PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED / ATTORNEY WORK PRODUCT PREPARED IN ANTICIPATION OF LEGAL REVIEW
CALDERWOOD & HARKNESS LLP HEALTH CARE & LIFE SCIENCES PRACTICE GROUP
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
DATE: May 12, 2023
RE: Fair Market Value Analysis of Investigator Compensation Under Proposed Master Clinical Trial Agreement with Veridian Health Research Network, Inc. — Protocol PPC-4871-III (CLARION)
MATTER NO.: 1018-00004
PRIVILEGE DESIGNATION: Attorney-Client Privileged / Attorney Work Product — Prepared in Anticipation of Legal Review
This memorandum has been prepared by Calderwood & Harkness LLP at the request of Penterra Pharmaceuticals Corp. for purposes of providing legal advice and analysis in anticipation of regulatory review. This document is protected by the attorney-client privilege and the work product doctrine. Distribution, copying, or disclosure of this memorandum or its contents to any person or entity not authorized to receive it is strictly prohibited without prior written consent of Calderwood & Harkness LLP.
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I. Executive Summary
This memorandum has been prepared at the request of Penterra Pharmaceuticals Corp. ("Penterra" or "PPC") to analyze whether the compensation structure proposed under the Master Clinical Trial Agreement (the "MCTA") between Penterra and Veridian Health Research Network, Inc. ("Veridian" or "VHRN") for Protocol PPC-4871-III — the CLARION trial (Clinical Assessment of Response with Longitudinal Investigation in ONcology) — constitutes fair market value ("FMV") for investigator and site services. This analysis is intended to support Penterra's compliance assessment and to provide a legal framework for structuring payments in a manner consistent with applicable federal healthcare regulatory requirements.
The scope of this memorandum encompasses a comprehensive evaluation of each compensation component set forth in the proposed MCTA, including: (a) per-patient site fees of $52,000 per enrolled subject across a planned enrollment of 1,200 subjects, yielding a total per-patient expenditure of $62,400,000; (b) investigator grants totaling $1,500,000 allocated for academic publication and research support; and (c) other site-level compensation components, including start-up fees ($75,000 per site across 38 Veridian Network sites, totaling $2,850,000), annual site maintenance fees ($40,000 per site per year across 38 sites over an average of 3.5 years, totaling $5,320,000), and a network coordination and administrative fee payable to Veridian's central office in the amount of $4,200,000. The MCTA also includes technology and EDC integration costs of $1,230,000 and a contingency/change order reserve of $2,500,000, bringing the total MCTA value to $80,000,000.
This memorandum addresses two principal regulatory frameworks implicated by the proposed compensation structure. First, we analyze compliance with the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) (the "AKS"), including the applicability of the personal services and management contracts safe harbor set forth at 42 C.F.R. § 1001.952(d) and the bona fide employment safe harbor at 42 C.F.R. § 1001.952(i). Second, we address Penterra's obligations under the Physician Payments Sunshine Act, 42 U.S.C. § 1320a-7h, and the implementing regulations governing the CMS Open Payments reporting program at 42 C.F.R. Part 403, Subpart I. Additionally, this memorandum briefly addresses financial disclosure considerations under 21 C.F.R. Part 54 and tax-exempt status implications for Veridian and its member institutions under Internal Revenue Code §§ 501(c)(3) and 4958.
Conclusion. Based on our analysis of the proposed compensation components against industry benchmarks, applicable legal standards, and the scope and complexity of the investigator and site services to be rendered in connection with the CLARION trial, we conclude that the proposed compensation structure is consistent with fair market value for the services to be rendered and can be structured to comply with applicable safe harbor requirements under the Anti-Kickback Statute and Sunshine Act reporting obligations. This conclusion is subject to the implementation of the contractual, operational, and reporting recommendations set forth in Section VIII of this memorandum. In particular, we recommend that Penterra consider engaging an independent third-party valuation firm to provide a formal FMV certification, given the $80,000,000 total deal value and the multi-year duration of the CLARION trial, as an additional layer of regulatory protection.
II. Background
A. The CLARION Trial and the MCTA
Penterra Pharmaceuticals Corp. is sponsoring a Phase III, randomized, double-blind, placebo-controlled, multi-center clinical trial evaluating penterafenib (PPC-4871), an oral multi-kinase inhibitor, for the treatment of advanced hepatocellular carcinoma ("HCC") in the second-line setting following prior systemic therapy. The compound penterafenib is a next-generation tyrosine kinase inhibitor that targets multiple receptor tyrosine kinases implicated in hepatocellular carcinoma proliferation and tumor angiogenesis, including vascular endothelial growth factor receptors (VEGFRs), fibroblast growth factor receptors (FGFRs), and platelet-derived growth factor receptors (PDGFRs).
The trial bears the protocol designation PPC-4871-III and is identified by the short title CLARION, an acronym for Clinical Assessment of Response with Longitudinal Investigation in ONcology. The study is being conducted under Investigational New Drug Application Number IND 157823, which was filed with the United States Food and Drug Administration ("FDA") and is currently in effect. The trial has been registered on ClinicalTrials.gov under the identifier NCT05928174.
Penterra completed the Phase II clinical program for penterafenib in January 2023. The Phase II results demonstrated a 38% objective response rate ("ORR") in patients with advanced HCC, a clinically meaningful signal that supported the company's decision to advance the compound into a Phase III registration-enabling trial. The Phase III CLARION trial is designed to confirm the efficacy and safety signals observed in Phase II and to support a future New Drug Application ("NDA") submission to the FDA.
The CLARION trial contemplates the enrollment of 1,200 subjects randomized in a 2:1 ratio, with 800 subjects assigned to the penterafenib treatment arm and 400 subjects assigned to the matching placebo arm. The projected enrollment period is 42 months from first patient in ("FPI"), with a target FPI date of August 14, 2023. The total estimated study duration is approximately 60 months, encompassing the 42-month enrollment period and an additional 18-month follow-up period to assess the primary endpoint.
