PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION ATTORNEY WORK PRODUCT DOCTRINE DO NOT DISTRIBUTE WITHOUT PRIOR APPROVAL OF COUNSEL
CALDERWOOD & HARKNESS LLP Attorneys at Law
One International Place, 44th Floor Boston, Massachusetts 02110 Telephone: (617) 555-4200 Facsimile: (617) 555-4201
June 3, 2024
MEMORANDUM
TO: Board of Directors, Penterra Pharmaceuticals Corp.
CC: Dr. Anand Rajagopal, Chief Executive Officer Catherine M. Burgess, Chief Financial Officer Thomas F. Holbrook, General Counsel & Secretary Natalie Reiner, Senior Vice President, Corporate Development
FROM: Oliver Mackenzie, Partner, Calderwood & Harkness LLP Megan Chu, Associate, Calderwood & Harkness LLP
RE: Consolidated Due Diligence Summary — Proposed Acquisition of 100% of the Outstanding Capital Stock of Veridian Biosciences, Inc.
MATTER NO.: 1018-00008
This memorandum constitutes a privileged and confidential attorney-client communication and attorney work product prepared by Calderwood & Harkness LLP at the direction of, and for the sole benefit of, the Board of Directors of Penterra Pharmaceuticals Corp. in connection with the proposed acquisition of Veridian Biosciences, Inc. This memorandum is protected from disclosure by the attorney-client privilege and the attorney work product doctrine. This memorandum should not be distributed, disclosed, or discussed with any person who is not an authorized recipient without the prior written approval of Calderwood & Harkness LLP. Unauthorized disclosure could result in waiver of applicable privileges.
Right-click to update Table of Contents
I. Executive Summary
The purpose of this memorandum is to consolidate and summarize the findings from all due diligence workstreams conducted by Calderwood & Harkness LLP and its co-advisors in connection with the proposed acquisition by Penterra Pharmaceuticals Corp. ("Penterra" or the "Company") of 100% of the outstanding capital stock of Veridian Biosciences, Inc. ("Veridian" or the "Target") for aggregate consideration of $900,000,000 in cash (the "Transaction"). This memorandum is intended to provide the Board of Directors of Penterra (the "Board") with a comprehensive overview of the material legal, financial, clinical, regulatory, tax, and antitrust findings resulting from the diligence process, together with our recommendations regarding key contractual protections to be incorporated in the definitive Stock Purchase Agreement (the "SPA").
Calderwood & Harkness LLP coordinated nine discrete diligence workstreams between March 11, 2024, the date on which Penterra was granted access to Veridian's virtual data room hosted on Thackeray Solutions, and the date of this memorandum. Each workstream produced a detailed sub-memorandum, the dates and subject matters of which are referenced in Appendix A to this memorandum. This consolidated summary is intended to highlight the most material findings and risk areas for the Board's consideration in advance of the scheduled Board meeting on June 10, 2024, at which the Board will be asked to consider and authorize execution of the SPA.
The following advisors and consultants participated in the due diligence process:
• Calderwood & Harkness LLP (Oliver Mackenzie, Partner; Megan Chu, Associate; and additional members of the Corporate, intellectual Property, Employment, and Litigation practice groups) — legal due diligence across all workstreams;
• Broadleaf Scientific Consulting LLC (Dr. Raymond Kapoor, Managing Director) — clinical and scientific due diligence, including review of the Marlowe Asset Management-2 Phase II trial design, existing clinical data, and regulatory strategy for VRD-4187;
• Leonard Cross, Partner, Calderwood & Harkness LLP (Tax Group) — federal and state tax due diligence, including analysis of Veridian's net operating losses, Section 382 limitations, R&D tax credits, and transaction structure;
• Garrison Zanthor & Co. (Kevin Driscoll, Managing Director) — financial due diligence, valuation analysis, and fairness opinion preparation; and
• Stonebridge HSW Antitrust Advisors LLP (Martin Prumvane, Partner) — Hart-Scott-Rodino antitrust assessment and pre-merger notification.
Veridian has been represented in this transaction by Zalcourt Archer & Cole LLP (Rebecca Whitmore, Partner) as legal counsel and Ridgeway Partners LLC (Laura Beckett, Managing Director) as financial advisor. We have had productive and constructive interactions with both counterparty advisors throughout the diligence process. Access to Veridian's data room, management team, and key personnel has been cooperative, and we have not identified any material limitations on our ability to conduct a thorough review.
Overall Assessment. Based on the comprehensive diligence summarized herein, it is our assessment that Veridian represents a strategically compelling acquisition target that has the potential to significantly bolster Penterra's immuno-oncology pipeline, which faces a critical gap following the PPC-0921 Phase III futility analysis announced on November 18, 2023. Veridian's proprietary VeriTCE (T-cell engager) platform, its lead clinical candidate VRD-4187, and its earlier-stage pipeline assets VRD-5201 and VRD-6033 offer a meaningful opportunity for Penterra to re-establish a competitive position in the immuno-oncology market. Veridian's corporate structure is clean, its intellectual property portfolio is well-maintained, its regulatory history with the FDA is unblemished, and no material litigation or contingent liabilities have been identified.
However, the Transaction is not without significant risks. We have identified the following three highest-priority risk areas that require the Board's particular attention and that must be addressed through robust contractual protections in the SPA:
1. Clinical Trial Risk — VRD-4187 (Marlowe Asset Management-2 Phase II Trial): This is the single most significant risk in the Transaction. VRD-4187 is Veridian's lead clinical candidate and the primary driver of the $900 million purchase price. The Marlowe Asset Management-2 Phase II trial is currently ongoing, and interim data from the Data Monitoring Committee ("DMC") is expected in August 2024 — between the anticipated signing and closing of the Transaction. Adverse clinical data, including elevated rates of cytokine release syndrome, neurotoxicity, treatment-related mortality, or insufficient efficacy, could fundamentally alter the value proposition underlying the Transaction.
