CALDERWOOD & HARKNESS LLP — CONFIDENTIAL / ATTORNEY WORK PRODUCT / PRIVILEGED
MEMORANDUM
TO: File — Matter No. 1018-00006
FROM: Peter Vassiliev, Lead Associate, intellectual Property
DATE: October 20, 2023
RE: Closing Memorandum — Out-License of PPC-4187 (Penteracitinib) by Penterra Pharmaceuticals Corp. to Meridian Bio Therapeutics Limited
CC: Marcus Delgado (Responsible Partner); Catherine Bloom (Billing Partner); Wendy Schultz (Working Associate); Sylvia Hartwell (Specialist Partner, Tax)
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I. Purpose and Executive Summary
This memorandum documents the closing of the exclusive out-license of compound PPC-4187 (proposed International Nonproprietary Name ("INN"): Penteracitinib; proposed trade name: PENTECLAR) by Penterra Pharmaceuticals Corp. ("Penterra" or the "Licensor"), a Delaware corporation publicly traded on the Nasdaq Global Select Market under the ticker symbol PNTR, to Meridian Bio Therapeutics Limited ("Meridian" or the "Licensee"), a Hong Kong limited company (Company Reg. No. 2847631). The purpose of this memorandum is to provide a comprehensive record of the transaction structure, key commercial terms, closing deliverables, and post-closing obligations for the firm's file and the benefit of all team members who may be involved in ongoing post-closing work.
The transaction closed on October 20, 2023 (the "Effective Date"), following execution of the Exclusive License Agreement (the "License Agreement") and certain ancillary agreements on October 2, 2023 (the "Signing Date"). The eleven-day gap between the originally scheduled closing date and the actual closing date is addressed in the Transaction Timeline section below.
The total deal value under the License Agreement is up to One Hundred Twenty Million Dollars ($120,000,000), comprising an upfront payment, development milestone payments, regulatory milestone payments, and commercial milestone payments, together with tiered royalties on annual net sales of the Licensed Product in the Licensed Territory. Specifically, the financial package is structured as follows: $18,000,000 in upfront consideration, $32,000,000 in aggregate development milestone payments, $25,000,000 in aggregate regulatory milestone payments, and $45,000,000 in aggregate commercial milestone payments.
Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") represented Penterra as licensor in all aspects of the transaction, including the negotiation and drafting of the License Agreement and all ancillary documents, intellectual property due diligence, and coordination of tax and regulatory analysis. Lam, Cheung & Firth LLP ("LCF"), with offices in Hong Kong and New York, represented Meridian as licensee.
Closing was originally scheduled for October 9, 2023. However, the closing was delayed to October 20, 2023, as the final IP assignment recordation in the last applicable jurisdiction within the Licensed Territory was not completed until October 18, 2023. The completion of IP recordation across all Territory jurisdictions was a condition precedent to closing under Section 8.2(d) of the License Agreement. With that condition satisfied on October 18, 2023, the parties proceeded to close on October 20, 2023, and the upfront payment of $18,000,000 previously deposited into escrow by Meridian at Velthorn National Bank, N.A. was released to Penterra on such date.
This memorandum is organized to address: (i) the parties to the transaction; (ii) background on the licensed compound; (iii) the scope of the Licensed Territory; (iv) the key financial and commercial terms of the License Agreement and related ancillary agreements; (v) the intellectual property portfolio subject to the license; (vi) tax considerations; (vii) regulatory and antitrust matters; (viii) the transaction timeline; (ix) advisors and counsel; (x) all closing deliverables completed at closing; (xi) post-closing obligations; (xii) fee matters; and (xiii) document retention procedures.
II. The Parties
A. Penterra Pharmaceuticals Corp. (Client / Licensor)
Full Legal Name: Penterra Pharmaceuticals Corp.
Entity Type and Jurisdiction: Corporation organized and existing under the laws of the State of Delaware; Employer Identification Number (EIN) 22-3948175.
Headquarters: 400 Pharma Drive, Suite 800, Princeton, New Jersey 08540.
Registered Agent: Cobalt Ridge Technologies, 1209 Orange Street, Wilmington, Delaware 19801.
Key Officers and Contacts:
• Chief Executive Officer: Dr. Raymond K. Ostrowski
• General Counsel: Anita M. Fremont, Esq.
• Senior Vice President, Business Development: Leland J. Cho
• Vice President, intellectual Property: Dr. Priya Nandakumar
• Chief Financial Officer: Garrett T. Holloway
Public Company Information: Penterra is publicly traded on the Nasdaq Global Select Market under the ticker symbol PNTR. As of the most recent publicly available data preceding the Signing Date, Penterra had an approximate market capitalization of $2.1 billion. For the fiscal year ended December 31, 2022, Penterra reported total revenue of approximately $487 million, derived primarily from its marketed dermatology portfolio and royalty income from previously out-licensed compounds. Penterra's principal business is the discovery, development, and commercialization of small-molecule therapeutics for inflammatory and autoimmune diseases, with a particular focus on dermatological indications.
The Penterra Board of Directors authorized management to negotiate and enter into the transaction at a meeting held on July 18, 2023, as documented in the Secretary's Certificate delivered at closing.
B. Meridian Bio Therapeutics Limited (Counterparty / Licensee)
Full Legal Name: Meridian Bio Therapeutics Limited.