The primary efficacy endpoint is overall survival ("OS"). Key secondary endpoints include progression-free survival ("PFS"), objective response rate ("ORR") as assessed by blinded independent central review using RECIST v1.1 criteria, and duration of response ("DOR"). The trial also includes exploratory biomarker endpoints and pharmacokinetic/pharmacodynamic ("PK/PD") assessments.
The MCTA governs the terms and conditions under which the Veridian Health Research Network will participate in the CLARION trial on a site-network basis. Veridian Health Research Network, Inc. is a 501(c)(3) tax-exempt research organization that operates and coordinates clinical research activities across a network of 38 academic medical centers and affiliated research sites located in 14 states. Veridian serves as a central coordinating entity for its member institutions, providing network-level administrative, regulatory, and quality assurance functions that facilitate the efficient conduct of multi-site clinical trials.
The total value of the MCTA, inclusive of all site fees, per-patient payments, investigator grants, operational costs, technology integration, and contingency reserves, is $80,000,000. A detailed reconciliation of each compensation component is set forth in Section III of this memorandum. The MCTA has been negotiated by Penterra's clinical contracts team, led by Samantha Novak, Director of Clinical Contracts, in collaboration with Veridian's legal and contracts team, and has undergone multiple rounds of negotiation since initial discussions began in February 2023.
B. Key Personnel
The following individuals are the principal participants in the CLARION trial and the MCTA negotiations and are referenced throughout this memorandum:
Clinical Trial Leadership:
• Global Principal Investigator: Dr. Catherine Aldridge, M.D., Ph.D., is Professor of Oncology at Graystone University Medical Center, located at 1200 University Avenue, Philadelphia, Pennsylvania 19104. Graystone University Medical Center is a Veridian Network member institution. Dr. Aldridge is a nationally recognized expert in hepatocellular carcinoma, with over 150 peer-reviewed publications in the field and prior experience serving as principal investigator on six Phase III oncology trials. Dr. Aldridge will serve as the Global Principal Investigator for the CLARION trial and will lead the academic publication committee.
• Co-Principal Investigator: Dr. Howard Matsuoka, M.D., is Associate Professor of Hepatology and Oncology at Lakemont Medical Center, located at 4400 North Michigan Drive, Chicago, Illinois 60611. Lakemont Medical Center is also a Veridian Network member institution. Dr. Matsuoka brings extensive clinical expertise in hepatobiliary oncology and has served as a co-investigator on multiple Phase II and Phase III trials in HCC and cholangiocarcinoma.
Penterra Pharmaceuticals Corp.:
• Chief Medical Officer: Dr. Elaine Whitford, M.D.
• Senior Vice President, Clinical Development: Dr. Marcus Yun, M.D., M.P.H.
• Vice President, Clinical Operations: Jennifer Holt
• Director, Clinical Contracts: Samantha Novak
Veridian Health Research Network, Inc.:
• Vice President, Legal & Compliance: Gregory Callahan, Esq., who serves as the legal lead for the MCTA negotiations on behalf of Veridian.
• Director, Sponsored Research Agreements: Patricia Dunne, who is responsible for the contracts negotiation and administration of the MCTA from the Veridian side.
C. Scope of Services
A critical component of the FMV analysis is a thorough understanding of the nature, scope, and complexity of the clinical trial services to be provided by investigators and site staff at each of the 38 Veridian Network sites under the MCTA. The services to be performed are extensive and reflect the demands of a large-scale Phase III oncology trial in an advanced cancer population.
At each participating site, investigators and their clinical research teams will be responsible for the following activities: subject screening and eligibility assessment, including review of inclusion and exclusion criteria and verification of prior systemic therapy history; enrollment and randomization of eligible subjects through the interactive response technology ("IRT") system; administration of study drug (penterafenib) or matching placebo in accordance with the Protocol visit schedule and dosing instructions; collection of efficacy and safety data, including tumor assessments, laboratory evaluations, vital signs, physical examinations, electrocardiograms, and patient-reported outcomes; adverse event monitoring, documentation, and reporting, including the obligation to report all serious adverse events ("SAEs") to Penterra's drug safety department within 24 hours of the investigator's awareness; maintenance and retention of source documents in accordance with applicable regulatory requirements and Good Clinical Practice ("GCP") guidelines; participation in monitoring visits conducted by Meridian Contract Research Organization, Inc. ("Meridian CRO"), Penterra's contracted clinical research organization responsible for on-site monitoring activities; data entry into the electronic data capture ("EDC") platform operated by Pinnacle Data Solutions, Inc., including timely resolution of data queries and discrepancies; collection, processing, and shipment of biological samples (including blood, serum, and plasma specimens for PK/PD and biomarker analyses) to Northbridge Bioanalytical Laboratories, Inc. (the designated central laboratory); management of Institutional Review Board ("IRB") correspondence, including initial submissions, continuing reviews, amendments, deviations, and annual renewals; administration of the informed consent process, ensuring that each subject provides written informed consent prior to any study-related procedures; conduct of follow-up visits during the post-treatment and survival follow-up periods; and study close-out activities, including drug accountability, return or destruction of unused investigational product, final regulatory submissions, and archival of study records.
The complexity of the CLARION trial is further elevated by several factors unique to Phase III HCC oncology trials in this patient population. Patients with advanced hepatocellular carcinoma represent a medically complex cohort with significant hepatic dysfunction, requiring specialized hepatology assessments including Child-Pugh scoring, Model for End-Stage Liver Disease ("MELD") scoring, and serial alpha-fetoprotein ("AFP") monitoring. The Protocol requires imaging assessments at specified intervals using contrast-enhanced computed tomography ("CT") or magnetic resonance imaging ("MRI") with assessment of tumor response per Response Evaluation Criteria in Solid Tumors ("RECIST") v1.1 criteria, which demands specialized radiological expertise and equipment at each site. Additionally, the Protocol includes intensive PK/PD sampling at multiple timepoints during the first several treatment cycles, biomarker collection (including circulating tumor DNA ["ctDNA"] and tissue-based biomarker panels), and liver function monitoring with protocol-specified dose modification and interruption rules based on hepatic function parameters. The 18-month post-treatment follow-up period adds to the per-patient service burden, requiring ongoing survival assessments, subsequent therapy documentation, and data entry into the EDC system after the active treatment period has concluded.