2. Section 382 NOL Limitations: Veridian possesses an estimated $312 million in federal net operating loss carryforwards as of December 31, 2023. However, a prior "ownership change" during the Series C financing round in Q3 2020 already subjects approximately $148 million of pre-change NOLs to an annual limitation of approximately $5.9 million per year under Section 382 of the Internal Revenue Code. Moreover, the acquisition itself will constitute a new ownership change, subjecting all remaining Veridian NOLs to a further annual limitation. This materially limits the near-term tax benefit of the NOL carryforwards to Penterra.
3. Key-Person Dependence on Co-Founders: Veridian's scientific platform and clinical development strategy are heavily dependent on the expertise and institutional knowledge of co-founders Dr. Julian Marek (CEO) and Dr. Priya Chandrasekaran (CSO). Significant proprietary know-how resides with these individuals personally. Their departure post-closing would significantly impair Penterra's ability to advance the VeriTCE platform and the clinical programs.
Notwithstanding these risks, Calderwood & Harkness is of the view that each can be adequately mitigated through the contractual protections detailed in Section X of this memorandum. Accordingly, we recommend that the Board authorize management to proceed to execution of the SPA on substantially the terms described herein, subject to final negotiation of the key provisions identified in Section XIV.
II. Transaction Overview
A. Structure and Parties
The Transaction is structured as an acquisition by Penterra Pharmaceuticals Corp. ("Penterra" or "Buyer") of 100% of the outstanding capital stock of Veridian Biosciences, Inc. ("Veridian" or the "Company") from the holders of Veridian's capital stock (collectively, the "Sellers"). Penterra is a Delaware corporation, publicly traded on the Nasdaq Global Select Market under the ticker symbol "PPCA," with its principal executive offices located at 1100 Meridian Boulevard, Suite 400, Princeton, New Jersey 08540. Veridian is a Delaware corporation, privately held, with its principal office located at 550 Gateway Drive, Cambridge, Massachusetts 02142.
The Transaction is structured as an all-cash stock purchase. Penterra will acquire all issued and outstanding shares of Veridian's common stock (including shares issued upon conversion of all outstanding series of preferred stock) directly from the Sellers. The parties have not elected, and do not contemplate electing, to treat the Transaction as an asset acquisition under Section 338(h)(10) of the Internal Revenue Code. The rationale for forgoing the Section 338(h)(10) election is discussed in greater detail in Section VIII.A below.
The aggregate purchase price for all of Veridian's outstanding capital stock is $900,000,000 in cash (the "Purchase Price"), payable at closing. The allocation of the Purchase Price at closing will be as follows:
• Indemnification Escrow: $180,000,000 (representing 20% of the Purchase Price) will be deposited into an escrow account to be held by Fidelis National Escrow Corp. (Brian Mulcahy, Senior Vice President) as escrow agent pursuant to the terms of an Escrow Agreement to be executed at closing. The escrow fund will serve as the primary source for satisfaction of Sellers' indemnification obligations under Article IX of the SPA. The escrow will be maintained for a period of 18 months following the closing date with respect to general representations, and for the applicable survival period with respect to Fundamental Representations and tax representations.
• Stockholder Representative Expense Fund: $2,500,000 will be deposited into a separate account to fund the fees and expenses of the Stockholder Representative in connection with the administration of post-closing indemnification claims and other matters arising under the SPA. Crestline Ventures, LP (David Ng, Managing Partner), as the largest stockholder of Veridian, has been designated as the Stockholder Representative under the SPA by the requisite vote of the Sellers.
• Net Closing Payment to Sellers: $717,500,000 ($900,000,000 minus $180,000,000 minus $2,500,000) will be distributed to the Sellers at closing in accordance with their respective pro rata shares of the aggregate consideration, as determined by the capitalization table set forth in the Disclosure Schedules.
The Transaction does not contemplate any post-closing purchase price adjustments for working capital, cash, or indebtedness. The Purchase Price is fixed at $900,000,000 regardless of changes in Veridian's cash position, working capital, or financial condition between signing and closing, subject only to the material adverse effect closing condition and the bring-down of representations and warranties.
B. Veridian Background
Veridian Biosciences, Inc. was incorporated in the State of Delaware on March 14, 2016, by co-founders Dr. Julian Marek and Dr. Priya Chandrasekaran. Veridian is a clinical-stage biotechnology company focused on the discovery and development of novel immuno-oncology therapeutics based on its proprietary T-cell engager platform, branded as the "VeriTCE" platform. The VeriTCE platform enables the engineering of bispecific antibodies designed to redirect patients' T cells to selectively destroy cancer cells expressing specific tumor-associated antigens.
Veridian's pipeline comprises three immuno-oncology candidates, all built on the VeriTCE platform:
(i) VRD-4187 — Veridian's lead clinical candidate, a bispecific T-cell engager targeting DLL3-expressing tumors, principally small cell lung cancer ("SCLC"). VRD-4187 is currently being evaluated in the Marlowe Asset Management-2 Phase II clinical trial (discussed in detail in Section V below).
(ii) VRD-5201 — A preclinical-stage bispecific T-cell engager targeting a distinct tumor-associated antigen in solid tumors. IND filing is anticipated in 2025.
(iii) VRD-6033 — An early-clinical-stage bispecific T-cell engager currently in a Phase I safety study.
Veridian is a pre-revenue company. For the fiscal year ended December 31, 2023, Veridian reported total revenue of $0 and a net loss of ($87.3 million). Veridian's operating expenses are driven primarily by research and development costs associated with clinical trials, preclinical programs, and personnel-related expenses. As of March 31, 2024 (the most recent interim financial data available in the data room), Veridian reported cash and cash equivalents of $112.4 million, which management represents is sufficient to fund operations through the first quarter of 2025 at the current burn rate.
As of the date of this memorandum, Veridian employs 148 persons across its operations in Massachusetts, California, and Maryland. The company has never had any marketed products and derives no commercial revenue. Its historical funding has been sourced entirely from venture capital financing rounds, totaling approximately $420 million raised through its Series A, B, C, and D preferred stock offerings.
