SCHEDULE F
MOST FAVORED NATION PRICING METHODOLOGY
Schedule F to the Exclusive License Agreement dated October 2, 2023 (the "Agreement")
Parties:
Penterra Pharmaceuticals Corp., a corporation organized and existing under the laws of the State of Delaware, with its principal place of business at 200 Westlake Drive, Suite 1400, Wilmington, Delaware 19801 ("Licensor" or "Penterra")
and
Meridian Bio Therapeutics Limited, a limited company organized and existing under the laws of Hong Kong, with its registered office at 18/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong ("Licensee" or "Meridian")
Effective Date: October 20, 2023
This Schedule F is attached to and forms an integral part of the Exclusive License Agreement for compound PPC-4187 (Penteracitinib), executed on October 2, 2023, between Penterra Pharmaceuticals Corp. and Meridian Bio Therapeutics Limited (the "Agreement"). This Schedule F sets forth the complete methodology for the calculation, monitoring, reporting, and enforcement of the most favored nation pricing obligations contemplated by the Agreement.
Capitalized terms used but not otherwise defined in this Schedule F shall have the meanings ascribed to such terms in the Agreement.
Right-click to update Table of Contents
Section 1: Purpose and Scope
1.1 Purpose. The purpose of this Schedule F is to establish the detailed methodology for calculating, monitoring, and enforcing the most favored nation ("MFN") pricing obligation set forth in Article 7.4 of the Agreement. The MFN pricing mechanism is designed to ensure that the Licensed Product is not sold by Licensee, its Affiliates, or its sublicensees in the Licensed Territory at prices that would materially undercut the pricing maintained by Licensor and its other licensees in the Reference Markets, thereby protecting the global pricing integrity of PPC-4187 (Penteracitinib) and preserving the commercial value of the licensed intellectual property across all markets.
1.2 Scope of Application. This Schedule F applies to all commercial sales of Licensed Products — being PPC-4187 (Penteracitinib), whether marketed under the trade name PENTECLAR™ or under any other trade name, brand name, or designation — by any of the following entities within the Licensed Territory:
(a) Licensee itself (Meridian Bio Therapeutics Limited);
(b) any Affiliate of Licensee, including without limitation:
(i) Meridian Pharma (Shanghai) Co., Ltd.;
(ii) Meridian Japan K.K.;
(iii) Meridian Korea Inc.; and
(iv) Meridian Bio Australia Pty Ltd;
(c) any sublicensee of Licensee, whether existing as of the Effective Date or appointed hereafter in accordance with the terms of the Agreement; and
(d) any distributor, co-marketer, or other commercial partner through which Licensee, its Affiliates, or sublicensees effect sales of the Licensed Product in the Territory, to the extent that the pricing of such sales is within the control or influence of Licensee.
1.3 Licensed Territory. For purposes of this Schedule F, the "Licensed Territory" or "Territory" means the following countries and jurisdictions, consistent with the definition set forth in the Agreement:
(a) the People's Republic of China (including the Hong Kong Special Administrative Region and the Macau Special Administrative Region);
(b) Japan;
(c) the Republic of Korea;
(d) Australia;
(e) New Zealand;
(f) Singapore;
(g) Thailand;
(h) Malaysia;
(i) Indonesia;
(j) the Philippines;
(k) Vietnam; and
(l) Taiwan.
1.4 Core MFN Obligation. Subject to the exceptions and carve-outs set forth in Section 8 of this Schedule F, Licensee shall not offer, sell, or cause any of its Affiliates or sublicensees to offer or sell, PPC-4187 (under the trade name PENTECLAR™ or any other trade name) in any country in the Territory at a Net Price per unit that is more than fifteen percent (15%) below the MFN Reference Price (as defined below in Section 2.1) for the same dosage strength (25 mg or 50 mg film-coated tablets) and Comparable Pack Size. This obligation applies on a country-by-country, dosage-strength-by-dosage-strength, and quarter-by-quarter basis, as further specified in the sections that follow.
Section 2: Definitions
For purposes of this Schedule F, the following terms shall have the meanings set forth below:
2.1 "MFN Reference Price" means, with respect to each dosage strength (25 mg and 50 mg, respectively) of the Licensed Product, the lowest Net Price per unit (i.e., per tablet) at which Licensor (Penterra Pharmaceuticals Corp.) or any of Licensor's other licensees (excluding Licensee and its Affiliates) sells or has sold PPC-4187 (under any trade name, including PENTECLAR™ or otherwise) in any of the Reference Markets during the applicable Reference Period, for the same dosage strength and a Comparable Pack Size. The MFN Reference Price shall be determined on a per-unit basis (per tablet) for each dosage strength separately, such that a separate MFN Reference Price shall exist for the 25 mg dosage strength and for the 50 mg dosage strength. Where multiple pack sizes are sold in a Reference Market for the same dosage strength, the per-tablet Net Price for each such pack size shall be calculated and the lowest per-tablet Net Price across all Comparable Pack Sizes in all Reference Markets during the Reference Period shall constitute the MFN Reference Price for that dosage strength.
2.2 "Reference Markets" means the following countries and jurisdictions in which Licensor or its licensees (other than Licensee) commercialize the Licensed Product:
(a) the United States of America; and
(b) the "EU5" countries, consisting of:
(i) the Federal Republic of Germany;
(ii) the French Republic;
(iii) the Italian Republic;
(iv) the Kingdom of Spain; and
(v) the United Kingdom of Great Britain and Northern Ireland.
For the avoidance of doubt, if the Licensed Product has not yet received marketing authorization and commenced commercial sale in a particular Reference Market country, that country shall be excluded from the MFN Reference Price calculation until the first calendar quarter in which a commercial sale of the Licensed Product occurs in such Reference Market country. Once a commercial sale has occurred in a Reference Market country, such country shall be included in all subsequent MFN Reference Price determinations. The parties acknowledge that the United Kingdom, notwithstanding its departure from the European Union, remains a Reference Market for all purposes of this Schedule F.