Taken together, these factors support the characterization of the CLARION trial as a high-complexity Phase III oncology study that requires substantial investigator and site staff time, specialized clinical expertise, and significant institutional infrastructure, all of which must be accounted for in any meaningful FMV assessment of the proposed compensation.
III. Compensation Structure Under the MCTA
The proposed MCTA establishes a multi-component compensation framework consisting of per-patient site fees, start-up fees, annual site maintenance fees, investigator grants for academic publication support, a network coordination and administrative fee payable to Veridian central, technology and EDC integration costs, and a contingency/change order reserve. Each component is described in detail below.
A. Per-Patient Site Fees
The central compensation component of the MCTA is the per-patient site fee, which is set at $52,000 per enrolled subject on a screen-to-completion basis. This fee is intended to compensate participating Veridian Network sites for all investigator and site staff time and effort, institutional overhead, clinical research infrastructure, and patient care costs associated with the conduct of the CLARION Protocol from the point of subject screening through study completion or early discontinuation.
With a total planned enrollment of 1,200 subjects across the 38 Veridian Network sites, the aggregate per-patient site fee expenditure under the MCTA is calculated as follows:
$52,000 per subject × 1,200 subjects = $62,400,000
The per-patient fee is structured as a milestone-based payment, with each $52,000 per-patient amount payable in four equal installments of $13,000 each, triggered by the achievement of specific study milestones:
(1) $13,000 (25% of per-patient fee) payable upon randomization of the subject into the trial;
(2) $13,000 (25% of per-patient fee) payable upon completion of the Week 12 efficacy and safety assessment visit;
(3) $13,000 (25% of per-patient fee) payable upon completion of the Week 24 efficacy and safety assessment visit; and
(4) $13,000 (25% of per-patient fee) payable upon completion of the study (final visit or end-of-study visit for the subject, including completion of all required follow-up data collection).
Payment terms for each milestone installment are Net 45 days from Penterra's receipt of a proper invoice from the applicable Veridian Network site or from Veridian central on behalf of the site, accompanied by documentation confirming achievement of the applicable milestone as recorded in the EDC system.
An important structural feature of the per-patient fee arrangement is that all per-patient payments flow directly to the site institution (i.e., the Veridian Network member academic medical center or affiliated research site), rather than to individual investigators personally. Investigators at each site are compensated for their time and effort through their institutional salary and effort allocation mechanisms, which are determined by the site institution in accordance with its own policies and procedures for compensating faculty and staff engaged in sponsored research activities. This institutional payment structure is a significant compliance safeguard, as discussed further in Sections IV and VI of this memorandum.
B. Start-Up Fees
The MCTA provides for a one-time start-up fee of $75,000 per site, payable to each of the 38 participating Veridian Network sites, yielding a total start-up expenditure of:
$75,000 per site × 38 sites = $2,850,000
The start-up fee is payable in two installments: 50% ($37,500) upon formal site activation (defined as the date on which all regulatory and contractual prerequisites for study initiation at the site have been completed), and 50% ($37,500) upon enrollment of the first patient at the site.
The start-up fee is intended to cover the substantial front-end costs incurred by each site in preparing for study initiation, including but not limited to: preparation and submission of IRB application materials; participation in the site initiation visit ("SIV") conducted by Meridian CRO; training of site investigators, sub-investigators, study coordinators, and other research staff on Protocol-specific procedures, GCP requirements, and safety reporting obligations; assembly and maintenance of the regulatory binder, including collection of required regulatory documents (e.g., CVs, medical licenses, financial disclosure forms, 1572 forms); calibration and qualification of site-specific equipment (e.g., ECG machines, laboratory instruments, pharmacy dispensing systems); and setup, testing, and validation of the Pinnacle Data Solutions EDC system at each site, including user account provisioning and training.
C. Annual Site Maintenance Fees
Each participating Veridian Network site will receive an annual site maintenance fee of $40,000 per site per year, payable throughout the duration of the site's participation in the CLARION trial. Based on an estimated average participation period of 3.5 years per site (reflecting staggered site activation and variability in enrollment completion timelines across the 38-site network), the total annual site maintenance fee expenditure is projected to be:
$40,000 per site per year × 38 sites × 3.5 average years = $5,320,000
Annual site maintenance fees are paid in advance on each anniversary of the site's activation date and are intended to defray the ongoing institutional costs of maintaining clinical trial infrastructure during the study period. These costs include continuing IRB review and regulatory maintenance; pharmacy services related to the receipt, storage, dispensing, and accountability of investigational product; ongoing site staff training and education; maintenance of study-specific equipment, supplies, and facilities; and general research administration overhead.
D. Investigator Grants
The MCTA allocates a total of $1,500,000 for investigator grants to support academic publication and research arising from the CLARION trial. These grants are intended to further the academic research mission of the participating investigators and institutions by providing financial support for the scholarly dissemination of trial results.
The disbursement of investigator grants is contingent upon a specific academic milestone: grants are payable only upon acceptance of manuscripts arising from the CLARION trial for publication in peer-reviewed scientific or medical journals. This trigger mechanism ensures that grant funds are tied to legitimate academic output rather than to enrollment performance or any other operational metric.