C. Veridian Capitalization and Major Stockholders
We have reviewed Veridian's capitalization table on a fully diluted basis, including all outstanding shares of common stock, all shares of preferred stock (Series A through D) assuming conversion into common stock at closing, and all outstanding stock options and restricted stock units under the Veridian 2016 Equity Incentive Plan (as amended). The following table summarizes the major stockholders and their respective ownership interests on a fully diluted basis:
The three lead institutional investors — Crestline Ventures, Boreal Health Partners, and Apex Growth Equity — collectively hold approximately 62.1% of Veridian's fully diluted equity. As discussed in Section III below, each of these investors holds board designation rights under the Investor Rights Agreement, and each has indicated its support for the Transaction. We anticipate that stockholder approval by written consent will be obtained from holders representing in excess of 90% of the outstanding capital stock, well in excess of the majority required under Delaware General Corporation Law Section 228.
D. Strategic Rationale
The strategic rationale for the Transaction is driven primarily by the need to replenish Penterra's immuno-oncology pipeline. On November 18, 2023, Penterra announced that its internal immuno-oncology lead candidate, PPC-0921 (a PD-L1 checkpoint inhibitor), had failed to meet the primary endpoint in its Phase III APEX-IO trial based on a pre-specified futility analysis conducted by the independent data monitoring committee. The futility analysis was triggered at the interim analysis point when the observed hazard ratio crossed the pre-determined futility boundary. As a result, Penterra terminated the APEX-IO trial in December 2023 and wrote off approximately $340 million in accumulated development costs related to PPC-0921.
The failure of PPC-0921 left a significant gap in Penterra's oncology pipeline, particularly at a time when the immuno-oncology market continues to expand rapidly and competitive activity from large-cap pharmaceutical companies has intensified. Penterra's commercial infrastructure — comprising 12 marketed products across oncology, immunology, and rare diseases, supported by a global commercial organization generating fiscal year 2023 revenue of $4.87 billion — is well-positioned to commercialize Veridian's pipeline candidates if they achieve regulatory approval. Penterra's current market capitalization is approximately $14.2 billion, and the Company maintains approximately $2.1 billion in cash and cash equivalents as of the second quarter of 2024, providing ample financial resources to fund both the Transaction and the continued clinical development of Veridian's pipeline post-closing.
The VeriTCE platform offers strategic value beyond VRD-4187 alone. The platform's modular architecture allows for the rapid engineering of bispecific T-cell engagers targeting range tumor-associated antigens, providing Penterra with a potential source of multiple pipeline candidates in oncology. If VRD-4187 demonstrates clinical success, the VeriTCE platform could become a cornerstone of Penterra's immuno-oncology franchise for the next decade.
E. Financing
The Transaction will be funded through a combination of committed debt financing and Penterra's existing cash resources. The financing structure is as follows:
(i) A committed term loan facility in the aggregate principal amount of $500,000,000 (the "Term Loan"), to be funded at closing.
(ii) $400,000,000 from Penterra's existing cash on hand.
Penterra executed a financing commitment letter (Reference No. CL-2024-PPCA-0607) on June 7, 2024, with Summit Ridge Capital Partners, LP (Philip Ostrander, Managing Director) as lead arranger and bookrunner, and Ironclad Trust Company, N.A. (Samantha Hwang, Managing Director, Syndicated Lending) as administrative agent. The commitment letter provides for the following material terms:
• Facility Amount: $500,000,000 senior unsecured term loan
• Interest Rate: Adjusted SOFR plus a margin of 225 basis points per annum
• Commitment Fee: 0.35% per annum on unfunded commitments, equating to $1,750,000 per year if the full commitment remains unfunded
• Ticking Fee: 0.175% per annum on unfunded commitments, commencing 90 days after the date of the SPA (i.e., September 8, 2024, assuming SPA execution on June 10, 2024)
• Commitment Expiration: The financing commitment is co-terminous with the SPA Outside Date, i.e., December 10, 2024
• Conditions to Funding: Customary conditions including execution and delivery of definitive credit documentation, accuracy of representations and warranties, no default, delivery of officer certificates, and consummation of the acquisition simultaneously with funding
We have reviewed the commitment letter and are satisfied that the commitment is in customary form and is not subject to any unusual conditions or "flex" provisions that would create meaningful risk of financing failure. The commitment letter contains a customary "SunGard" provision, permitting the lenders to delay funding for a limited period if specified conditions are not satisfied on the closing date. We do not view this provision as creating material risk. If, however, financing were to fail notwithstanding the commitment, the reverse termination fee of $45,000,000 payable by Penterra would be the Sellers' sole remedy for such failure, as discussed in Section X.E below.
F. Timeline Summary
The following is a summary of the key milestones and dates in the Transaction timeline:
The anticipated timeline from signing to closing is approximately six months. The principal gating item for closing is the satisfaction of all closing conditions under SPA Section 7.2, including the bring-down of representations and warranties and the no-MAE condition. As noted above, HSR clearance has already been obtained through early termination. We anticipate that the remaining closing conditions will be largely mechanical in nature, with the notable and critical exception of the no-MAE condition, which will require assessment in light of the Marlowe Asset Management-2 Phase II interim data expected in August 2024.
III. Corporate Organization and Governance
A. Entity Structure
Veridian Biosciences, Inc. is incorporated in the State of Delaware. Its Certificate of Incorporation was originally filed with the Secretary of State of Delaware on March 14, 2016, and has been amended and restated on multiple occasions in connection with the Series A, B, C, and D preferred stock financing rounds. The most recent Amended and Restated Certificate of Incorporation is dated August 12, 2022, and was filed in connection with the Series D round. Veridian's registered agent in Delaware is Tidewater Registered Agents LLC, located at 838 Walker Road, Suite 21-2, Dover, Delaware 19904.
Veridian operates as a single corporate entity and has no subsidiaries, joint ventures, or minority investments in any other entity. This clean corporate structure simplifies the Transaction and eliminates risks associated with inter-company agreements, minority interest holders, or complex organizational charts that are common in larger acquisition targets.