Entity Type and Jurisdiction: Limited company organized and existing under the laws of Hong Kong Special Administrative Region, People's Republic of China; Company Registration Number 2847631.
Headquarters: 18/F, Blossom Tower, 88 Queen's Road Central, Hong Kong SAR.
Regional Subsidiaries: Meridian operates across the Asia-Pacific region through the following key subsidiaries, each of which may be involved in the development, manufacture, or commercialization of the Licensed Product within its respective jurisdiction:
• Meridian Pharma (Shanghai) Co., Ltd. — a wholly foreign-owned enterprise ("WFOE") organized under the laws of the People's Republic of China, responsible for PRC-based regulatory, commercial, and manufacturing activities.
• Meridian Japan K.K. — a kabushiki kaisha organized under the laws of Japan, headquartered in Tokyo, with regulatory and commercial capabilities for the Japanese market.
• Meridian Korea Inc. — a corporation organized under the laws of the Republic of Korea, headquartered in Seoul, with regulatory and commercial capabilities for the Korean market.
• Meridian Bio Australia Pty Ltd — a proprietary limited company organized under the laws of the Commonwealth of Australia, headquartered in Sydney, with regulatory and commercial capabilities for the Australian and New Zealand markets.
Key Officers and Contacts:
• Chairman and Founder: Dr. Henry W.L. Tsang
• Chief Executive Officer: Angela C.Y. Fong
• Chief Medical Officer: Dr. Kenji Morimoto
• General Counsel: David R. Cheung, Esq.
• Chief Financial Officer: Patrick S.H. Kwok
Financial and Operational Profile: For the fiscal year ended December 31, 2022, Meridian reported total revenue of approximately HKD 6.2 billion (approximately USD 793 million at prevailing exchange rates). Meridian employs approximately 3,400 individuals across the Asia-Pacific region. Meridian's commercialization capabilities are well established, with existing regulatory approvals and commercial infrastructure supporting marketed products in China (National Medical Products Administration, "NMPA"), Japan (Pharmaceuticals and Medical Devices Agency, "PMDA"), South Korea (Ministry of Food and Drug Safety, "MFDS"), Australia (Therapeutic Goods Administration, "TGA"), and six additional ASEAN markets. This existing infrastructure was a material consideration in Penterra's selection of Meridian as its licensing partner for the Asia-Pacific Territory.
III. The Compound — PPC-4187
PPC-4187 is a selective Janus kinase 1 (JAK1) inhibitor being developed as an oral, once-daily tablet formulation in two dosage strengths: 25 mg and 50 mg film-coated tablets. The compound is intended for the treatment of moderate-to-severe atopic dermatitis in adult patients. JAK1 selectivity is a key differentiating feature of PPC-4187 relative to earlier-generation JAK inhibitors, as it is expected to provide an improved safety profile, particularly with respect to cardiovascular and hematologic adverse events.
Proposed INN and Trade Name: The proposed International Nonproprietary Name for PPC-4187 is Penteracitinib. The proposed trade name under which the compound is expected to be marketed is PENTECLAR. Trademark registrations for the PENTECLAR mark have been obtained or are pending in the United States and key Territory jurisdictions, as described in Section VI below and detailed in Schedule C to the License Agreement.
Development Status at Signing: At the time of execution of the License Agreement, PPC-4187 had completed a Phase IIb clinical trial in the United States and the European Union. The study, designated PPC-4187-201 and sponsored by Penterra, enrolled 420 patients with moderate-to-severe atopic dermatitis. Topline results were announced in June 2023 and demonstrated a statistically significant improvement in the primary efficacy endpoint, EASI-75 response at Week 16, compared to placebo (p<0.001). The Phase IIb data package, including the full clinical study report, was included in the Licensed Know-How transferred to Meridian under Schedule B to the License Agreement.
CMC Status: The chemistry, manufacturing, and controls (CMC) process for PPC-4187 has been validated at Alkerra Manufacturing Inc., located at 5200 Meridian Parkway, Research Triangle Park, North Carolina 27713, which serves as Penterra's current contract manufacturing organization (CMO) for the compound. The validated manufacturing process, analytical methods, and associated CMC documentation are subject to transfer to Meridian's designated APAC manufacturer pursuant to the Technology Transfer Agreement, as described in Section V.K below.
Retained Rights: Penterra retains all rights to PPC-4187 outside the Licensed Territory, including without limitation all rights in the United States, Canada, the European Union and European Economic Area, the United Kingdom, Latin America, the Middle East, Africa, and all other countries and territories not included in the Licensed Territory as defined in Schedule D to the License Agreement.
IV. Licensed Territory
The Licensed Territory (the "Territory") comprises the following countries and territories, as specified in Schedule D to the License Agreement:
1. People's Republic of China, including Hong Kong Special Administrative Region and Macau Special Administrative Region
2. Japan
3. Republic of Korea
4. Commonwealth of Australia
5. New Zealand
6. Republic of Singapore
7. Kingdom of Thailand
8. Malaysia
9. Republic of Indonesia
10. Republic of the Philippines
11. Socialist Republic of Vietnam
12. Taiwan
The License Agreement grants Meridian an exclusive license under the Licensed Patents, Licensed Know-How, and Licensed Trademarks to develop, manufacture, have manufactured, use, import, export, offer for sale, sell, and otherwise commercialize the Licensed Product in all dosage forms and formulations within the Territory for the Field (defined as the treatment of moderate-to-severe atopic dermatitis in adult patients, with the potential for expansion to additional indications upon mutual written agreement of the parties).