Individual grant amounts will be determined based on authorship contribution and institutional allocation policies, with anticipated amounts ranging from $25,000 to $150,000 per investigator or co-author. The precise allocation of grant funds will be determined by the Publication Committee established under the MCTA, in consultation with Penterra's medical affairs division.
The MCTA includes provisions governing investigator academic freedom in connection with the publication of trial results, subject to Penterra's right to review manuscripts for a period of 60 days prior to submission to identify and protect confidential information and patentable subject matter. In the event that Penterra identifies patentable subject matter, an additional delay of up to 90 days may be imposed to allow Penterra to file appropriate patent applications before publication proceeds. These provisions are consistent with standard industry practices for sponsor-supported clinical trials and with the guidelines issued by the International Committee of Medical Journal Editors ("ICMJE").
E. Network Coordination / Administrative Fee
The MCTA provides for a network coordination and administrative fee of $4,200,000 payable to Veridian Health Research Network, Inc. at its central administrative office. This fee is payable in quarterly installments of $300,000 each over a period of 14 quarters (3.5 years), commencing upon the effective date of the MCTA.
The network coordination fee compensates Veridian central for a range of centralized administrative and operational services provided to the CLARION trial across the 38-site network, including: central network administration and project management; site selection support and feasibility assessments; central IRB coordination, as Veridian maintains a Central Institutional Review Board that serves as the IRB of record for non-Pennsylvania sites within the network (Pennsylvania sites are subject to separate institutional IRB requirements under state law); quality assurance activities, including internal auditing and compliance monitoring across network sites; and site performance oversight, including enrollment tracking, data quality review, and corrective action plan development for underperforming sites.
F. Technology/EDC Integration Costs
The MCTA includes a fixed cost of $1,230,000 for the integration and deployment of the Pinnacle Data Solutions EDC platform across all 38 Veridian Network sites. This amount covers system configuration, site-specific customization, user account provisioning, training, validation, and ongoing technical support throughout the study period. This cost is paid by Penterra to Pinnacle Data Solutions, Inc. directly, with a pass-through administrative allocation reflected in the MCTA for purposes of total budget reconciliation.
G. Contingency/Change Order Reserve
The MCTA includes a contingency and change order reserve of $2,500,000 to cover unanticipated costs that may arise during the course of the CLARION trial, including costs associated with protocol amendments, changes in regulatory requirements, unanticipated increases in site workload, or other change orders that may be necessitated by evolving trial circumstances. Disbursement of contingency funds will require mutual written agreement between Penterra and Veridian, with appropriate documentation of the scope and justification for the change order.
H. Total MCTA Value Reconciliation
The total value of the MCTA is reconciled as follows:
This total of $80,000,000 represents the maximum aggregate financial commitment by Penterra under the MCTA, subject to adjustments for actual enrollment volume (if fewer than 1,200 subjects are enrolled), actual site participation duration (if the average site participation period differs from the projected 3.5 years), and actual contingency expenditures.
IV. Legal Framework: Anti-Kickback Statute
A. Overview of the Anti-Kickback Statute
The federal Anti-Kickback Statute, codified at 42 U.S.C. § 1320a-7b(b), is one of the cornerstone statutes governing financial relationships in the healthcare industry. The AKS makes it a criminal offense for any person to knowingly and willfully offer, pay, solicit, or receive any remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, in exchange for or to induce the referral of 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 healthcare program. The statute likewise prohibits the knowing and willful offer, payment, solicitation, or receipt of remuneration in return for purchasing, leasing, ordering, or arranging for or recommending the purchasing, leasing, or ordering of any good, facility, service, or item for which payment may be made in whole or in part under a federal healthcare program.
Violations of the AKS carry significant consequences, including criminal penalties of up to $100,000 in fines and up to ten years of imprisonment per violation, as well as civil monetary penalties of up to $100,000 per violation under the Civil Monetary Penalties Law, 42 U.S.C. § 1320a-7a. In addition, a person or entity convicted of an AKS violation is subject to mandatory exclusion from participation in all federal healthcare programs, including Medicare, Medicaid, and TRICARE. Claims submitted in violation of the AKS also constitute "false claims" under the False Claims Act, 31 U.S.C. §§ 3729–3733, exposing the violator to treble damages and additional per-claim penalties.
Under established case law and Office of Inspector General ("OIG") guidance, the AKS is interpreted broadly. Courts have adopted the so-called "one purpose" test, under which the statute is violated if even one purpose of the remuneration — among potentially multiple purposes — is to induce or reward referrals of items or services reimbursable under federal healthcare programs. This standard does not require that inducement of referrals be the primary or sole purpose of the payment; the presence of any improper inducement purpose, even among otherwise legitimate purposes, is sufficient to establish a violation.
The AKS has particular applicability to clinical trial payments made by pharmaceutical sponsors to investigators and clinical research sites. Investigators participating in sponsor-funded clinical trials are frequently physicians who are in a position to prescribe, recommend, or otherwise influence the use of the sponsor's marketed products, both within and outside the clinical trial context. Moreover, clinical trial participation often generates referrals of subjects who receive federally reimbursable healthcare services (e.g., standard-of-care procedures, hospitalizations, and follow-up visits that are billed to Medicare or Medicaid) in connection with or ancillary to their trial participation. The OIG has specifically recognized that payments from pharmaceutical manufacturers to clinical investigators can implicate the AKS and has advised that such payments should be structured to fall within applicable safe harbors or, at a minimum, should reflect fair market value for legitimate services.
B. Applicable Safe Harbors
Congress and the OIG have promulgated a series of regulatory safe harbors at 42 C.F.R. § 1001.952 that define payment practices that are immunized from prosecution under the AKS, provided that all elements of the applicable safe harbor are satisfied. Two safe harbors are relevant to the compensation arrangements contemplated under the MCTA.