2.3 "Net Price" means, with respect to any sale of the Licensed Product by any entity (whether Licensor, Licensee, their respective Affiliates, licensees, or sublicensees) to any Third Party purchaser (including, without limitation, wholesalers, distributors, hospitals, pharmacies, pharmacy benefit managers, group purchasing organizations, managed care organizations, and government entities), the gross selling price of the Licensed Product as invoiced to such Third Party purchaser, less the following deductions to the extent actually incurred, allowed, accrued, or granted and separately identifiable in the selling entity's accounting records:
(a) trade discounts, cash discounts, and quantity discounts and rebates actually allowed or granted to such Third Party purchaser at the time of sale or accrued for payment thereafter;
(b) credits, allowances, chargebacks, or refunds granted or accrued on account of returns, rejections, damaged goods, or recalls of the Licensed Product;
(c) government-mandated rebates and price reductions, including without limitation rebates under the United States Medicaid Drug Rebate Program (42 U.S.C. § 1396r-8), the Medicare Part D Coverage Gap discount Program, price reductions mandated by national health insurance authorities, and equivalent mandatory rebate or pricing programs in any applicable jurisdiction;
(d) freight, insurance, and shipping charges to the extent separately stated on the invoice or otherwise separately identifiable in the selling entity's accounting records;
(e) customs duties, sales taxes, value-added taxes, excise taxes, and other governmental charges or levies actually paid or accrued in connection with the importation, sale, or distribution of the Licensed Product, to the extent included in the gross invoiced price; and
(f) any charge-backs, managed care rebates, formulary fees, patient co-pay assistance program costs, or similar price concessions granted to Third Parties in the ordinary course of pharmaceutical distribution.
Net Price shall be calculated on a country-by-country basis, such that a separate Net Price determination shall be made for each country in which the Licensed Product is sold. Net Price shall be expressed in United States Dollars ("USD"). Where the Licensed Product is invoiced in a local currency other than USD, conversion to USD shall be made at the average exchange rate for the applicable calendar quarter, calculated using the daily closing rates published by Crowne Albany Systems (or, if Westmark Services Inc. rates are unavailable for a particular currency pair, the equivalent daily closing rates published by Refinitiv (Calderon Health IT)), as further specified in Section 7 of this Schedule F.
Net Price shall not include any inter-company transfer prices between Licensee and its Affiliates or between Licensor and its Affiliates; only sales to unaffiliated Third Party purchasers shall be included in the Net Price calculation. In the event that the Licensed Product is sold to an Affiliate and subsequently resold to an unaffiliated Third Party, the Net Price shall be calculated based on the price to the first unaffiliated Third Party purchaser.
2.4 "MFN Floor Price" means, for each dosage strength (25 mg and 50 mg, respectively) and Comparable Pack Size, eighty-five percent (85%) of the MFN Reference Price for such dosage strength and Comparable Pack Size. The MFN Floor Price is calculated as follows:
MFN Floor Price = MFN Reference Price × 0.85
The MFN Floor Price represents the minimum permissible Territory Net Price per unit for the applicable dosage strength and Comparable Pack Size. Any Territory Net Price that falls below the MFN Floor Price constitutes an MFN Breach (as defined in Section 5.1).
2.5 "Reference Period" means, with respect to any calendar quarter under review (the "Review Quarter"), the calendar quarter immediately preceding such Review Quarter (i.e., a one-quarter lookback). By way of example, for purposes of assessing MFN compliance during the calendar quarter ending June 30, the Reference Period is the calendar quarter ending March 31 of the same calendar year.
Notwithstanding the foregoing, for the first calendar quarter in which commercial sales of the Licensed Product occur in any country of the Territory, the Reference Period shall be the most recent calendar quarter for which Reference Market pricing data is available as of the commencement of such first quarter of commercial sales. If no Reference Market pricing data is yet available at the time of first commercial sale in a Territory country, the MFN obligation shall not apply to that Territory country until the first calendar quarter for which a Reference Price Statement (as defined in Section 3.1) has been delivered by Licensor.
2.6 "MFN Adjustment Payment" means the payment owed by Licensee to Licensor in the event of an MFN Breach, calculated in accordance with the formula and methodology set forth in Section 5 of this Schedule F. The MFN Adjustment Payment is intended to compensate Licensor for the pricing differential resulting from Licensee's non-compliance with the MFN Floor Price and shall not be construed as a penalty or liquidated damages provision.
2.7 "Territory Net Price" means the actual Net Price per unit (per tablet) at which the Licensed Product is sold by Licensee, its Affiliates, or sublicensees in a given country in the Territory during a given calendar quarter. The Territory Net Price shall be determined separately for each dosage strength, each pack size, and each country, and shall be calculated as a weighted average across all sales channels within such country during such calendar quarter.
2.8 "Comparable Pack Size" means the pack size of the Licensed Product sold in a Territory country that most closely corresponds, in terms of the number of tablets contained therein, to the pack size used in the applicable Reference Market for the same dosage strength. Where an exact match in tablet count is available (e.g., 30-count packs in both the Territory country and the Reference Market), such matching pack size shall be used. Where an exact match in tablet count is not available, the per-tablet Net Price shall be used for all comparison purposes, effectively normalizing pricing on a per-unit basis regardless of pack size. For the avoidance of doubt, comparisons shall always be made between products of the same dosage strength (i.e., 25 mg to 25 mg, and 50 mg to 50 mg).
2.9 "Generic Product" shall have the meaning assigned to such term in Section 1.1 of the Agreement. For the avoidance of doubt, and as further addressed in Section 9 below, the MFN obligations set forth in this Schedule F shall continue to apply in full force and effect notwithstanding the entry of one or more Generic Products into any country in the Territory or any Reference Market, subject only to the specific exception for government-mandated pricing set forth in Section 8.1 below. The interplay between the Generic Product royalty reduction provisions of the Agreement and the MFN pricing methodology is addressed in Section 9 of this Schedule F.