We have reviewed the current Certificate of Incorporation, Bylaws (as amended through November 2023), and good standing certificates obtained from the Delaware Secretary of State (dated May 28, 2024) and the Massachusetts Secretary of the Commonwealth (dated May 30, 2024). No unusual or non-standard provisions were identified in the governing documents. The Certificate of Incorporation contains customary provisions for a venture-backed Delaware corporation, including authorized share classes (common stock and Series A, B, C, and D preferred stock), protective provisions for preferred stockholders, and a standard exculpation provision under DGCL Section 102(b)(7).
B. Board and Governance
Veridian's Board of Directors consists of seven members. We have reviewed the Board composition and all Board minutes from inception through April 2024. The current directors are:
1. Dr. Julian Marek — Co-Founder & CEO (management director)
2. Dr. Priya Chandrasekaran — Co-Founder & CSO (management director)
3. David Ng — Crestline Ventures (investor designee)
4. Sarah Dalmqvist — Boreal Health Partners (investor designee)
5. Marcus Doyle — Apex Growth Equity (investor designee)
6. Dr. Helen Marchand — Independent Director
7. Robert K. Sullivan — Independent Director
The three lead institutional investors — Crestline, Boreal, and Apex — each have the right to designate one director to the Veridian Board pursuant to the Investor Rights Agreement (discussed below). The Veridian Board has been duly constituted and has operated in accordance with the Certificate of Incorporation, Bylaws, and applicable Delaware law throughout its history. We reviewed Board minutes for all regularly scheduled and special meetings, as well as written consents adopted in lieu of meetings. Key governance actions reviewed include the authorization of each financing round (Series A through D), the approval of material contracts, the adoption and amendment of the equity incentive plan, and the authorization of the current Transaction.
The Veridian Board approved the Transaction, including the execution of the SPA, at a duly noticed special meeting held on May 28, 2024. The Board resolution approving the Transaction included the recommendation that Veridian's stockholders approve the Transaction by written consent in lieu of a meeting pursuant to DGCL Section 228.
C. Stockholder Agreements
We have reviewed the following stockholder agreements, each of which was originally entered into in connection with the Series A financing and has been amended and restated in connection with subsequent financing rounds (most recently, the Series D round in August 2022):
(i) Investor Rights Agreement (Amended and Restated, dated August 12, 2022). This agreement provides each of Crestline, Boreal, and Apex with the right to designate one member of the Board of Directors, subject to customary ownership thresholds. It also contains registration rights, information rights, participation rights (pro rata rights in subsequent financing rounds), and a right of first offer for equity issuances. The Investor Rights Agreement terminates by its terms upon a "Deemed Liquidation Event," which includes any merger, acquisition, or sale of all or substantially all of Veridian's assets. Accordingly, the Investor Rights Agreement will terminate automatically upon the closing of the Transaction.
(ii) Right of First Refusal and Co-Sale Agreement (Amended and Restated, dated August 12, 2022). This agreement provides the investors and Veridian with a right of first refusal on any proposed transfer of shares by the founders or other key holders, and provides the investors with co-sale (tag-along) rights. This agreement also terminates by its terms upon a Deemed Liquidation Event.
(iii) Voting Agreement (Amended and Restated, dated August 12, 2022). This agreement requires the parties to vote their shares in favor of the director nominees designated pursuant to the Investor Rights Agreement. It also terminates by its terms upon a Deemed Liquidation Event.
All three stockholder agreements will terminate automatically upon the closing of the Transaction. In addition, counsel for Veridian has confirmed that the Sellers will deliver a joinder to the SPA and a release of all rights under the stockholder agreements as part of the stockholder written consent process.
With respect to stockholder approval, the Transaction requires the approval of the holders of a majority of the outstanding shares of Veridian capital stock (voting together as a single class on an as-converted basis) pursuant to DGCL Section 228. As noted above, Crestline (28.3%), Boreal (19.7%), and Apex (14.1%) collectively hold approximately 62.1% of the fully diluted equity, and each has indicated its support for the Transaction. We anticipate that written consent will be obtained from holders representing in excess of 90% of the outstanding capital stock within days of SPA execution.
D. Capitalization
We have conducted a detailed review of Veridian's capitalization table on a fully diluted basis, including all issued and outstanding shares of common stock, all shares of preferred stock (Series A through D) on an as-converted basis, and all outstanding stock options and restricted stock units under the Veridian 2016 Equity Incentive Plan (as amended). The capitalization table is attached as Appendix B to this memorandum (referenced but not reproduced herein).
At closing, all outstanding shares of Series A, B, C, and D preferred stock will automatically convert into shares of common stock in accordance with the conversion provisions set forth in the Certificate of Incorporation. All outstanding stock options and restricted stock units will be treated in accordance with the equity award treatment provisions of the SPA: vested options will be cancelled in exchange for the right to receive the per-share closing consideration less the applicable exercise price; unvested options will be subject to the acceleration provisions described in Section VII below.
We have reviewed the stock ledger, option grant records, and all equity issuance documentation. We have confirmed that all shares of capital stock were issued in compliance with applicable federal and state securities laws, including exemptions under Section 4(a)(2) of the Securities Act and Regulation D thereunder. We did not identify any outstanding warrants, convertible notes, or other convertible instruments other than the stock options and restricted stock units issued under the equity incentive plan.
E. Key Findings and Risks
Overall, Veridian's corporate structure is clean and well-maintained. No material governance issues have been identified. The single-entity structure, absence of subsidiaries, and straightforward capitalization simplify the Transaction and reduce execution risk.
The change-of-control triggers in the Veridian 2016 Equity Incentive Plan will result in the acceleration of certain unvested equity awards upon closing. The estimated economic impact of this acceleration has been factored into the purchase price analysis prepared by Garrison Zanthor & Co. and is reflected in the aggregate consideration payable to Sellers.
IV. Intellectual Property
A. Patent Portfolio
Veridian's intellectual property portfolio is the foundation of its enterprise value and represents the core asset that Penterra seeks to acquire through this Transaction. We have conducted a comprehensive review of Veridian's patent portfolio in coordination with the Calderwood & Harkness intellectual Property practice group and, with respect to scientific and clinical matters, with Broadleaf Scientific Consulting LLC.
