, and the amounts disbursed must reflect fair market value for additional services at the time of disbursement. The change order process provides a built-in compliance safeguard by requiring advance written authorization and documentation of the services to be performed.
The AKS risk for the contingency/change order reserve is assessed as low.
4. Recommendation. Each change order should be evaluated individually for AKS compliance at the time of execution. The additional services should be specified in writing, the additional compensation should be assessed for FMV consistency, and the change order should be documented in the trial master file. The MCTA should include a provision requiring that all change orders comply with the AKS and applicable safe harbor requirements.
V. Safe Harbor Analysis: Personal Services and Management Contracts
A. Element-by-Element Analysis Under 42 C.F.R. § 1001.952(d)
This Section evaluates the MCTA payment structure against each of the six elements of the personal services and management contracts safe harbor. Satisfaction of all six elements provides protection from AKS liability for the compensatory arrangements described in the MCTA.
1. Written Agreement Signed by the Parties
The MCTA will be a comprehensive written agreement between Penterra and Veridian, negotiated at arms-length between the parties and executed by authorized representatives of each organization. The MCTA will be supplemented by individual site joinder agreements for each of the 38 participating Veridian Network institutions, pursuant to which each site agrees to the terms and conditions of the MCTA and assumes responsibility for trial conduct at the site level. In addition, separate written PI and Co-PI agreements will be executed with Dr. Catherine Aldridge (Global Principal Investigator) and Dr. Howard Matsuoka (Co-Principal Investigator), as well as with other site principal investigators as applicable.
The requirement of a written agreement signed by the parties is a foundational element of the safe harbor and is designed to ensure that the terms of the arrangement, including the services to be performed and the compensation to be paid, are documented and agreed upon in advance.
Assessment: This element is satisfied. The MCTA, site joinder agreements, and individual investigator agreements, taken together, constitute the requisite written agreement.
2. Agreement Specifies All Services to Be Provided
The MCTA will define the scope of clinical trial services in detail, encompassing all protocol-specified procedures, subject enrollment and treatment administration activities, data collection and management, safety reporting (including reporting of serious adverse events within 24 hours), regulatory document maintenance, and other clinical trial obligations. The MCTA will incorporate by reference Exhibit A (Protocol Synopsis), which describes the clinical procedures, visit schedule, and treatment regimen specified in Protocol PPC-4871-III, and Exhibit B (Budget and Payment Schedule), which provides a granular breakdown of the services to be performed and the associated payments at each milestone.
The individual investigator agreements will define the responsibilities of the Principal Investigator and Co-Principal Investigator, including protocol compliance, subject safety oversight, data integrity, and regulatory submissions.
Assessment: This element is satisfied, provided that the final drafts of the MCTA, Exhibits, and investigator agreements contain sufficient specificity regarding the services to be provided. We recommend that the drafting team ensure that the MCTA and its Exhibits describe, with particularity, each category of service to be performed by the sites and investigators, and that the payment schedule in Exhibit B identifies the specific services associated with each payment milestone.
3. Part-Time Services — Schedule and Charges