Penterra retains all rights to develop and commercialize PPC-4187 in the United States, Canada, the European Union and European Economic Area, the United Kingdom, Latin America, the Middle East, Africa, and all countries and territories not expressly included in the Territory. Neither party may engage in active promotion or solicitation of sales directed to the other party's territory, although passive sales arising from unsolicited orders are addressed in Section 2.5 of the License Agreement through a referral and revenue-sharing mechanism.
V. Key Transaction Terms
A. Financial Terms — Overview
The total maximum deal value under the License Agreement is up to One Hundred Twenty Million Dollars ($120,000,000), excluding royalties on net sales. The aggregate consideration is structured as follows:
In addition to the foregoing milestone-based payments, Meridian is obligated to pay tiered royalties on annual net sales of the Licensed Product in the Territory, as described in Section V.F below. The financial terms were the subject of extensive negotiation between the parties over the course of August and September 2023, with Prescott Hale & Co. LLC providing financial advisory support to Penterra throughout the process.
B. Upfront Payment
Amount: Eighteen Million Dollars ($18,000,000).
Payment Mechanism: The upfront payment was made through an escrow arrangement administered by Velthorn National Bank, N.A. (the "Escrow Agent"), pursuant to the Escrow Agreement dated October 2, 2023, among Penterra, Meridian, and the Escrow Agent. Meridian funded the escrow account on October 6, 2023, depositing $18,000,000 with the Escrow Agent. The Escrow Agent confirmed receipt of the funds by letter dated October 6, 2023, signed by Teresa M. D'Angelo, Escrow Officer. The escrowed funds were held pending satisfaction of all conditions precedent to closing set forth in Article VIII of the License Agreement.
Release: Upon satisfaction of all closing conditions, including completion of IP assignment recordation in the last applicable jurisdiction on October 18, 2023, joint release instructions were delivered to the Escrow Agent on October 20, 2023. The Escrow Agent released the full $18,000,000 to Penterra's designated account on October 20, 2023, the Effective Date. A release confirmation was issued by the Escrow Agent on the same date.
C. Development Milestone Payments — $32,000,000 Total
The License Agreement provides for the following development milestone payments, each payable by Meridian to Penterra within thirty (30) days of the achievement of the applicable milestone event:
Each development milestone payment is payable only once, regardless of the number of Phase III clinical trials initiated, enrolled, or completed, or the number of regulatory submissions filed, in the Territory. "Initiation" is defined as the dosing of the first patient in the applicable clinical trial. "Completion of enrollment" is defined as the date on which the last patient is enrolled in the applicable trial. "Positive topline Phase III data" requires achievement of the pre-specified primary endpoint with statistical significance (p<0.05) as determined by the trial's independent data monitoring committee or equivalent body. The License Agreement contains detailed definitions for each milestone event in Section 5.2 and related provisions addressing milestone payment timing, dispute resolution regarding milestone achievement, and the consequences of protocol amendments or trial modifications.
D. Regulatory Milestone Payments — $25,000,000 Total
The License Agreement provides for the following regulatory milestone payments, each payable by Meridian to Penterra within thirty (30) days of the first Regulatory Approval of the Licensed Product in the applicable country:
"Regulatory Approval" is defined in the License Agreement as the receipt of all approvals, licenses, registrations, or authorizations from the applicable Regulatory Authority in a given country that are necessary for the marketing, promotion, distribution, and sale of the Licensed Product in such country, including pricing and reimbursement approvals where legally required for commercial sale. Each regulatory milestone is payable only once, upon the first Regulatory Approval of the Licensed Product in the applicable country, regardless of the number of formulations, dosage strengths, or indications approved. The allocation of regulatory milestone values reflects the relative commercial significance of each market within the Territory.
E. Commercial / Sales Milestone Payments — $45,000,000 Total
The License Agreement provides for the following commercial milestone payments based on aggregate annual Net Sales (as defined in Section 1.45 of the License Agreement) of the Licensed Product across all countries in the Territory:
Each commercial milestone payment is payable only once, upon the first calendar year in which aggregate annual Net Sales across all Territory countries exceed the applicable threshold. Net Sales is defined in the License Agreement to exclude specified deductions including trade and quantity discounts, returns and allowances, rebates and chargebacks, distribution fees, sales and excise taxes, customs duties, and freight and insurance charges, in each case to the extent actually incurred and consistent with Meridian's standard accounting practices applied on a consistent basis.
F. Royalty Structure
Tiered Royalty Rates: Meridian shall pay Penterra tiered royalties on annual Net Sales of the Licensed Product in the Territory, calculated on an incremental basis as follows:
Royalty Term: The royalty obligations under the License Agreement apply on a country-by-country and Licensed Product-by-Licensed Product basis for the period commencing on the date of first commercial sale of the Licensed Product in a given country in the Territory and continuing until the later of: (a) the date of expiration of the last-to-expire Valid Claim of a Licensed Patent covering the Licensed Product in such country; or (b) the twelfth (12th) anniversary of the first commercial sale of the Licensed Product in such country (the "Royalty Term").