Section 3: MFN Reference Price Determination
3.1 Data Collection and Reporting by Licensor. Licensor shall, within thirty (30) days after the end of each calendar quarter (or, if later, within thirty (30) days after Licensor has received complete pricing data from its other licensees in the Reference Markets), provide Licensee with a written statement (the "Reference Price Statement") setting forth the following information for the applicable Reference Period:
(a) the MFN Reference Price for each dosage strength (25 mg and 50 mg) for the applicable Reference Period, expressed as a per-tablet price in USD;
(b) the identity of the Reference Market country (or countries) from which the MFN Reference Price was derived, including identification of the relevant pack size and the channel(s) of distribution from which the pricing data was obtained;
(c) the exchange rate(s) used to convert Reference Market local currency prices to USD, if applicable, together with the source of such exchange rates;
(d) a summary of the Net Price calculation for the Reference Market sales from which the MFN Reference Price was derived, including the gross invoiced price and a breakdown of the deductions applied under Section 2.3(a) through (f), in sufficient detail to allow Licensee to verify the accuracy of the calculation; and
(e) any adjustments applied to the MFN Reference Price pursuant to Section 3.3 below (government-mandated pricing adjustments), together with a description of the basis for such adjustments.
All information provided in the Reference Price Statement shall be subject to the confidentiality protections set forth in Section 12 of this Schedule F and Article 12 of the Agreement. Licensor may redact commercially sensitive information regarding the identity of its other licensees in the Reference Markets to the extent such information is not necessary for Licensee to verify the MFN Reference Price calculation, provided that sufficient detail is made available to any auditing firm engaged pursuant to Section 3.2 below.
If, as of the end of any calendar quarter, Licensor has not yet commenced commercial sales (directly or through any other licensee) in any Reference Market, no MFN obligation shall apply for that calendar quarter, and Licensor shall notify Licensee in writing that no Reference Price Statement will be issued for such quarter. The MFN obligation shall commence with respect to the first calendar quarter following the quarter in which Licensor (or any of its other licensees) achieves first commercial sale in at least one Reference Market.
3.2 Data Verification and Audit Rights. Licensee shall have the right, exercisable no more than once per calendar year, to engage an independent certified public accounting firm of recognized national standing (which firm must be reasonably acceptable to Licensor, it being understood that any of the "Big Four" accounting firms shall be deemed acceptable) to audit the Reference Price Statement and the underlying pricing records from which the MFN Reference Price was derived, for the purpose of verifying the accuracy of Licensor's MFN Reference Price calculation. Such audit shall be conducted as follows:
(a) Licensee shall provide Licensor with at least thirty (30) days' prior written notice of its intent to conduct an audit, identifying the calendar quarter(s) to be audited and the auditing firm to be engaged.
(b) Licensor shall, within thirty (30) days following receipt of such notice, provide the auditing firm with reasonable access to the relevant pricing records, invoices, rebate and discount records, and other documentation necessary to verify the MFN Reference Price calculation for the audited period(s). Such access may be provided at Licensor's principal offices or, at Licensor's election, through a secure virtual data room.
(c) The auditing firm shall execute a confidentiality agreement in form and substance reasonably satisfactory to Licensor prior to being granted access to any records.
(d) The auditing firm shall deliver its findings to both parties simultaneously within sixty (60) days of completing its review.
(e) The cost of the audit shall be borne by Licensee, except that if the audit reveals that the MFN Reference Price as reported in the Reference Price Statement was overstated by more than five percent (5%) (i.e., the actual MFN Reference Price is more than 5% lower than the reported MFN Reference Price, which would have resulted in a lower MFN Floor Price and thus potentially reduced MFN Adjustment Payment obligations), Licensor shall bear all reasonable costs and expenses of the audit.
(f) If the audit reveals an overstatement of the MFN Reference Price, Licensor shall promptly issue a corrected Reference Price Statement, and any MFN Adjustment Payments previously calculated on the basis of the overstated MFN Reference Price shall be recalculated. Any overpayment by Licensee shall be credited against future MFN Adjustment Payments or royalty payments, or refunded to Licensee within thirty (30) days of the corrected Reference Price Statement, at Licensee's election.
3.3 Adjustments for Government-Mandated Pricing in Reference Markets. The parties acknowledge that pricing in certain Reference Markets may be subject to government-mandated price controls, statutory rebates, national health technology assessment-based pricing decisions, reference pricing systems, or centralized procurement tendering that may have the effect of artificially depressing the Net Price achievable in such Reference Market below the level that would prevail in a free-market environment. In the event that pricing in a Reference Market is subject to such government-mandated pricing actions and such actions would result in a material reduction to the MFN Reference Price (defined for this purpose as a reduction of more than ten percent (10%) relative to the MFN Reference Price that would have prevailed absent such government-mandated pricing action), the following process shall apply:
(a) Either party may request that the Joint Steering Committee (the "JSC") convene a meeting to discuss whether an adjustment to the MFN Reference Price is warranted in light of the government-mandated pricing action.
(b) The JSC shall convene within thirty (30) days of such request and shall discuss in good faith whether and to what extent the government-mandated pricing action should be excluded from or adjusted in the MFN Reference Price calculation.
(c) In the event that the JSC is unable to reach consensus on the appropriate adjustment, the ultimate decision on whether and how to adjust the MFN Reference Price shall rest with Licensor, which shall have the tie-breaking vote on all matters relating to global intellectual property strategy and pricing integrity, consistent with Article 4.3(c) of the Agreement. Licensor shall exercise such tie-breaking authority reasonably and in good faith, taking into account the legitimate commercial interests of both parties.
(d) Any adjustment determined pursuant to this Section 3.3 shall be documented in writing and attached as an addendum to the Reference Price Statement for the applicable quarter.