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 the MCTA and the underlying investigator and site services arrangements. This safe harbor protects payments made under service agreements from AKS liability, provided that all of the following requirements are satisfied:
(i) The arrangement is set out in a writing signed by the parties that specifies the services to be provided by the parties to the agreement;
(ii) If the arrangement involves part-time services, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals;
(iii) The term of the agreement is for not less than one year;
(iv) The aggregate compensation paid to the agent over the term of the agreement is set in advance, is consistent with fair market value in arms'-length transactions, and is 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 a federal healthcare program; and
(v) 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.
Analysis of Each Element. We have analyzed the proposed MCTA and the contemplated individual investigator participation agreements against each element of the personal services safe harbor, with the following conclusions:
Element (i) — Written agreement specifying services. The MCTA is a comprehensive written agreement that will be executed by authorized representatives of both Penterra and Veridian. The MCTA includes detailed descriptions of the services to be provided, including Protocol-specific obligations of investigators and site staff, and incorporates by reference the CLARION Protocol (PPC-4871-III), the Investigator's Brochure, and the study-specific Manual of Procedures. Individual investigator agreements will supplement the MCTA and will specify the obligations of each site investigator. This element is satisfied.
Element (ii) — Schedule, length, and charge for part-time services. To the extent that investigator services under the CLARION Protocol constitute part-time services (as investigators will continue to perform clinical, teaching, and other research duties outside the trial), the MCTA and its exhibits, including Exhibit B (Budget and Payment Schedule) and the visit-by-visit cost detail, specify the scope of services, the anticipated visit schedule, and the associated per-patient and per-site charges. We recommend that individual investigator agreements include further specificity regarding the estimated time commitment (FTE effort) for each investigator's role in the trial. With appropriate supplementation of individual agreements, this element will be satisfied.
Element (iii) — One-year minimum term. The MCTA has a projected term of approximately 60 months (five years), encompassing the 42-month enrollment period and the 18-month follow-up period. The agreement term substantially exceeds the one-year minimum. This element is satisfied.
Element (iv) — Aggregate compensation set in advance, at FMV, and not volume-based. The aggregate compensation under the MCTA is specified in Exhibit B (Budget and Payment Schedule) at a total of $80,000,000, with each component (per-patient fees, start-up fees, maintenance fees, grants, network fees, technology costs, and contingency reserve) set forth in specific dollar amounts. As discussed in detail in Section IV.C below, each compensation component has been benchmarked against industry norms and falls within the range of fair market value for comparable Phase III oncology clinical trials. The per-patient milestone payment structure (four equal installments of $13,000 per subject) ties payments to the completion of specific study activities and milestones rather than to enrollment volume. There are no enrollment bonuses, speed premiums, or other payment structures that would tie compensation to the volume or value of referrals. This element is satisfied.
Element (v) — No promotion of unlawful activity. The services to be performed under the MCTA consist entirely of legitimate clinical trial activities in support of a clinical investigation conducted under an active IND. There is no requirement or expectation that investigators or site staff engage in promotional activities, off-label marketing, or any other activity that would violate federal or state law. This element is satisfied.
Based on the foregoing analysis, we conclude that the compensation arrangements under the MCTA can be structured to satisfy all elements of the personal services and management contracts safe harbor, provided that the recommendations set forth in Section VIII are implemented.
2. Bona Fide Employment Safe Harbor (42 C.F.R. § 1001.952(i))
The bona fide employment safe harbor protects payments made by an employer to an employee for employment in the furnishing of any item or service for which payment may be made under a federal healthcare program, provided that the employment is for identifiable services, and that the amount paid is consistent with fair market value in arms'-length transactions and is not determined in a manner that takes into account the volume or value of referrals.
This safe harbor has potential applicability to investigators who are employees of the site institution (e.g., faculty physicians employed by Graystone University Medical Center or Lakemont Medical Center) and who receive their compensation for CLARION trial activities exclusively through their institutional salary and effort allocation. Because these investigators receive no direct payment from Penterra separate from the institutional per-patient and site-level payments under the MCTA, the employment relationship between the investigator and the site institution may qualify for the bona fide employment safe harbor. This structural feature provides an additional layer of AKS protection.
C. FMV Analysis for AKS Compliance
The determination of whether compensation paid in connection with a clinical trial constitutes fair market value is a critical component of AKS compliance. FMV in this context is generally understood to mean the value that would be paid for the same or comparable services in an arms'-length transaction between a willing buyer and a willing seller, neither being under compulsion to act and both having reasonable knowledge of the relevant facts. The OIG has consistently emphasized that compensation to physicians and other healthcare providers that exceeds FMV raises heightened AKS concerns, as excess compensation may constitute disguised remuneration for referrals.
We have employed the following three-pronged methodology to establish FMV for each compensation component under the MCTA:
(1) Comparable market analysis using publicly available industry benchmarks for Phase III oncology clinical trials, including data from the Tufts Center for the Study of Drug Development ("Tufts CSDD"), the Association of Clinical Research Organizations ("ACRO"), the Tidewater Industries clinical trial cost benchmarking database, and Calderwood & Harkness's proprietary database of clinical trial agreements;
(2) Assessment of investigator time-and-effort based on the visit schedule, procedure volume, and data collection requirements specified in the CLARION Protocol; and
(3) Review of site cost budgets submitted by Veridian Network sites during the budget negotiation process, including institutional overhead rates and departmental cost allocation models.
The results of our FMV analysis for each compensation component are summarized below.
Per-Patient Site Fee of $52,000. The CLARION per-patient site fee of $52,000 per enrolled subject has been compared to published benchmarks and internal data for Phase III clinical trials in HCC and comparable oncology indications (e.g., non-small cell lung cancer, renal cell carcinoma, and colorectal cancer second-line trials, which involve similarly complex patient populations and visit schedules). Industry benchmark data indicate that the typical per-patient site fee range for complex Phase III oncology trials at academic medical centers is $40,000 to $70,000 per patient, with significant variation depending on protocol complexity, the number and duration of study visits, the extent of data collection requirements (including imaging, PK/PD, and biomarker assessments), and the patient population's acuity and comorbidity burden. The CLARION per-patient fee of $52,000 falls within the mid-range of this benchmark spectrum and is consistent with the expected costs of conducting a 60-month Phase III HCC trial involving intensive hepatology monitoring, RECIST-based imaging assessments, PK/PD sampling, and an 18-month post-treatment follow-up period. We conclude that the per-patient site fee is consistent with FMV.