Veridian's patent portfolio encompasses the following categories:
VeriTCE Platform Patents. Veridian holds a family of composition-of-matter patents covering its proprietary bispecific T-cell engager technology platform. These patents claim the novel antibody architecture that underlies the VeriTCE platform, including specific structural configurations, binding domains, and linker technologies. The VeriTCE platform patents have been filed in the United States, the European Union (via European Patent Office), Japan, and China. The earliest-priority US patent in the VeriTCE platform family was filed on September 8, 2016, and has a patent term extending to September 2036 (prior to any patent term adjustment or extension). Additional continuation and divisional applications are pending.
VRD-4187 Specific Patents. Veridian has filed and obtained patents specifically covering the VRD-4187 compound, including composition-of-matter claims directed to the specific bispecific antibody construct and method-of-use claims directed to the treatment of DLL3-expressing tumors, including SCLC. These patents provide layered protection beyond the platform patents and are critical to the commercial exclusivity of VRD-4187. US patent filings for VRD-4187 have corresponding foreign filings in key jurisdictions.
Patent Prosecution Status. We have reviewed the prosecution history of all issued patents and pending applications with the assistance of Veridian's outside patent counsel. As of the date of this memorandum, there are no pending office actions from the United States Patent and Trademark Office or from any foreign patent office that raise material concerns regarding patentability, validity, or scope of claims. All patent maintenance fees and annuity payments are current. No patents are at risk of abandonment or lapse due to missed deadlines.
Freedom-to-Operate Analysis. At the direction of Calderwood & Harkness, Broadleaf Scientific Consulting and the Calderwood & Harkness IP team conducted a freedom-to-operate ("FTO") analysis with respect to the VeriTCE platform and VRD-4187. The FTO analysis included a review of third-party patents and published patent applications in the bispecific antibody and T-cell engager spaces. Based on this analysis, we have not identified any material third-party patent infringement risks as of the date of this memorandum. We note, however, that FTO analyses are inherently limited by the availability of published patent applications (applications filed within the preceding 18 months may not yet be published) and by the evolving nature of patent claim interpretation. We recommend that Penterra continue to monitor the patent landscape in this area post-closing.
B. Trade Secrets
In addition to its patent portfolio, Veridian possesses significant trade secret assets relating to the VeriTCE platform. These trade secrets include proprietary manufacturing processes, formulation know-how, cell line development techniques, and optimization protocols that are not fully captured in the patent filings. The trade secret assets are particularly important because they represent the accumulated scientific and engineering expertise developed by Veridian's research team over the past eight years.
We have reviewed Veridian's policies and practices for the protection of trade secrets and confidential information. All employees of Veridian have executed confidentiality and invention assignment agreements that are in substantially similar form and that contain appropriate provisions regarding the protection of proprietary information, assignment of inventions, and non-disclosure obligations. We have confirmed that these agreements are signed by all current employees and have been maintained in Veridian's personnel files. Additionally, Veridian's data security policies, physical access controls for laboratory facilities, and information technology security measures were reviewed as part of the due diligence process and were found to be consistent with industry standards for clinical-stage biotechnology companies.
C. IP Assignments
We have reviewed the intellectual property assignment agreements executed by co-founders Dr. Julian Marek and Dr. Priya Chandrasekaran. Both co-founders executed comprehensive IP assignment agreements at the time of Veridian's founding in 2016. These agreements assign to Veridian all intellectual property developed by the co-founders during their employment with Veridian, as well as any intellectual property developed by the co-founders that relates to Veridian's business, whether developed during or outside of working hours. The agreements also contain representations by the co-founders that they did not bring any prior intellectual property from previous employers or academic institutions to Veridian, except as specifically disclosed.
We have confirmed that neither Dr. Marek nor Dr. Chandrasekaran had prior academic appointments or employment arrangements that would give rise to any university or third-party co-ownership claims with respect to the VeriTCE platform or any Veridian IP. Dr. Marek was previously employed by Oncotherix, Inc. and Dr. Chandrasekaran by the Dana-Farber Cancer Institute, but both departed their prior positions before commencing work on the technology that became the VeriTCE platform, and neither brought any pre-existing IP to Veridian. We have reviewed the relevant separation and IP assignment documentation from both prior employments and are satisfied that no co-ownership or third-party IP claims exist.
D. License Agreements
Veridian is party to two inbound license agreements for non-core technology components:
(i) A non-exclusive license agreement with RenGen Technologies, Inc., dated May 3, 2018, for certain cell line development tools and reagents used in the manufacture of bispecific antibodies. The license is perpetual, non-exclusive, and fully paid-up. It does not contain any change-of-control termination provisions or consent requirements.
(ii) A non-exclusive license agreement with Nordic Biotools AB, dated January 15, 2020, for certain protein purification technology used in Veridian's manufacturing process. This license is royalty-bearing (low single-digit royalties on net sales of products manufactured using the licensed technology) and has a term co-extensive with the life of the underlying patents. It does not contain any change-of-control termination provisions.
Neither license agreement is material to Veridian's core intellectual property position, as each relates to ancillary manufacturing tools rather than to the VeriTCE platform or VRD-4187 composition-of-matter technology. We did not identify any outbound license agreements that would restrict Penterra's post-closing use, development, or commercialization of Veridian's intellectual property.
E. Key Findings and Risks
Veridian's intellectual property portfolio is the cornerstone of the enterprise value being acquired in this Transaction. The patent portfolio is well-constructed, with layered protection at both the platform and product-specific levels across key global jurisdictions. The FTO analysis did not reveal material infringement risks, and the absence of adverse patent office actions is encouraging. The trade secret assets, while less susceptible to formal legal protection than patents, are substantial and well-guarded by appropriate confidentiality agreements and security measures.
Recommendation: Given the foundational importance of the IP portfolio to the Transaction, we recommend that the intellectual property representations and warranties in the SPA be classified as Fundamental Representations. Fundamental Representations should survive the closing for the full applicable statute of limitations plus 60 days and should be subject to an indemnification cap equal to 100% of the Purchase Price ($900,000,000), rather than the general cap of 20% ($180,000,000) applicable to non-Fundamental Representations.