Post-Patent Royalty Reduction: Following the expiration of all Licensed Patents containing a Valid Claim covering the Licensed Product in a given country, but during the remainder of the 12-year period described in clause (b) above, the royalty rates applicable to Net Sales in such country shall be reduced by fifty percent (50%), resulting in the following post-patent royalty rates:
Minimum Annual Royalty: Commencing in the first full calendar year following the date of first commercial sale of the Licensed Product in any country in the Territory, Meridian shall pay to Penterra a minimum annual royalty of Two Million Dollars ($2,000,000) (the "Minimum Annual Royalty"). The Minimum Annual Royalty shall be credited against earned royalties otherwise payable by Meridian for the same calendar year. If earned royalties for any calendar year are less than $2,000,000, Meridian shall pay the shortfall within sixty (60) days of the end of such calendar year.
Generic Entry Reduction: If, in any calendar quarter, one or more Generic Products (as defined in the License Agreement) achieve an aggregate market share of thirty percent (30%) or more by volume in a given country in the Territory, as determined by reference to independent third-party prescription or sales data (e.g., Tidewater Holdings or equivalent), the royalty rates applicable to Net Sales in such country shall be reduced by forty percent (40%) for the duration of the period in which such Generic Product(s) maintain at least such market share. This reduction is applied in addition to any post-patent reduction described above, but the aggregate reduction shall not exceed seventy percent (70%) of the full royalty rate for any tier.
G. Most Favored Nation Pricing
The License Agreement includes a Most Favored Nation ("MFN") pricing provision designed to protect Penterra's global pricing strategy. Under Section 5.8 of the License Agreement, Meridian covenants that it shall not offer, sell, or permit the sale of PPC-4187 (including under the PENTECLAR trade name or any other trade name) in any country in the Territory at a net price that is more than fifteen percent (15%) below the lowest net price at which Penterra (or any of its licensees) sells PPC-4187 in the United States or any EU5 country (defined as Germany, France, Italy, Spain, and the United Kingdom) for the same dosage strength and a comparable pack size.
In the event of a breach of the MFN pricing obligation, Meridian shall be required to make an MFN adjustment payment to Penterra equal to the difference between the MFN floor price and the actual net price at which the Licensed Product was sold in the Territory, multiplied by the total number of units sold in the applicable country during the applicable calendar quarter. Such MFN adjustment payment is in addition to, and not in lieu of, any royalties otherwise payable.
MFN pricing compliance is subject to quarterly review and reconciliation. Within forty-five (45) days of the end of each calendar quarter, Meridian shall deliver to Penterra a report setting forth the net selling price of the Licensed Product in each Territory country, by dosage strength and pack size, together with supporting documentation. Penterra shall simultaneously provide Meridian with the reference pricing data for the United States and EU5 countries. The detailed methodology for calculating net prices, adjusting for rebates and discounts, and determining comparable pack sizes is set forth in Schedule F to the License Agreement.
The MFN pricing provision was the subject of significant negotiation, with Meridian initially seeking a twenty-five percent (25%) deviation threshold and Penterra initially proposing a ten percent (10%) threshold. The fifteen percent (15%) threshold reflects the agreed compromise, and the parties expressly acknowledged in the recitals to the License Agreement that the MFN obligation is a material inducement to Penterra entering into the transaction.
H. Sublicensing. Under Section 2.4 of the License Agreement, Meridian has the right to grant sublicenses under the Licensed Patents, Licensed Know-How, and Licensed Trademarks within the Territory, subject to the prior written consent of Penterra, which consent shall not be unreasonably withheld, conditioned, or delayed. Penterra's right to withhold consent is limited to circumstances in which the proposed sublicensee does not have adequate technical, regulatory, or financial capability to perform its obligations under the sublicense, or where the terms of the proposed sublicense are inconsistent with the License Agreement.
Each sublicense granted by Meridian must contain terms and conditions no less protective of Penterra's rights than those set forth in the License Agreement, including without limitation the MFN pricing obligations, confidentiality provisions, intellectual property ownership provisions, and indemnification obligations. Meridian shall promptly provide Penterra with a complete and unredacted copy of each executed sublicense agreement.
With respect to sublicense income, Meridian is obligated to pay to Penterra fifty percent (50%) of any Sublicense Income received by Meridian from any sublicensee. "Sublicense Income" includes all upfront payments, milestone payments, royalties, and other monetary consideration received by Meridian from a sublicensee in consideration of the grant of a sublicense, net of Meridian's documented out-of-pocket development costs directly attributable to the sublicensee's territory within the Territory. Meridian bears the burden of documenting and substantiating any such out-of-pocket development cost deductions. The pass-through obligation applies to all forms of Sublicense Income and is in addition to any earned royalties payable to Penterra on Net Sales by the sublicensee.
I. Indemnification Provisions
The License Agreement contains mutual indemnification obligations as set forth in Article XII.