Investigator Grants of $1,500,000 (Total). The investigator grants are structured as academic publication support, disbursed only upon acceptance of manuscripts for peer-reviewed publication. This disbursement trigger ties the grants to legitimate academic output rather than to enrollment metrics or other operational performance measures. The total allocation of $1,500,000 across a 38-site, 1,200-patient Phase III trial represents a relatively modest commitment to academic dissemination. Industry benchmark data for publication grants in multi-site Phase III trials indicate a typical range of $1,000,000 to $3,000,000 in total, depending on the size and scope of the trial and the number of anticipated publications. The proposed amount of $1,500,000 falls within the lower-to-middle portion of this range. Individual investigator grant amounts of $25,000 to $150,000 are consistent with the range of publication support grants commonly provided in comparable trials. We conclude that the investigator grants are consistent with FMV.
Start-Up Fees of $75,000 Per Site. The per-site start-up fee of $75,000 has been benchmarked against comparable multi-site Phase III oncology trials. Industry data indicate a typical range of $50,000 to $125,000 per site for Phase III oncology trials at academic medical centers, with variation based on the complexity of the regulatory start-up process, the extent of site-specific training requirements, and the sophistication of the technology platforms to be deployed. The CLARION start-up fee of $75,000 falls squarely within this range and reflects the significant front-end investment required to prepare each of 38 sites for participation in a complex Phase III HCC trial. We conclude that the start-up fee is consistent with FMV.
Annual Site Maintenance Fees of $40,000 Per Site Per Year. Annual maintenance fees of $40,000 per site per year have been benchmarked against industry norms of $30,000 to $60,000 per site per year for Phase III oncology trials at academic medical centers. The proposed amount falls within this range and appropriately compensates sites for the ongoing costs of regulatory maintenance, pharmacy operations, investigational product storage and accountability, and general research infrastructure. We conclude that the annual site maintenance fee is consistent with FMV.
Network Coordination Fee of $4,200,000. The network coordination fee represents approximately 5.25% of the total MCTA deal value of $80,000,000. Industry benchmarks for network coordination and administrative fees charged by large multi-site academic research organizations range from approximately 4% to 8% of total site fees, depending on the scope of centralized services provided. The fee of 5.25% falls within this range and is commensurate with the breadth of centralized services that Veridian will provide, including central network administration, site selection support, central IRB coordination, quality assurance, and site performance oversight across a 38-site network operating in 14 states. We conclude that the network coordination fee is consistent with FMV.
Conclusion. All compensation components under the MCTA fall within the ranges of fair market value established through our comparable market analysis, investigator time-and-effort assessment, and site cost budget review. Critically, no component of the compensation structure is determined in a manner that takes into account the volume or value of referrals or business otherwise generated between Penterra and Veridian or its member institutions. The per-patient fees are tied to study milestones (randomization, Week 12, Week 24, and study completion), not to enrollment volume. There are no bonuses, premiums, or escalators linked to the rate or volume of subject enrollment.
D. Structural Safeguards Recommended
In addition to the FMV analysis, the following structural safeguards should be incorporated into the MCTA and related agreements to further mitigate AKS risk:
First, all compensation should flow to institutions (Veridian central and its member site institutions) rather than directly to individual investigators, with the sole exception of investigator grants for academic publication, which by their nature are associated with individual authorship contributions. This institutional payment flow ensures that individual investigators do not receive direct financial incentives from Penterra that could be characterized as inducements for referrals.
Second, the per-patient milestone-based payment structure (four installments of $13,000 each) should be clearly documented in Exhibit B of the MCTA, with each installment expressly tied to the completion of specific, defined study activities. This structure ensures that payments correlate with actual services rendered and study milestones achieved, rather than with enrollment volume.
Third, the MCTA should expressly prohibit any bonus, incentive, or premium payments contingent on enrollment targets, speed of enrollment, or the rate of subject recruitment. There should be no financial reward for sites or investigators that exceed enrollment projections or complete enrollment ahead of schedule.
Fourth, there should be no payments under the MCTA that are tied to prescribing decisions, formulary placement, or any other activity related to Penterra's marketed products outside the scope of the CLARION clinical trial.
Fifth, the MCTA should include explicit AKS compliance representations and covenants in Exhibit H (Regulatory Compliance Representations and Covenants), in which both Penterra and Veridian represent and warrant that the compensation has been negotiated at arm's length and is consistent with FMV, and that neither party will condition any referral of patients, business, or services on the payments made under the MCTA.
Sixth, given the $80,000,000 total deal value and the prominence of the CLARION trial within Penterra's development portfolio, we recommend that Penterra consider engaging an independent third-party valuation firm to provide a formal FMV opinion supporting the per-patient fee, investigator grant amounts, and other compensation components. While not legally required, such a formal FMV certification would provide an additional, independent layer of protection in the event of a government investigation or audit and would demonstrate Penterra's proactive commitment to compliance.
V. Legal Framework: Physician Payments Sunshine Act / Open Payments
A. Overview of the Sunshine Act
The Physician Payments Sunshine Act, enacted as Section 6002 of the Affordable Care Act and codified at 42 U.S.C. § 1320a-7h, requires "applicable manufacturers" of drugs, devices, biologicals, or medical supplies covered or reimbursed under Medicare, Medicaid, or the Children's Health Insurance Program ("CHIP") to report annually to the Centers for Medicare & Medicaid Services ("CMS") certain payments and transfers of value made to "covered recipients," which include physicians and teaching hospitals. The implementing regulations are set forth at 42 C.F.R. Part 403, Subpart I.