Section 4: MFN Compliance by Licensee
4.1 Pricing Obligation. Licensee shall ensure that the Territory Net Price per unit in each country of the Territory, for each dosage strength (25 mg and 50 mg) and Comparable Pack Size, does not fall below the MFN Floor Price (i.e., does not fall more than fifteen percent (15%) below the MFN Reference Price) during any calendar quarter. This obligation is absolute and applies across all channels of distribution through which the Licensed Product is sold in the Territory, including without limitation:
(a) retail pharmacy sales;
(b) hospital sales (including sales to public hospitals, private hospitals, and hospital group purchasing organizations);
(c) government tender sales (including national centralized procurement, provincial procurement, and regional procurement programs);
(d) direct-to-patient programs (including home delivery and specialty pharmacy channels);
(e) managed care and formulary sales; and
(f) any other sales channel through which the Licensed Product is made available to patients or healthcare providers in the Territory.
Licensee acknowledges that the MFN pricing obligation is a material term of the Agreement and that Licensor's willingness to grant the exclusive license for the Territory was conditioned, in significant part, upon Licensee's agreement to maintain pricing within the parameters established by this Schedule F. Licensee shall implement internal pricing controls, compliance monitoring systems, and contractual mechanisms with its distributors and commercial partners sufficient to ensure ongoing compliance with the MFN Floor Price in all countries of the Territory.
4.2 Sublicensee Compliance. Licensee shall include the most favored nation pricing obligation, in terms substantially consistent with and no less protective of Licensor's rights than those set forth in this Schedule F, in any sublicense agreement entered into by Licensee with respect to the Licensed Product in any country of the Territory. Licensee shall be primarily responsible for ensuring that each sublicensee complies with the MFN pricing obligation, and any failure by a sublicensee to maintain Territory Net Prices at or above the MFN Floor Price shall be deemed a breach by Licensee under this Schedule F and the Agreement. Licensee shall provide Licensor with copies of the MFN-related provisions of each sublicense agreement within thirty (30) days of execution of such sublicense, subject to redaction of commercially sensitive terms not related to MFN compliance.
4.3 Quarterly Reporting by Licensee. Licensee shall deliver to Licensor, within forty-five (45) days after the end of each calendar quarter, a written report (the "Territory Pricing Report") setting forth the following information for the calendar quarter just ended:
(a) the Territory Net Price per unit (per tablet) for each dosage strength (25 mg and 50 mg) and each pack size of the Licensed Product, reported separately for each country in the Territory in which commercial sales occurred during such quarter;
(b) the total number of units (tablets) of the Licensed Product sold in each country in the Territory during such quarter, broken down by dosage strength (25 mg and 50 mg) and by pack size;
(c) the exchange rates used for conversion of local currency pricing to USD, including identification of the source (Westmark Services Inc. or Calderon Health IT) and the averaging methodology applied;
(d) a statement confirming MFN compliance for the quarter (i.e., that the Territory Net Price in each country, for each dosage strength and Comparable Pack Size, was at or above the applicable MFN Floor Price) or, in the alternative, identification of any MFN Breach, including the country, dosage strength, pack size, Territory Net Price, applicable MFN Floor Price, and number of units sold at the non-compliant price; and
(e) such additional detail as Licensor may reasonably request from time to time to facilitate verification of MFN compliance.
Each Territory Pricing Report shall be certified as accurate and complete by an authorized officer of Licensee. Unless otherwise designated by Licensee in writing, the certifying officer shall be Mr. Patrick S.H. Kwok, Chief Financial Officer of Meridian Bio Therapeutics Limited, or his duly authorized designee. The certification shall be in the following form or substantially similar form:
"I, [Name], [Title], hereby certify that the information contained in this Territory Pricing Report for the calendar quarter ended [date] is true, accurate, and complete in all material respects, and that the Territory Net Prices reported herein have been calculated in accordance with Schedule F to the Agreement."
4.4 Affiliate and Sublicensee Reporting. The reporting obligation set forth in Section 4.3 extends to all commercial sales of the Licensed Product by all Affiliates of Licensee (including, without limitation, Meridian Pharma (Shanghai) Co., Ltd., Meridian Japan K.K., Meridian Korea Inc., and Meridian Bio Australia Pty Ltd) and by all sublicensees. Licensee is responsible for obtaining the necessary pricing and sales data from each Affiliate and sublicensee and for consolidating such data into the Territory Pricing Report. Licensee shall ensure that its Affiliate and sublicense agreements contain provisions requiring each Affiliate and sublicensee to provide Licensee with timely and accurate pricing and sales data sufficient to enable Licensee to fulfill its reporting obligations under this Section 4.
Section 5: MFN Adjustment Payment Calculation
5.1 Determination of MFN Breach. An "MFN Breach" shall be deemed to have occurred if, in any calendar quarter, the Territory Net Price per unit in any country of the Territory falls below the MFN Floor Price for the applicable dosage strength (25 mg or 50 mg) and Comparable Pack Size. Each instance of non-compliance (i.e., each country/dosage-strength combination for which the Territory Net Price is below the MFN Floor Price in a given calendar quarter) shall constitute a separate MFN Breach. The existence of an MFN Breach shall be determined on a weighted-average basis across all sales of the applicable dosage strength and pack size within the relevant country during the calendar quarter, using the methodology for Territory Net Price calculation set forth in Section 2.7.
5.2 MFN Adjustment Payment Formula. For each country in the Territory and each dosage strength for which an MFN Breach occurs in a given calendar quarter, the MFN Adjustment Payment shall be calculated as follows:
MFN Adjustment Payment = (MFN Floor Price − Territory Net Price) × Units Sold
Where:
• "MFN Floor Price" is the MFN Floor Price for the applicable dosage strength and Comparable Pack Size, as determined pursuant to Section 2.4;
• "Territory Net Price" is the actual Territory Net Price per unit in such country for the applicable dosage strength during such calendar quarter, as reported in the Territory Pricing Report; and
• "Units Sold" is the total number of units (tablets) of the applicable dosage strength sold in such country during such calendar quarter.