Penterra (Licensor) Indemnification: Penterra shall indemnify, defend, and hold harmless Meridian and its affiliates, and their respective officers, directors, employees, and agents (collectively, "Meridian Indemnitees") from and against any and all losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or resulting from:
(a) any breach by Penterra of its representations, warranties, or covenants under the License Agreement;
(b) the negligence or willful misconduct of Penterra, its affiliates, or their respective employees or agents in connection with the performance of Penterra's obligations under the License Agreement;
(c) any claim that the Licensed intellectual Property, as existing on the Effective Date, infringes, misappropriates, or otherwise violates the intellectual property rights of any third party; and
(d) Penterra's manufacture or supply of clinical supply material or active pharmaceutical ingredient under the API Supply Agreement, including without limitation any product liability claims arising from defects in such material attributable to Penterra or its contract manufacturer.
Meridian (Licensee) Indemnification: Meridian shall indemnify, defend, and hold harmless Penterra and its affiliates, and their respective officers, directors, employees, and agents (collectively, "Penterra Indemnitees") from and against any and all losses, damages, liabilities, costs, and expenses (including reasonable attorneys' fees) arising out of or resulting from:
(a) any breach by Meridian of its representations, warranties, or covenants under the License Agreement;
(b) the development, manufacture, having manufactured, use, importation, promotion, distribution, sale, or other commercialization of the Licensed Product by Meridian, its affiliates, or its sublicensees in the Territory;
(c) the negligence or willful misconduct of Meridian, its affiliates, sublicensees, or their respective employees or agents; and
(d) any product liability claims arising from the commercial sale or distribution of the Licensed Product in the Territory.
Cap on Indemnification Liability: Each party's aggregate indemnification liability under the License Agreement is capped at two hundred percent (200%) of the total payments received by Penterra from Meridian under the License Agreement as of the date the applicable claim is first asserted. As of the Effective Date, the cap is calculated as 200% × $18,000,000 = $36,000,000, and will increase as development, regulatory, and commercial milestone payments are made by Meridian over the life of the agreement.
Carve-Outs from Cap: The foregoing cap does not apply to indemnification obligations arising from: (i) fraud; (ii) willful misconduct; or (iii) Penterra's indemnification obligation under clause (c) above with respect to third-party intellectual property infringement claims.
De Minimis Threshold: No indemnification obligation shall arise with respect to any individual claim unless the losses associated with such claim exceed One Hundred Fifty Thousand Dollars ($150,000) (the "De Minimis Threshold").
Aggregate Deductible Basket: No indemnification obligation shall arise unless and until the aggregate amount of all claims exceeding the De Minimis Threshold exceeds Seven Hundred Fifty Thousand Dollars ($750,000) (the "Basket"), at which point the indemnifying party shall be liable for all losses in excess of the Basket amount. The Basket operates as a true deductible (not a tipping basket).
J. Supply Arrangement
Under the API Supply Agreement (executed October 2, 2023), Penterra shall supply Meridian with active pharmaceutical ingredient ("API") and reference standard material for PPC-4187 for an initial term of three (3) years following the Effective Date, at a price equal to Penterra's fully-loaded manufacturing cost plus a fifteen percent (15%) markup. Penterra's manufacturing cost includes direct materials, direct labor, manufacturing overhead, and quality control and quality assurance costs, in each case as determined in accordance with U.S. GAAP applied on a consistent basis.
The current contract manufacturing organization for PPC-4187 API is Alkerra Manufacturing Inc., located at 5200 Meridian Parkway, Research Triangle Park, North Carolina 27713. Alkerra is a cGMP-compliant facility that has been inspected by the U.S. Food and Drug Administration and maintains a Drug Master File for PPC-4187 API. Penterra shall use commercially reasonable efforts to ensure continuity of supply during the initial 3-year term.
A Quality Agreement in the form attached to the License Agreement is to be executed by the parties within sixty (60) days of the Effective Date — i.e., by December 19, 2023. The Quality Agreement will govern specifications, testing, release procedures, change control, deviation management, complaint handling, recall procedures, and other quality-related matters applicable to the supply of API and reference standard material. Execution of the Quality Agreement is a post-closing obligation being tracked by Wendy Schultz.
K. Technology Transfer
The Technology Transfer Agreement (executed October 2, 2023) provides for the transfer by Penterra to Meridian (or Meridian's designated APAC manufacturing partner) of all manufacturing process know-how, analytical methods, and CMC documentation necessary for Meridian to manufacture or have manufactured PPC-4187 API and finished product at a facility or facilities within the Territory. The technology transfer is to be completed within twenty-four (24) months of the Effective Date — i.e., by October 20, 2025.
The Technology Transfer Agreement includes detailed interim milestones and acceptance criteria for each phase of the transfer process, including: (i) document transfer and initial review; (ii) process demonstration batches at Penterra's or Alkerra's facility; (iii) technology transfer batches at Meridian's designated APAC facility; (iv) process performance qualification; and (v) final transfer report and acceptance. Penterra is obligated to make qualified technical personnel available for on-site support at Meridian's designated facility, subject to reasonable scheduling and at Meridian's cost (other than the first 100 person-days of on-site support, which are included in the technology transfer scope at no additional charge).
L. Governance. Joint Steering Committee (JSC): The License Agreement establishes a Joint Steering Committee composed of three (3) representatives designated by each party (six total). The JSC shall meet quarterly (or more frequently as mutually agreed) and shall be responsible for oversight and coordination of development, regulatory, and commercialization activities for the Licensed Product in the Territory. Responsibilities include review of the Development Plan, review of regulatory strategy, discussion of manufacturing matters, and coordination of global pharmacovigilance activities.