Recommendation: As noted in Section I above, significant technical and scientific know-how resides personally with Dr. Marek and Dr. Chandrasekaran. While the IP assignment agreements effectively vest ownership of all formal IP in Veridian, the tacit knowledge and expertise held by the co-founders cannot be fully captured by legal instruments. We strongly recommend that the execution of non-competition and non-solicitation agreements (with two-year post-closing terms) by Dr. Marek and Dr. Chandrasekaran be included as conditions to closing. We further recommend that Penterra negotiate post-closing employment or consulting arrangements with both co-founders, supported by appropriate retention bonus structures.
V. Clinical, Regulatory, and Scientific Matters
A. Pipeline Overview
As noted above, Veridian's pipeline comprises three immuno-oncology candidates, all built on the proprietary VeriTCE bispecific T-cell engager platform. The candidates represent a range of development stages, from preclinical through Phase II:
(i) VRD-4187 — Lead clinical candidate; bispecific T-cell engager targeting DLL3 (delta-like ligand 3) for the treatment of small cell lung cancer (SCLC); currently in Phase II (Marlowe Asset Management-2 trial).
(ii) VRD-5201 — Preclinical-stage bispecific T-cell engager targeting an undisclosed tumor-associated antigen in solid tumors; IND filing anticipated in 2025.
(iii) VRD-6033 — Early-clinical-stage bispecific T-cell engager; currently in a Phase I first-in-human safety study in patients with advanced solid tumors.
The overwhelming majority of Veridian's enterprise value — and, correspondingly, the overwhelming majority of the $900 million Purchase Price — is attributable to VRD-4187 and the VeriTCE platform. VRD-5201 and VRD-6033 contribute additional optionality but are at too early a stage of development to meaningfully support the current valuation on a standalone basis. For this reason, our clinical and regulatory due diligence focused primarily on VRD-4187 and the Marlowe Asset Management-2 Phase II trial.
B. VRD-4187 — Marlowe Asset Management-2 Phase II Trial
Clinical Trial Design
VRD-4187 is being evaluated in the Marlowe Asset Management-2 trial, a randomized, open-label, multicenter Phase II clinical trial in patients with extensive-stage small cell lung cancer who have progressed on or after first-line platinum-based chemotherapy. The trial is registered on ClinicalTrials.gov under Identifier NCT05837291. The trial is being conducted under Investigational New Drug Application No. 154832, filed with and accepted by the FDA.
Key trial parameters are as follows:
• Design: Randomized, open-label, multicenter Phase II
• Treatment Arm (n = 194): VRD-4187 administered intravenously at the recommended Phase II dose (RP2D) established in the Phase I study
• Control Arm (n = 193): Investigator's choice of topotecan or lurbinectedin (standard-of-care second-line therapies for SCLC)
• Primary Endpoint: Overall survival (OS)
• Key Secondary Endpoints: Progression-free survival (PFS), objective response rate (ORR), duration of response (DoR), and safety
• Sites: 42 clinical sites across the United States and the European Union
• Enrollment: 387 patients enrolled (enrollment completed in Q1 2024)
• Data Monitoring Committee (DMC): An independent DMC reviews safety and efficacy data at pre-specified intervals; the next scheduled DMC interim analysis is expected in Q3 2024 (estimated August 2024)
Broadleaf Scientific Assessment
Broadleaf Scientific Consulting LLC (Dr. Raymond Kapoor, Managing Director) was engaged on March 18, 2024, to conduct a detailed clinical and scientific due diligence assessment of VRD-4187 and the Marlowe Asset Management-2 trial. Dr. Kapoor's team reviewed the Phase I clinical data package, the Phase II protocol and statistical analysis plan, the investigator's brochure, the FDA pre-IND meeting minutes, the IND and all FDA correspondence, published literature on DLL3-targeting therapeutics and bispecific T-cell engagers, and competitive landscape data.
Dr. Kapoor's assessment as of the date of this memorandum is as follows:
• The VRD-4187 mechanism of action — bispecific T-cell engagement targeting DLL3, a neuroendocrine cell surface protein highly expressed in SCLC tumors — is scientifically sound and consistent with the published literature on DLL3-directed immunotherapy approaches.
• DLL3 is an attractive therapeutic target in SCLC because it is expressed on tumor cells but has limited expression on normal tissues, providing a favorable selectivity profile.
• Bispecific T-cell engagers carry well-characterized class-level risks, most notably cytokine release syndrome (CRS), neurotoxicity (immune effector cell-associated neurotoxicity syndrome, or ICANS), and, in severe cases, treatment-related mortality. These risks are inherent to the mechanism of action and are not unique to VRD-4187.
• Phase I data for VRD-4187 (n = 48 evaluable patients) demonstrated encouraging preliminary efficacy signals (ORR of 29.2% in a heavily pretreated SCLC population) and a manageable safety profile. CRS was observed in 64.6% of patients, but the majority of events were Grade 1 or 2. Grade 3 CRS was observed in 6.3% (3/48), and no Grade 4 or 5 CRS events were reported. Neurotoxicity was observed in 12.5% (6/48), all Grade 1 or 2.
• The Phase II Marlowe Asset Management-2 trial, with 387 enrolled patients across 42 sites, will provide the first robust, powered safety dataset for VRD-4187. The Phase I safety profile is encouraging, but the small sample size (n = 48) provides limited statistical power to detect less common but potentially severe adverse events.
• The Marlowe Asset Management-2 interim data readout, expected in August 2024, will be a critical inflection point for VRD-4187 and for the Transaction. The interim analysis will include a scheduled review by the independent DMC of both safety and efficacy data. A positive interim readout could significantly de-risk the Transaction; conversely, adverse data could fundamentally impair VRD-4187's commercial prospects.
Dr. Kapoor's full assessment is provided in a separate clinical due diligence memorandum, a summary of which is attached as Appendix C (referenced but not reproduced herein).