The total MFN Adjustment Payment for a given calendar quarter shall be the sum of the individual MFN Adjustment Payments calculated for each country and each dosage strength in which an MFN Breach occurred during such quarter. Where MFN Breaches occur in multiple countries or for multiple dosage strengths in the same quarter, each breach shall be calculated independently and the resulting amounts shall be aggregated.
5.3 Payment Terms. The MFN Adjustment Payment for any calendar quarter shall be due and payable by Licensee to Licensor within thirty (30) days after Licensor delivers written notice of the MFN Breach to Licensee in accordance with Section 6.1 below, accompanied by Licensor's calculation of the MFN Adjustment Payment in reasonable detail sufficient for Licensee to verify the calculation. Payment shall be made in United States Dollars by wire transfer of immediately available funds to the bank account designated by Licensor in writing (currently: Greaves Bancorp, New York, ABA Routing No. 021000021, Account No. [as specified in the Agreement], for the benefit of Penterra Pharmaceuticals Corp.), or to such other account as Licensor may designate by written notice to Licensee from time to time.
5.4 Interest on Late Payments. Any MFN Adjustment Payment not made within thirty (30) days of the date on which it becomes due and payable pursuant to Section 5.3 shall bear interest at a rate of one and one-half percent (1.5%) per month (equivalent to eighteen percent (18%) per annum), compounded monthly, calculated from the date such payment was due until the date of actual receipt of payment by Licensor. Notwithstanding the foregoing, if the rate of one and one-half percent (1.5%) per month exceeds the maximum rate of interest permitted by applicable law, the interest rate shall be reduced to the maximum rate permitted by applicable law.
5.5 No Set-Off. Licensee shall not set off, deduct, or withhold any MFN Adjustment Payment (or any portion thereof) against royalties, milestone payments, development cost-sharing payments, or any other amounts owed by Licensee to Licensor under the Agreement or any ancillary agreement. MFN Adjustment Payments are separate and independent obligations, and Licensee's obligation to make such payments is unconditional and shall not be subject to any defense, counterclaim, or right of recoupment, except as expressly provided in Section 3.2(f) above (correction of overstated MFN Reference Price).
Section 6: Quarterly Reconciliation Process
6.1 Timeline for Reconciliation. The quarterly reconciliation process shall proceed according to the following timeline:
(a) Licensee Reporting: Within forty-five (45) days after the end of each calendar quarter, Licensee shall deliver the Territory Pricing Report to Licensor in accordance with Section 4.3. The Territory Pricing Report shall contain all information necessary for Licensor to assess MFN compliance for the quarter.
(b) Licensor Review: Within thirty (30) days after Licensor's receipt of the Territory Pricing Report, Licensor shall complete its review of the Territory Pricing Report in conjunction with the Reference Price Statement for the applicable Reference Period and shall deliver to Licensee either:
(i) written confirmation that Licensee is in compliance with the MFN pricing obligation for the applicable calendar quarter; or
(ii) written notice of MFN Breach (the "MFN Breach Notice"), setting forth in reasonable detail: (A) the country or countries in which the MFN Breach occurred; (B) the dosage strength(s) and pack size(s) affected; (C) the applicable MFN Reference Price, MFN Floor Price, and Territory Net Price; (D) the number of units sold at the non-compliant price; (E) the calculation of the MFN Adjustment Payment; and (F) a demand for payment of the MFN Adjustment Payment within thirty (30) days.
(c) Payment: If an MFN Breach Notice is delivered, Licensee shall remit the MFN Adjustment Payment within thirty (30) days of receipt of the MFN Breach Notice, subject to Licensee's right to dispute the calculation as provided in Section 6.2 below.
6.2 Dispute Resolution for MFN Calculations. In the event that Licensee disputes any element of the MFN Adjustment Payment calculation set forth in an MFN Breach Notice, the following dispute resolution process shall apply:
(a) Notice of Dispute: Licensee shall notify Licensor in writing within fifteen (15) days of Licensee's receipt of the MFN Breach Notice, specifying in reasonable detail the element(s) of the calculation that Licensee disputes, the basis for such dispute, and Licensee's proposed alternative calculation (if any). Failure to deliver a timely notice of dispute shall be deemed acceptance of Licensor's calculation.
(b) Good-Faith Negotiation: Upon receipt of a notice of dispute, the parties shall attempt to resolve the dispute through good-faith negotiations within thirty (30) days. Such negotiations shall include escalation to the Joint Steering Committee, which shall convene a meeting (in person or by videoconference) within fifteen (15) days of the notice of dispute, with a minimum of three (3) representatives from each party in attendance. The JSC shall review the disputed calculation, examine the underlying data, and seek to reach a mutually acceptable resolution.
(c) Binding Arbitration: If the dispute is not resolved within thirty (30) days following delivery of the notice of dispute (or such longer period as the parties may agree in writing), the dispute shall be submitted to binding arbitration in accordance with the dispute resolution provisions set forth in Article 15 of the Agreement, namely: arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC International Court of Arbitration), with the seat of arbitration in New York, New York, before a panel of three (3) arbitrators (one appointed by each party, and the third appointed by the two party-appointed arbitrators or, failing agreement, by the ICC), with all proceedings conducted in the English language. The arbitral tribunal shall have the authority to award monetary damages (including MFN Adjustment Payments, interest, and costs) and to order specific performance of MFN pricing obligations, but shall not have the authority to award punitive or exemplary damages.
(d) Preliminary Injunctive Relief: Notwithstanding the foregoing arbitration provisions, either party may seek preliminary injunctive relief, temporary restraining orders, or other provisional remedies from the United States District Court for the Southern District of New York or, in the alternative, the Supreme Court of the State of New York, New York County, to enforce MFN compliance or to preserve the status quo pending the commencement or conclusion of arbitration proceedings. The parties hereby consent to the personal jurisdiction and venue of such courts for purposes of seeking such provisional relief and agree that the seeking of such relief shall not constitute a waiver of the right to arbitrate.