The purpose of the Sunshine Act is to promote transparency in the financial relationships between healthcare product manufacturers and the physicians and teaching hospitals with which they interact. CMS publishes reported payment data on the Open Payments website (openpaymentsdata.cms.gov), where it is publicly accessible. The Sunshine Act does not prohibit payments from manufacturers to physicians or teaching hospitals; rather, it imposes a reporting and disclosure obligation designed to enable public scrutiny of such relationships.
Applicable manufacturers must submit annual reports to CMS by March 31 of each year, covering payments and transfers of value made during the preceding calendar year. Prior to public posting, CMS provides a review and dispute period during which covered recipients may review the reported data and submit disputes regarding the accuracy of reported payments.
B. Penterra's Status as an Applicable Manufacturer
Penterra Pharmaceuticals Corp. is a publicly traded pharmaceutical company listed on the Nasdaq Stock Market under the ticker symbol PTRA. Penterra reported fiscal year 2022 revenue of approximately $1.87 billion derived from the manufacture, marketing, and distribution of pharmaceutical products that are covered or reimbursed under federal healthcare programs, including Medicare and Medicaid.
Accordingly, Penterra qualifies as an "applicable manufacturer" as defined under 42 U.S.C. § 1320a-7h(e)(2) and is subject to the Sunshine Act's reporting obligations with respect to payments and transfers of value made to covered recipients in connection with the CLARION trial.
C. Covered Recipients in the CLARION Trial
Two categories of covered recipients are relevant to the CLARION trial:
Physicians. Under the Sunshine Act, "covered recipient" includes any physician who is a Doctor of Medicine (M.D.) or Doctor of Osteopathic Medicine (D.O.). Investigators at Veridian Network sites who hold M.D. or D.O. degrees are covered recipients, including Dr. Catherine Aldridge, M.D., Ph.D. (Global Principal Investigator) and Dr. Howard Matsuoka, M.D. (Co-Principal Investigator), as well as site investigators and sub-investigators at each of the 38 participating sites who hold medical degrees. Other clinical research professionals at the sites who are not physicians (e.g., Ph.D. researchers, nurses, study coordinators) are not covered recipients under the Sunshine Act.
Teaching Hospitals. The Sunshine Act also designates "teaching hospitals" as covered recipients. Teaching hospitals are identified by CMS annually based on the receipt of graduate medical education ("GME") payments or certain other Medicare payments. Academic medical centers within the Veridian Network that qualify as teaching hospitals under the CMS list are covered recipients with respect to payments received from Penterra. The specific Veridian Network member institutions that qualify as teaching hospitals should be identified through cross-referencing the CMS teaching hospital list (updated annually) with the list of participating Veridian Network sites.
D. Categorization of Reportable Payments
Each payment and transfer of value under the MCTA must be analyzed to determine whether it is reportable under the Sunshine Act and, if so, under what payment category. Our analysis of each compensation component is as follows:
Per-Patient Site Fees Paid to Institutions. Where the site institution receiving per-patient site fees is a teaching hospital (as identified on the CMS teaching hospital list), the payments must be reported as payments to a covered recipient under the "research" nature-of-payment category. Where the site institution is not a teaching hospital, payments made directly to the institution are generally not reportable under the Sunshine Act. However, if any portion of the institutional payment is attributable to an individual physician investigator (e.g., through effort allocation or direct compensation for study-related work), the allocated amount would be reportable as a payment to the physician covered recipient. We recommend that Penterra work with each Veridian Network site to determine the appropriate reporting treatment based on the site's teaching hospital status.
Start-Up Fees Paid to Institutions. Start-up fees paid to site institutions that are teaching hospitals are reportable as "research" payments under the Sunshine Act. The same principles described above for per-patient site fees apply.
Annual Site Maintenance Fees. Annual site maintenance fees paid to site institutions that are teaching hospitals are reportable as "research" payments under the Sunshine Act.
Network Coordination Fee Paid to Veridian Central. The network coordination and administrative fee of $4,200,000 is payable to Veridian Health Research Network, Inc. at its central office. The reportability of this fee depends on whether Veridian central itself qualifies as a teaching hospital under the CMS list (which is unlikely for a central administrative entity) and whether any portion of the fee is passed through to teaching hospital member institutions. To the extent that Veridian central redistributes any portion of the coordination fee to member institutions that are teaching hospitals, those pass-through payments would be reportable. We recommend that Penterra obtain contractual confirmation from Veridian regarding the flow of coordination fee funds to member institutions for reporting purposes.
Investigator Grants for Publication. Investigator grants disbursed to individual physician investigators upon acceptance of manuscripts for peer-reviewed publication are reportable as research-related payments to covered recipient physicians. Each grant must be attributed to the specific physician receiving the payment, identified by name and National Provider Identifier ("NPI") number, and reported under the "research" nature-of-payment category with the associated clinical trial context information.
Technology/EDC Integration Costs. Technology and EDC integration costs of $1,230,000 are paid to Pinnacle Data Solutions, Inc., a commercial technology vendor. Pinnacle Data Solutions is neither a physician nor a teaching hospital and does not qualify as a covered recipient under the Sunshine Act. These payments are therefore not reportable.
Contingency/Change Order Reserve. Amounts disbursed from the contingency reserve are reportable under the Sunshine Act when and if disbursed, depending on the identity and covered recipient status of the recipient. The reportable category will be determined at the time of disbursement based on the nature of the services or items for which the contingency funds are expended.
E. Research Payment Exemptions and Context
Payments made in connection with a clinical investigation for which an Investigational New Drug Application is in effect — as is the case with the CLARION trial under IND 157823 — receive specific treatment under the CMS Open Payments reporting framework.