Joint Patent Committee (JPC): The License Agreement also establishes a Joint Patent Committee composed of two (2) representatives designated by each party (four total). The JPC shall oversee patent prosecution, maintenance, defense, and enforcement activities with respect to the Licensed Patents in the Territory. The JPC shall coordinate with Penterra's outside patent prosecution counsel (Whitford & Cascade Insurance Brokers) on matters affecting Territory-specific patent filings.
Decision-Making and Tie-Breaking: In the event of a deadlock at the JSC or JPC level that cannot be resolved through good-faith escalation to senior management, the License Agreement provides that: (i) Penterra shall have the tie-breaking vote on matters relating to global intellectual property strategy, including decisions regarding patent prosecution, defense, or enforcement that could have a material impact on the Licensed IP outside the Territory; and (ii) Meridian shall have the tie-breaking vote on matters relating to Territory-specific commercialization strategy, including pricing, marketing, and distribution decisions, subject in all cases to Meridian's compliance with the MFN pricing obligations set forth in Section 5.8 and Schedule F.
M. Governing Law and Dispute Resolution
Governing Law: The License Agreement and all ancillary agreements (except as expressly stated therein) are governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of law that would cause the application of the laws of any other jurisdiction.
Dispute Resolution: Any dispute, controversy, or claim arising out of or relating to the License Agreement, or the breach, termination, or invalidity thereof, shall be finally settled by binding arbitration administered by the International Court of Arbitration of the International Chamber of Commerce (the "ICC") in accordance with the ICC Rules of Arbitration then in effect. The seat (legal place) of arbitration shall be New York, New York. The arbitral tribunal shall consist of three (3) arbitrators, one appointed by each party and the third (serving as presiding arbitrator) appointed by the two party-appointed arbitrators or, failing agreement, by the ICC. The language of the arbitration shall be English. Any arbitral award shall be final and binding on the parties and may be entered and enforced in any court of competent jurisdiction.
Preliminary Injunctive Relief: Notwithstanding the foregoing arbitration provision, either party may seek preliminary or temporary injunctive relief, including temporary restraining orders and preliminary injunctions, in the United States District Court for the Southern District of New York or the Supreme Court of the State of New York, New York County, without the necessity of posting a bond or other security, pending the constitution of the arbitral tribunal or an emergency arbitrator ruling.
VI. Intellectual Property Portfolio Licensed
The Licensed intellectual Property encompasses seven (7) patent families, registered trademarks, and a substantial body of proprietary know-how. The complete portfolio is detailed in Schedules A, B, and C to the License Agreement. A summary of the key assets follows.
Licensed Patent Families (Schedule A): The seven patent families cover the following subject matter: composition of matter for PPC-4187; crystalline forms (including Crystalline Form A, the commercial polymorph); methods of use for the treatment of atopic dermatitis; pharmaceutical formulations (including the 25 mg and 50 mg film-coated tablet formulations); and manufacturing process claims. The patent families include issued patents in the United States and key Territory jurisdictions, as well as pending applications in certain additional Territory jurisdictions.
Key Granted Patents:
In addition, international application PCT/US2019/045123 has entered the national phase in Japan, China, the Republic of Korea, Australia, Singapore, and six ASEAN countries. The status of each national phase application is detailed in Schedule A. Whitford & Cascade Insurance Brokers provided freedom-to-operate opinions and patent landscape analyses in connection with due diligence, confirming no material third-party patent risks identified with respect to the Licensed Product in the Territory.
Penterra retains ownership of all Licensed Patents. The license grant is exclusive within the Territory for the Field. Penterra retains the right to prosecute and maintain the Licensed Patents in all jurisdictions, with the JPC providing oversight and coordination for Territory-specific prosecution matters. Meridian has the first right to enforce the Licensed Patents against infringers in the Territory, at Meridian's cost, with Penterra's cooperation and the right to join as a necessary party; if Meridian does not initiate enforcement within ninety (90) days of becoming aware of an infringement, Penterra may elect to pursue enforcement at its own cost, with Meridian's cooperation.
Licensed Trademarks (Schedule C): The PENTECLAR trademark has been registered in the United States (U.S. Registration No. 6,789,012) and has been filed and/or registered in Hong Kong, China, Japan, the Republic of Korea, and Australia. The Trademark License Agreement provides for the use of the PENTECLAR mark by Meridian in the Territory, subject to Penterra's quality control standards and trademark usage guidelines. Meridian may propose local-language marks for use in conjunction with PENTECLAR, subject to Penterra's prior written approval.
Licensed Know-How (Schedule B): The Licensed Know-How encompasses Penterra's proprietary manufacturing process, analytical methods and validation data, pre-clinical data packages (including toxicology and pharmacology studies), clinical data packages (including the full clinical study report for Study PPC-4187-201), formulation development data, stability data, CMC documentation, and regulatory filings and correspondence with the U.S. FDA. The Licensed Know-How is subject to confidentiality obligations that survive termination or expiration of the License Agreement.
VII. Tax Considerations
The tax structuring of the transaction was analyzed by Sylvia Hartwell, Specialist Partner (Tax) at Calderwood & Harkness, and is the subject of a separate and more detailed Tax Structuring Memorandum. The following is a summary of the key tax considerations identified in connection with the transaction.