(e) Payment Pending Dispute: During the pendency of any dispute under this Section 6.2, Licensee shall pay to Licensor the undisputed portion of any MFN Adjustment Payment (i.e., the amount that Licensee acknowledges to be owed, if any) within the thirty (30)-day payment period specified in Section 5.3. The disputed portion shall be held in escrow by Licensee's outside counsel or a mutually agreed-upon escrow agent pending resolution of the dispute. Interest shall accrue on any disputed amounts ultimately determined to be owed by Licensee from the original due date.
6.3 Audit Rights of Licensor. Licensor shall have the right, exercisable no more than once per calendar year, to engage an independent certified public accounting firm of recognized national standing (which firm must be reasonably acceptable to Licensee, it being understood that any of the "Big Four" accounting firms shall be deemed acceptable) to audit Licensee's pricing records, sales records, rebate and discount records, and related financial documentation for the purpose of verifying Licensee's compliance with the MFN pricing obligation set forth in this Schedule F. Such audit shall be subject to the following terms and conditions:
(a) Licensor shall provide Licensee with at least thirty (30) days' prior written notice of its intent to conduct an audit, specifying the calendar quarter(s) or calendar year(s) to be audited and identifying the auditing firm.
(b) The audit shall be conducted during normal business hours at Licensee's principal offices (or the offices of the applicable Affiliate or sublicensee) and shall be completed within sixty (60) days of commencement, unless extended by mutual agreement.
(c) Licensee shall provide the auditing firm with reasonable access to all books, records, invoices, contracts, price lists, rebate agreements, discount schedules, and other documentation relevant to the determination of Territory Net Prices for the audited period(s). Such access shall extend to the records of Licensee's Affiliates and sublicensees to the extent necessary to verify consolidated Territory pricing data.
(d) The auditing firm shall execute a confidentiality agreement in form and substance reasonably satisfactory to Licensee prior to being granted access to any records, and the auditing firm shall disclose to Licensor only (i) whether the Territory Net Prices reported by Licensee were accurate and (ii) the amount and nature of any discrepancy, without disclosing Licensee's underlying commercial terms with Third Parties except to the extent necessary to explain the discrepancy.
(e) The auditing firm shall deliver its findings to both parties simultaneously within thirty (30) days of completing its review.
(f) Cost Allocation: If the audit reveals one or more MFN Breaches that were not reported by Licensee and that resulted in an aggregate underpayment of MFN Adjustment Payments for the audited period(s) exceeding five percent (5%) of the aggregate MFN Adjustment Payments that should have been paid for such period(s), Licensee shall bear all reasonable costs and expenses of the audit (including the auditing firm's fees and travel expenses). In all other cases, Licensor shall bear the cost of the audit.
(g) If the audit reveals unreported MFN Breaches, Licensee shall promptly pay the additional MFN Adjustment Payments owed, together with interest thereon calculated in accordance with Section 5.4 from the date such amounts would have been due had the breach been timely reported.
(h) Survival of Audit Rights: Licensor's audit rights under this Section 6.3 shall survive for a period of three (3) years following the end of the calendar year in which the relevant commercial sales occurred. After the expiration of such three (3)-year period, Licensor's right to audit the records for such calendar year shall lapse, and the Territory Pricing Reports for such calendar year shall be deemed final and binding absent fraud or intentional misrepresentation.
Section 7: Currency Conversion
7.1 Denomination. All MFN calculations under this Schedule F, including the MFN Reference Price, MFN Floor Price, Territory Net Price, and MFN Adjustment Payment, shall be expressed and calculated in United States Dollars.
7.2 Conversion Methodology. Where the Licensed Product is sold in a currency other than USD (whether in a Reference Market or in a Territory country), conversion to USD shall be made at the average exchange rate for the applicable calendar quarter, calculated as the arithmetic mean of the daily closing exchange rates for such currency pair published by Crowne Albany Systems for each business day during the applicable calendar quarter. If Westmark Services Inc. daily closing rates are unavailable for a particular currency pair on any business day, the daily closing rate published by Refinitiv (Calderon Health IT) for such business day shall be used as a substitute. If neither Westmark Services Inc. nor Calderon Health IT publishes a daily closing rate for a particular currency pair, the parties shall use the rate published by the applicable central bank or, failing that, such other reputable source as the parties may agree.
7.3 Significant Currency Fluctuations. If, during any calendar quarter, a Reference Market currency experiences a devaluation or revaluation of more than twenty percent (20%) relative to USD (measured by comparing the closing exchange rate on the last business day of the calendar quarter to the closing exchange rate on the first business day of the same calendar quarter), the parties shall discuss in good faith, through the JSC, whether an adjustment to the MFN Reference Price derived from such Reference Market is warranted for that calendar quarter to avoid distortions in the MFN calculation attributable to extraordinary currency movements. Any such adjustment shall be documented in writing and reflected in the Reference Price Statement for the applicable quarter. This provision applies equally to significant fluctuations in Territory country currencies; however, Territory country currency fluctuations shall not, by themselves, excuse compliance with the MFN Floor Price.
Section 8: Exceptions and Carve-Outs
The MFN pricing obligation set forth in this Schedule F shall not apply to, and the following categories of transactions shall be excluded from the calculation of Territory Net Price and from the determination of MFN Breaches:
8.1 Government-Mandated Pricing. In the event that a government authority in any country of the Territory mandates, through binding regulation, legislation, administrative order, or centralized procurement mechanism, a net selling price for the Licensed Product that is below the MFN Floor Price (including, without limitation, through national health insurance pricing determinations, centralized volume-based procurement tendering programs such as the China National Healthcare Security Administration's national centralized drug procurement program, or drug price control regulations), the following provisions shall apply:
(a) Licensee shall promptly notify Licensor in writing (and in any event within fifteen (15) days of becoming aware of such government-mandated pricing action) of the nature, scope, and expected duration of the government-mandated pricing action, the country affected, the mandated price level, and the anticipated impact on Territory Net Prices.