C. Regulatory History
We have conducted a comprehensive review of all FDA correspondence and regulatory filings related to VRD-4187 and Veridian's other pipeline candidates. Our findings are as follows:
• FDA Correspondence: We reviewed all written correspondence between Veridian and the FDA, including pre-IND meeting requests and minutes, the IND submission for VRD-4187 (IND 154832), FDA acknowledgment and acceptance of the IND, annual reports, safety reports, information amendments, and all other communications in the regulatory file. No warning letters, untitled letters, or Form 483 observations have been issued to Veridian by the FDA at any time.
• Pre-IND Meeting: The pre-IND meeting for VRD-4187 was held with the FDA's Division of Oncology Products 2 on June 14, 2019. Minutes of the meeting were reviewed. FDA feedback was constructive and generally supportive of the proposed clinical development plan, including the Phase I dose-escalation study design and the proposed Phase II trial.
• IND Status: IND 154832 is in good standing as of the date of this memorandum. No clinical holds have been imposed at any time during the IND's active period. The IND was initially submitted on November 3, 2019, and the FDA's 30-day review period expired without the imposition of a clinical hold, allowing the Phase I trial to proceed.
• No Debarment or Exclusion: We confirmed that neither Veridian nor any of its officers, employees, or clinical investigators have been debarred under the Federal Food, Drug, and Cosmetic Act or excluded from participation in federal healthcare programs.
D. Pipeline Candidates (VRD-5201 and VRD-6033)
VRD-5201. VRD-5201 is in the preclinical stage of development. Veridian has completed in vitro and animal model studies demonstrating proof-of-concept activity and acceptable preliminary toxicology. An IND-enabling toxicology study is expected to commence in Q4 2024, with an IND filing targeted for 2025. Given its early stage, VRD-5201 did not receive the same depth of clinical diligence as VRD-4187, but the preclinical data package was reviewed by Broadleaf Scientific and found to be consistent with standard industry practices for preclinical-stage programs.
VRD-6033. VRD-6033 is in early clinical development. A Phase I first-in-human safety study is currently ongoing, with 12 patients enrolled in the dose-escalation phase as of the last data cut in the data room (March 1, 2024). Preliminary safety data shows a tolerability profile consistent with the VeriTCE platform class effects. No dose-limiting toxicities have been reported at the dose levels evaluated to date. The trial is progressing in accordance with the protocol, and no material issues have been identified.
These earlier-stage candidates contribute significant optionality to the VeriTCE platform but represent a relatively small portion of the current enterprise value. Post-closing, Penterra will have the opportunity to advance these candidates through clinical development using its own research and development infrastructure and commercial expertise.
E. Key Findings and Risks — CRITICAL
Clinical Trial Risk (VRD-4187): This is the single most significant risk in the Transaction. The Board should give this risk careful and deliberate consideration. VRD-4187 is Veridian's lead clinical candidate and the primary driver of the $900 million Purchase Price. The Marlowe Asset Management-2 Phase II trial is ongoing, and the DMC interim data readout is expected in approximately August 2024 — Squarely between the anticipated signing date (week of June 10, 2024) and the anticipated closing date (on or before December 10, 2024).
The specific clinical risks associated with VRD-4187 include the following:
• Cytokine Release Syndrome (CRS): CRS is the most significant and well-characterized safety risk associated with bispecific T-cell engagers. CRS results from the on-target activation of T cells and the subsequent release of pro-inflammatory cytokines. While Phase I data showed CRS rates within expected ranges (64.6% all grades; 6.3% Grade 3), the Phase II study's larger sample size (n = 387) may reveal higher rates of severe CRS (Grade 3–4) than were observed in Phase I, particularly as the patient population is broader and includes patients treated at a wider range of clinical sites with varying levels of experience managing CRS.
• Neurotoxicity (ICANS): Immune effector cell-associated neurotoxicity syndrome is another known class-level risk. Phase I data showed a 12.5% incidence of neurotoxicity (all Grade 1–2). A higher incidence or more severe neurotoxicity in Phase II could raise significant regulatory and commercial concerns.
• Treatment-Related Mortality: No treatment-related deaths were reported in Phase I (n = 48), but the sample size was small. Even a small number of treatment-related deaths in the Phase II trial could trigger heightened FDA scrutiny, additional safety monitoring requirements, or a clinical hold.
• Efficacy: While Phase I data showed encouraging preliminary efficacy (ORR 29.2%), Phase II data will provide the first randomized, controlled assessment of VRD-4187's efficacy relative to standard-of-care therapy. Failure to demonstrate a meaningful survival benefit in the Phase II interim analysis could undermine the rationale for continued development and the commercial viability of VRD-4187.
• FDA Clinical Hold: If severe safety signals emerge from the Marlowe Asset Management-2 trial — whether identified by the DMC, reported by investigators, or flagged through the FDA's safety surveillance mechanisms — the FDA could impose a clinical hold on the VRD-4187 IND. A clinical hold would halt enrollment and dosing in the trial and could require Veridian to address safety concerns before the trial could resume. An FDA clinical hold between signing and closing would constitute a material adverse effect and would likely give Penterra the right to terminate the SPA.
The implications of adverse Marlowe Asset Management-2 data for the Transaction are profound. If the Phase II interim data shows a materially higher-than-expected rate of serious adverse events, insufficient efficacy, or triggers an FDA clinical hold, the commercial viability of VRD-4187 could be substantially or entirely impaired. Because VRD-4187 is the primary value driver of the $900 million Purchase Price, adverse clinical data could transform this Transaction from a strategically compelling acquisition into a significant value-destructive event for Penterra and its shareholders.
Recommendation: We strongly recommend that the MAE definition in the SPA be carefully drafted to ensure that company-specific clinical trial results and FDA regulatory actions specific to Veridian's products are NOT subject to any carve-outs. The standard carve-outs for "conditions affecting the pharmaceutical or biotechnology industries generally" must not be drafted so broadly as to sweep in Veridian-specific clinical data. See Section X.A below for detailed recommendations on the MAE definition.