Withholding Tax: Royalty and milestone payments made by Meridian (a Hong Kong limited company) to Penterra (a U.S. corporation) from Hong Kong are expected to be subject to zero percent (0%) withholding tax on royalties under the applicable provisions of the U.S.–Hong Kong tax treaty. However, to the extent payments are made by or routed through Meridian Pharma (Shanghai) Co., Ltd., Meridian's PRC WFOE, such payments would generally be subject to a ten percent (10%) withholding tax under PRC domestic law, unless reduced by applicable treaty provisions or PRC tax incentives for technology imports. Meridian is responsible for obtaining all necessary PRC tax registrations and for withholding and remitting applicable PRC withholding taxes. The License Agreement provides that all milestone and royalty payments are to be made to Penterra net of any applicable withholding taxes, with Meridian providing evidence of tax withheld to Penterra to enable Penterra to claim foreign tax credits.
Transfer Pricing: Penterra is required to maintain contemporaneous transfer pricing documentation supporting the arm's-length nature of the API supply pricing under the API Supply Agreement (cost plus 15%). This documentation should demonstrate compliance with Section 482 of the Internal Revenue Code and the regulations thereunder, as well as OECD Transfer Pricing Guidelines. Meridian is similarly required to maintain transfer pricing documentation for any sublicense arrangements entered into with third parties or intercompany transactions with its regional subsidiaries.
Value-Added Tax / Goods and Services Tax: Meridian is responsible for all Territory-based value-added taxes (VAT), goods-and-services taxes (GST), or similar consumption taxes applicable to the Licensed Product or to any payments or transactions under the License Agreement. Penterra has no obligation to collect or remit Territory VAT/GST.
Revenue Recognition: Clarendon Bates LLP, Penterra's independent auditor (engagement partner: Robert F. Stanhope, CPA), was consulted regarding the appropriate revenue recognition treatment of the upfront payment, development milestone payments, regulatory milestone payments, and commercial milestone payments under Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers. The analysis considered whether the License Agreement represents a single performance obligation or multiple performance obligations, and the appropriate timing and methodology for recognizing revenue associated with each payment stream. The conclusions of that analysis are reflected in Penterra's ASC 606 memorandum prepared by Clarendon Bates and are beyond the scope of this closing memorandum.
A comprehensive analysis of the foregoing tax matters, including the structuring of payment flows, withholding tax mitigation strategies, and cross-border transfer pricing considerations, is set forth in the separate Tax Structuring Memorandum prepared by Sylvia Hartwell.
VIII. Regulatory and Antitrust Matters
Hart-Scott-Rodino Antitrust Improvements Act (HSR Act): The parties analyzed whether the transaction required a pre-closing notification filing under the HSR Act and the regulations of the Federal Trade Commission. It was determined that no HSR filing was required because the transaction constitutes a pure intellectual property license that does not involve the acquisition of voting securities, assets, or a controlling interest in Penterra or any subsidiary, and therefore does not meet the applicable HSR thresholds or trigger filing obligations under the Act. Confirmation that no HSR filing was required was obtained on October 5, 2023, based on analysis by the Calderwood & Harkness team and consistent with prior guidance from the FTC regarding exclusive patent license transactions. A memorandum documenting this analysis is on file in the matter closing binder.
Committee on Foreign Investment in the United States (CFIUS): The transaction was analyzed for potential CFIUS implications. It was determined that CFIUS review is not applicable because the transaction does not involve a foreign acquisition of a U.S. business. Penterra is not transferring or selling any equity interest, assets, or controlling interest in any U.S. business to Meridian or any of its affiliates. The license is limited to intellectual property rights in the Territory, and Penterra retains all rights in the United States and all other jurisdictions outside the Territory. Accordingly, no CFIUS filing or notification was made or required.
China Ministry of Commerce (MOFCOM) / State Administration for Market Regulation (SAMR): Meridian has undertaken to evaluate whether the License Agreement requires any Technology Import/Export filing under the PRC Technology Import and Export Administration Regulations (Zhonghua Renmin Gongheguo Jishu Jinchukou Guanli Tiaoli). This evaluation is a post-closing obligation of Meridian, and Meridian's PRC counsel is expected to advise on any required filings. Penterra's obligation is limited to providing reasonable cooperation and information to Meridian in connection with such filings.
Foreign Exchange: Meridian Pharma (Shanghai) Co., Ltd. is responsible for obtaining all necessary PRC State Administration of Foreign Exchange (SAFE) approvals and registrations for outbound remittance of milestone and royalty payments from the PRC to Penterra's designated U.S. bank account. Meridian has represented that it has existing SAFE registrations and foreign exchange capabilities sufficient to effect such remittances, although specific approval for the License Agreement payments may require additional filings. This is a post-closing obligation of Meridian.
IX. Transaction Timeline
The following table sets forth the key dates and events in the transaction:
The eleven-day delay between the originally scheduled Closing Date (October 9, 2023) and the actual Closing Date (October 20, 2023) was attributable to processing delays in one or more Territory jurisdictions with respect to the recordation of intellectual property assignments or license grants. Section 8.2(d) of the License Agreement required, as a condition precedent to closing, that all IP assignment recordations in the Territory be completed. The parties agreed by mutual written consent to extend the outside closing date to accommodate the delay, and no penalties or price adjustments were triggered by the extension.