(b) The parties shall negotiate in good faith, through the JSC, an appropriate adjustment to the MFN Floor Price for the affected country and dosage strength, taking into account the mandatory nature of the pricing action, the volume of sales expected to be affected, and the availability of alternative pricing strategies.
(c) No MFN Adjustment Payment shall be due solely by reason of Licensee's compliance with a mandatory government pricing action, provided that Licensee demonstrates to Licensor's reasonable satisfaction that: (i) the pricing action is legally mandatory (and not merely voluntary or incentive-based); (ii) Licensee has used commercially reasonable efforts to maximize the achievable price within the constraints of the government mandate; and (iii) Licensee has pursued all available administrative and legal remedies to challenge or mitigate the impact of the government-mandated price, to the extent commercially reasonable.
(d) The exception set forth in this Section 8.1 applies only to sales made at prices that are required by the government mandate; sales in the same country through non-mandated channels remain subject to the MFN Floor Price.
8.2 Compassionate Use and Named Patient Sales. Sales or distributions of the Licensed Product made under compassionate use programs, named patient programs, expanded access programs, early access programs, or similar programs established for the benefit of patients with serious or life-threatening conditions who lack alternative treatment options, shall be excluded from MFN calculations under this Schedule F, provided that:
(a) each such program is approved in advance by the JSC, with such approval not to be unreasonably withheld or delayed;
(b) the Licensed Product is supplied under such program at a reduced price or at no cost, consistent with the charitable or humanitarian purpose of the program;
(c) Licensee provides Licensor with quarterly reports detailing the volume of Licensed Product supplied under each such program, by country; and
(d) the aggregate volume of Licensed Product supplied under all such programs in any country does not exceed two percent (2%) of total commercial sales volume in such country during the same calendar quarter, unless a higher threshold is approved by the JSC.
8.3 Clinical Trial Supplies. Licensed Product supplied for clinical trials (including, without limitation, the Phase III clinical program under the Development Plan set forth in Schedule E to the Agreement, investigator-initiated studies approved under the Agreement, and any post-marketing studies required by regulatory authorities) shall not be considered commercial sales and shall be excluded from all MFN calculations under this Schedule F, regardless of whether such clinical trial supplies are provided free of charge or at a nominal cost.
8.4 Samples. Free samples of the Licensed Product distributed in the ordinary course of pharmaceutical marketing and promotion (including samples provided to healthcare professionals for patient evaluation purposes in accordance with applicable law and industry codes of conduct) shall be excluded from all MFN calculations under this Schedule F, provided that such samples are clearly designated as samples and are not sold to or invoiced to any Third Party purchaser.
Section 9: Interaction with Royalty Provisions
9.1 Separate and Additive Obligations. MFN Adjustment Payments calculated and payable under this Schedule F are separate from, and in addition to, all royalty payments owed by Licensee to Licensor under Article 7 of the Agreement. For the avoidance of doubt, the tiered royalty structure set forth in the Agreement — being eight percent (8%) of annual aggregate Net Sales up to and including $200,000,000; eleven percent (11%) of annual aggregate Net Sales exceeding $200,000,000 up to and including $500,000,000; and fourteen percent (14%) of annual aggregate Net Sales exceeding $500,000,000 — applies independently of, and is not reduced or otherwise affected by, the payment of MFN Adjustment Payments.
9.2 No Crediting or Offset. MFN Adjustment Payments shall not be credited against, deducted from, or offset against royalty obligations, development milestone payments, commercial milestone payments, or any other amounts owed by Licensee to Licensor under the Agreement or any ancillary agreement. Similarly, royalty payments shall not be credited against MFN Adjustment Payment obligations.
9.3 Minimum Annual Royalty. The minimum annual royalty of Two Million United States Dollars ($2,000,000) set forth in Article 7.6 of the Agreement applies independently of and in addition to any MFN Adjustment Payments. MFN Adjustment Payments shall not be counted toward satisfaction of the minimum annual royalty obligation.
9.4 Post-Patent Royalty Reduction. Following expiration of all licensed patents covering the Licensed Product in a given country of the Territory, the reduced royalty rates set forth in Article 7.3 of the Agreement (being four percent (4%), five and one-half percent (5.5%), and seven percent (7%) of annual aggregate Net Sales, at the applicable tier thresholds) shall apply to royalty calculations for such country. However, the MFN Floor Price calculation shall not be affected by the post-patent royalty reduction; the MFN Reference Price and MFN Floor Price shall continue to be calculated in accordance with Sections 2 and 3 of this Schedule F without regard to the applicable royalty rate.
9.5 Generic Entry Royalty Reduction. The royalty reduction upon generic entry set forth in Article 7.5 of the Agreement (being a forty percent (40%) reduction in the applicable royalty rate upon Generic Products achieving a market share of thirty percent (30%) or more in a given country of the Territory) applies solely to royalty calculations and does not affect the MFN Floor Price calculation. The MFN obligations set forth in this Schedule F remain in full force and effect notwithstanding the entry of one or more Generic Products into any country of the Territory or any Reference Market. Licensee acknowledges that the continued applicability of MFN obligations during periods of generic competition is a material term of this Schedule F and the Agreement.
Section 10: Term of MFN Obligation
10.1 Duration. The most favored nation pricing obligation set forth in this Schedule F shall remain in effect on a country-by-country basis for the duration of the Royalty Term (as defined in the Agreement) applicable to each such country of the Territory. The Royalty Term for each country is the period commencing on the date of first commercial sale of the Licensed Product in such country and ending on the later of:
(a) the date of expiration of the last-to-expire Valid Claim of a licensed patent covering the Licensed Product (including composition-of-matter patents, formulation patents, method-of-use patents, and manufacturing process patents) in such country; or
(b) the date that is twelve (12) years after the date of first commercial sale of the Licensed Product in such country.