Recommendation: We recommend that SPA Section 7.2(b) include a specific closing condition requiring that no MAE shall have occurred between the date of the SPA and the closing date. This condition, combined with the tailored MAE definition, will provide Penterra with the contractual right to decline to close if adverse clinical data fundamentally impairs the value proposition of the Transaction.
Recommendation: We further recommend that Penterra engage Broadleaf Scientific Consulting for ongoing monitoring of the Marlowe Asset Management-2 trial data during the interim period between signing and closing. Additionally, SPA Section 5.1(b) should include robust notification covenants obligating Veridian to promptly notify Penterra of any material clinical developments, including but not limited to DMC communications, DMC recommendations, FDA correspondence, serious adverse event reports at rates exceeding those observed in Phase I, and any amendments to the clinical trial protocol.
VI. Material Contracts
A. Clinical Research Organization (CRO) Agreements
Veridian's clinical trials are managed through clinical research organization ("CRO") agreements with third-party service providers. We have reviewed the following CRO agreements:
(i) Master Services Agreement with Camberwell Software (dated October 22, 2021, as amended), governing the conduct of the Marlowe Asset Management-2 Phase II trial. This agreement provides for standard CRO services including site selection, site monitoring, data management, pharmacovigilance, and regulatory support. The agreement is terminable by either party upon 90 days' notice. Importantly, the agreement does not contain any change-of-control termination right, consent requirement, or fee escalation triggered by a change in the ownership of Veridian. The assignment provisions permit assignment to an affiliate or successor in connection with a merger, acquisition, or reorganization without the CRO's consent.
(ii) Work Order with Camberwell Software for the VRD-6033 Phase I study. Terms are substantially similar to the master agreement.
(iii) Preclinical services agreement with Veridian's CRO for VRD-5201 IND-enabling studies. Standard terms; no change-of-control provisions.
No material issues were identified with respect to the CRO agreements. The agreements are on customary terms for clinical-stage biotechnology companies and do not present impediments to the closing of the Transaction or to Penterra's post-closing conduct of the clinical programs.
B. Manufacturing and Supply Agreements
Veridian does not operate its own manufacturing facilities. Drug substance and drug product for VRD-4187 (and for VRD-5201 and VRD-6033 at earlier stages) are manufactured by third-party contract manufacturing organizations ("CMOs"). We reviewed the following agreements:
(i) Drug Substance Manufacturing Agreement with Aethon Biologics GmbH (dated March 8, 2020, as amended), for the manufacture of VRD-4187 drug substance (active pharmaceutical ingredient). This agreement contains standard manufacturing, quality, and supply terms. Notably, this agreement includes a change-of-control provision requiring Veridian to provide written notice to Aethon Biologics of any change of control and to obtain Aethon's written consent to the assignment of the agreement in connection with such change of control. We have discussed this requirement with Zalcourt Archer & Cole, and Veridian has initiated the process of obtaining Aethon's consent. Aethon has indicated informally that consent will be forthcoming, but formal written consent has not yet been delivered.
(ii) Drug Product Manufacturing Agreement with Halcyon Pharma Services, Inc. (dated July 15, 2021), for the fill/finish manufacturing of VRD-4187 drug product. This agreement does not contain any change-of-control consent requirement or termination right.
Recommendation: The Aethon Biologics consent should be obtained prior to closing or included as a closing deliverable under SPA Section 7.2. While we do not anticipate difficulty in obtaining this consent, failure to secure it could result in a breach or termination right under the Aethon agreement, which would disrupt the supply chain for VRD-4187 drug substance and could have a material adverse impact on the ongoing Marlowe Asset Management-2 trial.
C. Real Property Lease
Veridian leases its principal office and laboratory facility at 550 Gateway Drive, Cambridge, Massachusetts 02142, pursuant to a lease agreement with GW Cambridge Properties LLC (dated April 1, 2018, as amended by a first amendment dated September 15, 2020). The lease covers approximately 42,000 square feet of Class A laboratory and office space. The current annual base rent is approximately $3.15 million ($75 per square foot), with annual escalations of 3%. The lease term expires on March 31, 2028, with one five-year renewal option.
The lease contains a standard assignment and subletting provision that requires the landlord's prior written consent for any assignment of the lease, including an assignment in connection with a change of control of the tenant. The landlord's consent is not to be unreasonably withheld, conditioned, or delayed, but formal consent is required. We have discussed this requirement with Veridian's counsel, and the process of obtaining landlord consent has been initiated. We anticipate that consent will be obtained prior to closing.
D. Investor Rights and Related Agreements
The Investor Rights Agreement, Right of First Refusal and Co-Sale Agreement, and Voting Agreement are discussed in detail in Section III.C above. As noted, all three agreements terminate by their terms upon a Deemed Liquidation Event, and the closing of the Transaction will constitute such an event.
E. Key Findings and Risks
No unusual or onerous material contract provisions have been identified in the due diligence process. The change-of-control consent requirements in the Aethon Biologics CMO agreement and the GW Cambridge Properties lease are the only consent requirements that must be addressed in connection with the Transaction. Both are being pursued and are expected to be obtained without difficulty. We recommend that both consents be included as closing deliverables or, alternatively, that the SPA contain a covenant requiring Veridian to use commercially reasonable efforts to obtain such consents prior to closing.
VII. Employment and Benefits
A. Workforce
As of the date of diligence, Veridian employs 148 persons. The workforce is distributed across three states:
• Massachusetts: Approximately 112 employees, including the majority of the executive team, research scientists, and clinical operations personnel, based at the Cambridge headquarters.
• California: Approximately 24 employees, primarily in research and discovery functions.
• Maryland: Approximately 12 employees, primarily in regulatory affairs and medical affairs functions.
There are no collective bargaining agreements, union representation, or pending labor organizing activities. Veridian's workforce is entirely non-unionized.
B. Employment Agreements
We have reviewed the employment agreements and offer letters for all C-suite and VP-level employees, as well as the form employment agreement used for all other employees. The key employees and their titles are:
• Dr. Julian Marek — Chief Executive Officer and Co-Founder