X. Advisors and Counsel
A. Licensor's Counsel
Calderwood & Harkness LLP 600 Lexington Avenue, 30th Floor New York, New York 10022
Calderwood & Harkness served as primary legal counsel to Penterra in all aspects of the transaction, including structuring, negotiation, drafting, due diligence, tax analysis, and closing. The matter team consists of the following attorneys:
• Marcus Delgado — Responsible Partner, intellectual Property Transactions
• Catherine Bloom — Billing Partner, intellectual Property Transactions
• Peter Vassiliev — Lead Associate, intellectual Property Transactions
• Wendy Schultz — Working Associate, intellectual Property Transactions
• Sylvia Hartwell — Specialist Partner, Tax (responsible for tax structuring and withholding tax analysis)
B. Licensee's Counsel
Lam, Cheung & Firth LLP 25/F, Jardine House, 1 Connaught Place, Central, Hong Kong SAR (and 1345 Avenue of the Americas, 22nd Floor, New York, New York 10105)
Lam, Cheung & Firth served as legal counsel to Meridian in all aspects of the transaction. The primary contacts were:
• Jonathan M. Firth — Lead Partner, intellectual Property / Licensing
• Rebecca S. Liang — Associate
C. Financial Advisors
Prescott Hale & Co. LLC (financial advisor to Penterra) 277 Park Avenue, 40th Floor, New York, New York 10172
• Senior Managing Director: Victoria R. Chen
• Advisory Fee: $1,500,000, comprised of a $300,000 success fee (calculated as 1.25% of the $24,000,000 present-value equivalent used for fee calculation purposes) and a $1,200,000 flat advisory component
Eastbridge Partners Limited (financial advisor to Meridian) 12/F, Two Exchange Square, 8 Connaught Place, Central, Hong Kong SAR
• Managing Director: Simon K.P. Woo
D. Escrow Agent
Velthorn National Bank, N.A. 383 Madison Avenue, New York, New York 10179
• Escrow Officer: Teresa M. D'Angelo
• Fee: $15,000 flat fee plus $2,500 per calendar quarter, borne by the parties as specified in the Escrow Agreement
E. Patent Prosecution Counsel
Whitford & Cascade Insurance Brokers 1750 K Street NW, Suite 600, Washington, DC 20006
• Lead Patent Attorney: Dr. Alan J. Whitford
• Provided freedom-to-operate opinions and patent landscape analyses in connection with the transaction due diligence process
F. Auditor. Clarendon Bates LLP 200 Campus Drive, Florham Park, New Jersey 07932
• Engagement Partner: Robert F. Stanhope, CPA
• Consulted on ASC 606 revenue recognition treatment of upfront, development milestone, regulatory milestone, and commercial milestone payments under the License Agreement
G. Japan Regulatory Counsel (for Meridian)
Nakamura & Takeda Law Offices Marunouchi Park Building, 2-6-1 Marunouchi, Chiyoda-ku, Tokyo 100-6921
• Lead Partner: Yuki Nakamura
• Advising Meridian on PMDA regulatory strategy and filing requirements for PPC-4187 in Japan
H. Insurance. Jade Dragon Insurance Limited 30/F, AIA Central, 1 Connaught Road Central, Hong Kong SAR
• Underwriter: Christine A. Lo
• Provides clinical trial insurance and product liability coverage for Meridian's development and commercialization activities under the License Agreement in the Territory
XI. Closing Deliverables Completed
The following is a comprehensive list of all closing deliverables that were executed, delivered, or confirmed in connection with the closing of the transaction on October 20, 2023. All executed originals and counterparts have been filed in the matter closing binder, and electronic copies have been uploaded to the firm's document management system.
A. Transaction Agreements (Executed)
1. Exclusive License Agreement — dated October 2, 2023; effective October 20, 2023 — among Penterra Pharmaceuticals Corp. and Meridian Bio Therapeutics Limited.
2. Schedule A — Licensed Patents — attached to and incorporated by reference in the License Agreement, setting forth the complete list of patent families, patent numbers, jurisdictions, filing dates, grant dates, and expiration dates for all Licensed Patents.
3. Schedule B — Licensed Know-How — attached to and incorporated by reference in the License Agreement, describing the proprietary manufacturing process, analytical methods, pre-clinical and clinical data packages, CMC documentation, and other know-how licensed to Meridian.
4. Schedule C — Licensed Trademarks — attached to and incorporated by reference in the License Agreement, listing all trademark registrations and applications for the PENTECLAR mark and associated logos, by jurisdiction.
5. Schedule D — Territory — attached to and incorporated by reference in the License Agreement, specifying the twelve (12) countries and territories comprising the Licensed Territory.
6. Schedule E — Development Plan — attached to and incorporated by reference in the License Agreement, setting forth the initial development plan for PPC-4187 in the Territory, including anticipated Phase III trial design, timeline, and regulatory strategy for NMPA and PMDA submissions.
7. Schedule F — MFN Pricing Methodology — attached to and incorporated by reference in the License Agreement, setting forth the detailed methodology for determining net prices, comparable pack sizes, and MFN floor prices for quarterly reconciliation purposes.
8. Escrow Agreement — dated October 2, 2023 — among Penterra Pharmaceuticals Corp., Meridian Bio Therapeutics Limited, and Velthorn National Bank, N.A.