10.2 Termination of MFN Obligation. Following the expiration of the Royalty Term in a given country of the Territory, the MFN pricing obligation set forth in this Schedule F shall terminate with respect to such country, and Licensee shall thereafter be free to price the Licensed Product in such country without regard to the MFN Floor Price. For the avoidance of doubt, termination of the MFN obligation in one country shall not affect the continued applicability of the MFN obligation in other countries of the Territory in which the Royalty Term has not yet expired.
10.3 Key Patent Expirations. For reference and planning purposes, the parties note the following expected expiration dates for key patents in the licensed patent portfolio covering PPC-4187 (Penteracitinib):
The foregoing table is provided for informational purposes only and does not constitute a representation or warranty as to the validity, enforceability, or term of any patent. Actual patent expiration dates may be affected by patent term extensions, supplementary protection certificates, patent term adjustments, or other regulatory or legal developments. The Royalty Term for each country shall be determined based on the actual expiration date of the last-to-expire Valid Claim in such country, as determined in accordance with the Agreement.
Section 11: Record-Keeping
11.1 Record Retention. Each party shall maintain complete, accurate, and contemporaneous records sufficient to permit the verification of MFN Reference Prices (in the case of Licensor) and Territory Net Prices (in the case of Licensee) for a period of not less than five (5) years following the end of the calendar year to which such records relate. Such records shall include, without limitation, invoices, price lists, discount and rebate agreements, credit and return records, government rebate filings, tender submissions, exchange rate documentation, and internal pricing analyses.
11.2 Accounting Standards. Records maintained by Licensor shall be kept in accordance with United States generally accepted accounting principles ("U.S. GAAP"), consistently applied. Records maintained by Licensee and its Affiliates shall be kept in accordance with International Financial Reporting Standards ("IFRS") or, where applicable local regulations require the use of local accounting standards (e.g., Chinese Accounting Standards for Business Enterprises for Meridian Pharma (Shanghai) Co., Ltd., or Japanese GAAP for Meridian Japan K.K.), such local standards, in each case consistently applied. In the event of any conflict between the accounting standard used by Licensee and the Net Price calculation methodology set forth in Section 2.3, the definitions and methodology in this Schedule F shall prevail.
11.3 Availability for Audit. All records subject to the record-keeping obligations of this Section 11 shall be made available to auditing firms engaged pursuant to Sections 3.2 and 6.3 of this Schedule F, in accordance with the terms and conditions set forth in those sections.
Section 12: Confidentiality
12.1 Confidential Treatment. All MFN Reference Price data, Reference Price Statements, Territory Pricing Reports, MFN Adjustment Payment calculations, audit findings, and any other information exchanged between the parties in connection with this Schedule F shall be treated as Confidential Information of the disclosing party and shall be subject to the confidentiality provisions set forth in Article 12 of the Agreement. Neither party shall disclose any such information to any Third Party (other than its Affiliates, sublicensees, auditors, legal counsel, and financial advisors who have a need to know such information and are bound by confidentiality obligations no less restrictive than those in the Agreement) without the prior written consent of the other party, except as required by applicable law, regulation, or order of a court or governmental authority of competent jurisdiction.
12.2 Auditor Confidentiality. Each independent certified public accounting firm engaged pursuant to Section 3.2 or Section 6.3 of this Schedule F shall be required to execute a confidentiality agreement, in form and substance reasonably satisfactory to the party whose records are being audited, containing confidentiality obligations no less restrictive than those set forth in Article 12 of the Agreement, prior to being granted access to any records or information of such party. Such confidentiality agreement shall survive the completion of the audit and shall remain in effect for a period of not less than five (5) years following the date of the audit.
12.3 Permitted Disclosures. Notwithstanding the foregoing, nothing in this Section 12 shall prohibit either party from disclosing MFN-related information to the extent required by applicable securities laws and regulations (including filings with the U.S. Securities and Exchange Commission or the Hong Kong Stock Exchange), provided that the disclosing party provides the other party with reasonable advance notice and an opportunity to seek confidential treatment of such information to the extent permitted by law.
Section 13: Illustrative MFN Calculation
The following worked example is provided for illustrative purposes only and is not intended to establish any presumption regarding actual pricing, sales volumes, or MFN compliance. In the event of any conflict between this illustrative example and the substantive provisions of Sections 1 through 12 of this Schedule F, the substantive provisions shall control.
Assumptions:
• Dosage Strength: 50 mg film-coated tablets
• Reference Period: Q4 2025 (October 1 – December 31, 2025)
• Review Quarter: Q1 2026 (January 1 – March 31, 2026)
• MFN Reference Price (lowest Net Price per tablet in any Reference Market during Q4 2025): $15.00 per tablet (derived from U.S. market, 30-count bottle)
Step 1: Calculate the MFN Floor Price
MFN Floor Price = MFN Reference Price × 0.85
MFN Floor Price = $15.00 × 0.85 = $12.75 per tablet
Step 2: Determine the Territory Net Price
Licensee (through Meridian Japan K.K.) sells the 50 mg Licensed Product in Japan during Q1 2026. After deducting all applicable discounts, rebates, government-mandated reductions, taxes, and other permitted deductions under Section 2.3, the Territory Net Price per tablet in Japan during Q1 2026 is $11.50 per tablet (converted to USD at the average Westmark Services Inc. exchange rate for Q1 2026).
Step 3: Assess MFN Compliance
Territory Net Price ($11.50) < MFN Floor Price ($12.75)
Result: An MFN Breach exists. The Territory Net Price in Japan for the 50 mg dosage strength during Q1 2026 falls below the MFN Floor Price by $1.25 per tablet.
Step 4: Calculate the MFN Adjustment Payment
Total units (tablets) of 50 mg Licensed Product sold by Meridian Japan K.K. in Japan during Q1 2026: 200,000 tablets
MFN Adjustment Payment = (MFN Floor Price − Territory Net Price) × Units Sold
MFN Adjustment Payment = ($12.75 − $11.50) × 200,000
MFN Adjustment Payment = $1.25 × 200,000
MFN Adjustment Payment = $250,000.00