Qualifying research payments are reported under the "research" nature-of-payment category and are subject to a delayed publication timeline under the Open Payments rules. Specifically, research payments associated with pre-approval clinical investigations are reported to CMS in the ordinary course but are not publicly posted until the earlier of: (a) FDA approval or denial of the marketing application associated with the research product (in this case, a future NDA for penterafenib), or (b) four calendar years after the date of the payment. This delayed publication provision is intended to protect the confidentiality of pre-approval research activities and to prevent premature public disclosure of information about investigational products that have not yet received marketing approval.
In reporting research payments, Penterra should include the following research context fields as required by CMS: the ClinicalTrials.gov identifier (NCT05928174); the study phase (Phase III); the name of the research study or protocol (CLARION / PPC-4871-III); and the therapeutic area or product name (penterafenib / PPC-4871).
F. Reporting Obligations and Tracking Recommendations
Penterra bears the legal obligation to track and report all qualifying transfers of value to covered recipients in connection with the CLARION trial. This obligation extends not only to the major compensation components described in the MCTA but also to smaller transfers of value, including in-kind items such as study drug supplied at no cost to the site, medical devices or equipment provided for study use, meals provided during investigator meetings and site visits, and travel reimbursement paid to investigators for attendance at investigator meetings, advisory boards, or training sessions. Each of these items must be tracked, valued, and reported under the appropriate Sunshine Act payment category if the recipient is a covered recipient.
We recommend the following measures to ensure comprehensive and accurate Sunshine Act compliance:
First, Penterra's clinical operations team, led by Jennifer Holt (VP, Clinical Operations) and Samantha Novak (Director, Clinical Contracts), should coordinate closely with Penterra's compliance department to establish a centralized payment tracking system that links each MCTA disbursement to the specific covered recipients and/or teaching hospitals to which the payment or transfer of value is attributable. This system should capture payment date, amount, nature-of-payment category, and covered recipient identification information (name, NPI, state, specialty for physicians; CMS-assigned identification for teaching hospitals).
Second, the MCTA and individual investigator participation agreements should include contractual provisions requiring Veridian and its member sites and investigators to cooperate with Penterra's Sunshine Act data collection and verification processes. This cooperation should include timely provision of covered recipient identification information, confirmation of payment allocations within institutions, and participation in the pre-publication review and dispute period administered by CMS.
Third, Exhibit H of the MCTA (Regulatory Compliance Representations and Covenants) should contain specific Sunshine Act cooperation covenants obligating Veridian and its member institutions to provide accurate and timely data regarding the allocation of MCTA payments to individual physician investigators and to teaching hospital entities.
Fourth, Penterra should ensure compliance with the annual reporting deadline, which requires submission of payment data to CMS by March 31 of each year following the calendar year in which payments were made. Penterra's compliance team should build in sufficient lead time for data aggregation, quality review, and internal approval processes prior to the March 31 submission deadline.
VI. 21 CFR Part 54 — Financial Disclosure Considerations
While the primary focus of this memorandum is on AKS and Sunshine Act compliance, a brief discussion of financial disclosure requirements under 21 C.F.R. Part 54 is warranted, as these requirements intersect with the FMV analysis and the overall compliance framework for the CLARION trial.
FDA regulations at 21 C.F.R. Part 54 require sponsors of covered clinical studies to collect financial disclosure information from clinical investigators and to submit this information to the FDA as part of marketing applications. The purpose of Part 54 financial disclosures is to enable the FDA to assess whether investigators' financial interests in the outcome of the study could have introduced bias into the study results, thereby affecting the reliability of the data submitted in support of a marketing application.
A separate Financial Disclosure Certification Template is being prepared for completion by each CLARION trial investigator, and detailed guidance on Part 54 compliance will be provided to Penterra's clinical operations team in a forthcoming communication. However, we note the following points of intersection between the FMV analysis presented in this memorandum and Part 54 financial disclosure considerations:
First, the FMV analysis supports the position that investigator compensation under the MCTA does not constitute a "significant payment of other sorts" within the meaning of 21 C.F.R. § 54.2(f) that would raise concerns about study data integrity. Part 54 requires disclosure of "significant payments of other sorts" exceeding $25,000 in value made by the sponsor to the investigator or the institution to support activities of the investigator that have a monetary value of more than $25,000, exclusive of the costs of conducting the clinical study or other clinical studies. Here, per-patient payments are made to institutions, not to individual investigators, which mitigates the concern that individual investigators are receiving significant financial benefits from Penterra that could compromise objectivity.
Second, investigator grants in the range of $25,000 to $150,000 per investigator are tied to legitimate academic publication activities and are disbursed only upon manuscript acceptance. While individual grants at the upper end of the anticipated range may trigger Part 54 disclosure obligations depending on their classification, they are modest in the context of a Phase III trial of this scope and are consistent with the academic research mission of the participating institutions.
Third, based on our current due diligence, no investigator participating in the CLARION trial has been identified as holding an equity interest, stock options, or any other proprietary interest in Penterra Pharmaceuticals Corp. or in penterafenib. Similarly, no significant payment arrangements beyond the MCTA compensation have been identified in connection with site investigators. These findings should be confirmed through the financial disclosure certification process prior to study participation.
VII. Tax-Exempt Status Considerations for Veridian and Member Institutions
The proposed MCTA implicates considerations related to the tax-exempt status of Veridian Health Research Network, Inc. and its member institutions, several of which are nonprofit corporations. These considerations, while not the primary focus of this memorandum, are relevant to the overall FMV analysis and warrant brief discussion.
Veridian Health Research Network, Inc. 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). Graystone University Medical Center, Lakemont Medical Center, and numerous other member institutions within the Veridian Network are likewise organized as nonprofit corporations exempt from federal income taxation under IRC § 501(c)(3).
The tax-exempt status of these organizations imposes constraints on the types and amounts of compensation they may receive. Under IRC § 501(c)(3), a tax-exempt organization must be